Friday, February 10, 2012

Hey Big Spender. Part 2


Krugman continues to perpetuate the myth that Obama is not, as his opponents maintain, a Big Spender. This time he points out how obvious it was that "Obama would get no credit for fiscal responsibility, no matter what he offered by way of spending cuts."

Let's roll the video tape. The Office of Management and Budget around early February of each year submits its proposed federal government budget for the upcoming fiscal year (ending September). Next week, OMB will release its proposed budget for fiscal 2013 and we'll update these graphs when that data is available.

The three graphs show US Government Receipts, Outlays and Deficits for the proposed budgets FY 08 through FY 12. The F08 and F09 budgets are from George W. Bush. The F10, F11 and F12 budgets were submitted by President Obama. The fiscal 10 budget was called, "A New Era of Responsibility: Renewing America's Promise." You'll see the irony later.

The first graph is receipts. The F08 Bush budgets forecast 5.4% compound annual growth from F07 through F12. His F09 budget estimates a higher rate of 6.3% for the five year forecast period. The Obama budget reflects lower receipts due to the recession and from the large tax cuts implemented as part of the stimulus (writ large, not just the American Recovery Act). It looks like the Obama estimate of receipts gets back to Bush trend line in the out year, but they don't. At the trend line receipts under the latest Obama budget are about $500 billion lower in Fiscal 2020.

This graph is the same concept, but for outlays. The trend line growth for the Bush budgets is about 3% per year. If we apply that trend line to the out years we arrive at F21 outlays of about $4.2 to $4.3 trillion versus the proposed outlay of $5.7 trillion for Obama in the F12 proposal. Now this isn't entirely fair since I’m taking the Bush trend line from F08 through F13 and applying it to the subsequent 8 years. A trend line isn't a budget. But it is a proxy, or a benchmark we can use to judge claims of fiscal probity. The graph is pretty clear, as is the math. Proposed spending under Obama has taken a significant leap upwards.

You may object: He had to spend, he had to cut taxes. Otherwise we would have seen the Second Great Depression. Well, as I've pointed out before, the NBER dates the end of the recession as June 2009, well before much of the stimulus could have taken affect. So the claim of risking a Second Great Depression I would regard as dubious. Secondly, the whole point of a stimulus is it ends. And the fiscal 2012 proposal calls for a permanent stimulus, at least relative to trend.

But here's the eye-opener. It shows the proposed deficits for Bush F08/F09 and Obama F10/F11/F12. I'm not exactly sure what "fiscal responsibility" Krugman is looking towards. I don’t see it. I see a $1.4 trillion deficit estimate in F09 falling to $600 billion in fiscal 2015 and then flat lining until the spending for ObamaCare kicks in in F19.

The argument usually goes like this:
Obama is a big spending
- No he isn't.
Yes he is look at the numbers.
- Well he had to otherwise we would be in the Second Great Depression.
But the recession ended in June 2009, so how did his stimulus do that
- <cricket>
And if it was stimulus why is it permanent?
- <cricket>
- <cricket>
- <cricket>
- Well he had to otherwise we would be in the Second Great Depression. Damn that George Bush.

So it goes.

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