Good News! ...Sort Of
When it comes to federal government spending, we are almost back to normal. According to the Office of Management and Budget, the federal government spent 20.8% of GDP in fiscal 2013. That is not a rosy-scenario, computer-generated prediction, but an actual count of dollars already spent.
That is the lowest level since President Obama was inaugurated, and down from the peak of 24.4% in 2009 – a drop of over $600 billion in today’s dollars. It is almost back to the pre-Obama level of 20.2% of GDP in 2008. And it matches the 24-year average from 1975 through 1998.
It is even below the Simpson-Bowles target level of 21%. And it was accomplished about two years before even Simpson-Bowles thought it could be done.
That is simply remarkable.
Even more remarkable: spending priorities did not really change all that much from when George W. Bush was president.
I compared spending in 2013 to spending in 2007 in terms of percentage of GDP for all the federal government’s functions. If you recall, 2007 was actually a pretty good year: federal spending and deficit were slightly below post-1960 averages, and revenues were above it (despite what you might have heard about Bush’s “tax cuts”). Also, the unemployment rate was below 5%.
- Total spending on National Defense went down only 0.04% of GDP. Given that 2007 was the year of the Iraq surge, and we are now totally out of Iraq, that’s not even a real cut. (Actual dollars went up from $551 B to $633 B.)
- Spending on Education, Training, Employment, and Social Services went down by 0.2% of GDP.
- Spending on Commerce and Housing Credit went down 0.5% of GDP, and Community and Housing Development went down 0.01% of GDP.
- Net interest on the debt went down 0.33% of GDP, despite the much larger debt.
So what did cause spending to rise by 1.74% of GDP (about $300 B) from 2007 to 2013?
- Social Security went up 0.8% of GDP.
- Medicare went up 0.37% of GDP.
- Veteran’s Benefits and Services went up 0.33% of GDP.
Those three areas, areas that even the Republican Party is loath to touch, accounted for 86% of the increase in spending since 2007.
Of course, some spending did go up in “welfare”-type areas: spending on Income Security went up 0.67% of GDP, and spending on Health (mostly Medicaid) went up 0.3% of GDP. But that is not surprising, given that unemployment remains high and there are fewer jobs today than in 2007.
Most other areas amounted to tiny trickles of extra spending. Transportation spending was up only 0.04% of GDP, and Energy was up only 0.07% of GDP, despite all the money thrown at alternative energy and high-speed rail and other infrastructure projects.
We are back to the pre-crisis crisis: our spending problem is not with discretionary spending, but with “entitlements” or mandatory spending.
The Republicans gave us Medicare Part D, and the Democrats gave us ObamaCare. But so far, even these programs seem to be having a much smaller impact on entitlement spending than the more non-political facts of demographics and health care inflation. (So far.)
Frankly, I feel a bit chastised. First off, a top priority of the Tea Party, as immortalized in Rick Santelli’s cry to “Stop spending; stop spending; stop spending; STOP SPENDING!,” looks like it’s been largely realized.
The Stimulus was spent. It didn’t do any good, but it is now behind us. (Unfortunately, ObamaCare is ahead of us, but at least it’s mostly delayed until Obama himself can get out of Dodge.)
We have a Republican House of Representatives. And maybe that did some good; it stopped the bleeding. We are in political gridlock. And gridlock is, for lack of a better word, good. At least when Obama is president and Harry Reid leads the Senate.
To a large extent, the Tea Party actually did get its way. Maybe we should be more appreciative. (You do not know how much it pains me to say that.)
Now, the bad news.
First, we still have the mandatory spending problem, driven largely by Social Security, Medicare, and now ObamaCare. There is no agreement on how to fix these, even if Republicans were to take the Senate in 2014 and the presidency in 2016.
Secondly, we’ve been getting away with low interest payments thanks to the Fed and Quantitative Easing. If interest rates go back to anything normal, on a $17-trillion debt, spending will shoot up to 2009 levels in a heartbeat.
Third, revenues still lag. Despite raising the rate on top incomes back to Clinton levels, revenues in 2013 were below average, and specifically below the years 2006-2008, the last years under the dreaded “Bush tax cuts.”
The U.S. tax code is already the most progressive on the planet. If the government wants more revenue, it will have to raise taxes on those of us who are not rich. The Democrats love to imitate Europe; they absolutely lust after a VAT. (In Sweden, for example, just about everyone pays about half of their income in taxes. Not just the rich – everyone.)
Fourth, this recovery is the slowest in our history. Something is suppressing economic growth. Not just in the U.S., but over Europe as well. We have joined Europe as a welfare/regulatory state with high debt. Why are we trying to imitate Italy (GDP below its 2000 level, and its government spending 51% of it)? We should be imitating Australia (GDP 47% above its 2000 level, and its government spending “only” 37% of it).
In fact, Paul Krugman has solutions to the above problems. On the problem of mandatory spending on health care: death panels. On revenue: a VAT. On growth: more government spending. Liberals don’t sweat these problems because they have “solutions” ready: government spending, government rationing, means-testing, and new taxes. Life is simple in Liberal Land.
Here’s the problem for most of you reading this: Democrats know what they want to do; Republicans don’t.
That is, the Republican Party doesn’t. Unless you mean a pathway to citizenship, more defense spending (while also telling us we need our head examined if we ever plan to use it), and keeping the “good parts” of ObamaCare (Medicare Part F?). And plenty of government-funded goodies for the home crowd and special deals for the cronies.
This shouldn’t be that hard: some commonsense entitlement reform, a sane and stable tax code, and a regulatory and administrative state not populated by public unions and socialist zealots with vendettas and agendas.
Please, Republican Party, tell me you can do that.
Randall Hoven’s bio and other writings can be found via Twitter.