Wednesday, February 1, 2012

Hey Big Spender


CBO released its annual budget outlook yesterday. Always fascinating reading. I was diverted to Appendix C, Automatic Stabilizers, because Krugman has stated a couple of times and Goolsbee has repeated that there really hasn't been much of an increase in government spending since Obama became President. Rather, they claim, the increase is mostly due to automatic stabilizers. I've been skeptical of the claim and the modest work I've done on the issue supports that skepticism. The CBO report demonstrates the increase in spending over the past few years is far in excess of automatic stabilizers.

Automatic stabilizers are things like unemployment insurance, which increases automatically, without special legislation, when the economy declines. Spending from stabilizers decline when the economy strengthens. The ideas is to keep the economy, like Baby Bear's porridge, just right. Krugman and Goolsbee and their Amen Chorus try to argue Obama has not been fiscally profligate, blaming Bush, the economy, millionaires and billionaires and/or the Koch Brothers.

This chart, from the Historical Budget Data, shows total outlays from fiscal 2000 through fiscal 2011. The spike in spending is pretty clear in fiscal 2009. The dollar increase is impressive, growing from $2.7 trillion in fiscal 2007 to $3.0 trillion in fiscal 2008 and $3.5 trillion in fiscal 2009. The $800 billion change is a 29% increase from fiscal 2007 to fiscal 2009.

This chart shows the data from above, but looks at the year-over-year change in spending. The Bush years weren't a model of fiscal restraint, but increases were generally 5% to 7% per year. In fiscal 2008 spending increased almost 10% and then spiked 18% in fiscal 2009.

But what about the automatic stabilizers? Krugman, Goolsbee et. al. claim this increased spending is a natural condition of a weak economy. Not really.

Appendix C of the CBO report presents the CBO's estimate of spending without automatic stabilizers. The estimated spending, without automatic stabilizers, grew from $2.7 trillion in fiscal 2007 to $3.0 trillion in fiscal 2008 to $3.5 trillion in fiscal 2009. That's right. Increased spending from automatic stabilizers were a rounding error. Automatic stabilizers accounted for about $60 billion in increased spending in fiscal 2008 and fiscal 2009.

Well its the stimulus you may say. Sorry. Oddly enough, an easy summary of stimulus spending was difficult to find. The $800 billion, or so, stimulus had three parts: tax relief, payments and projects.  As best I can tell about $170 billion was spent in fiscal 2009 and another $170 billion in fiscal 2010.

From my perspective, the reason spending increased so dramatically under Obama's first two years in office was because he spent a lot of money. A lot of money not associated with automatic stabilizers and not associated with stimulus.



  1. Bill,

    I'm not sure what qualifies as automatic stabilizers, but my understanding that the reason behind the increased spending in 2009 was "largely the Bush-era tax cuts, war spending in Iraq and Afghanistan, and recessions."

    So yes, the government did spend a lot of money in 2009 playing out the policies of Bush. It hardly seems fair to blame that on Obama, when he has worked hard to curb the spending from these polices.


  2. The Times article talks of the change in deficits between 2002 and 2009 and certainly the fiscal policy of the Bush administration was responsible for the change. But that's not what I'm arguing. I'm talking only of outlays and only for the budgets Obama proposed and signed. Tax cuts had no direct impact on outlays, so the Bush/Obama tax cuts are irrelevant to this discussion. War costs in fiscal 2009 were $145 billion and in fiscal 2010 $162 billion. As far as the recession, automatic stabilizers are the estimate of how much increased spending was due to the recession. The rest is a policy decision.