The spending story.

I hate spreading this graph further, but I need to show it for context for those who haven’t seen it. This has caused a lot of controversy.

The narrative that Rex Nutting is putting forward is that the Obama spending spree never really occurred. It’s gotten a lot of play on the left. Jim Pethokoukis over at AEI has a chart of his own, noting that federal spending as a percentage of real GDP has increased significantly under Obama. I can’t see the underlying data on any of these charts, and I am not a budget expert, but a couple of flags are raised in my mind.

First, I take issue with the whole idea of looking at spending by presidential administration. While the president has a fair amount of influence as an agenda-setter, it seems much more natural to me to compare spending by successive Congresses, or by length of House party majorities. At best, we should only look at the fiscal impact of bills that resulted directly from the administration’s agenda. Clearly we’re not going to take that route in an election year.

Second, I don’t see discretionary spending parsed out of the overall budget. That doesn’t mean it’s not — the discussion is just absent and that concerns me. don’t see any point in looking at entitlements and interest payments on debt when making these comparisons because, although the budget isn’t even under the President’s Constitutional purview, mandatory spending is really out of his control. Especially in recession, a lot of automatic stabilizers kick in that boost federal outlays — and I don’t think it’s necessarily fair to pin that all on the president. There’s also rampant inflation in the cost of Medicare, but entitlement reform is elusive and otherwise the government has to cut a check for the cost.

Third, my understanding of Obama’s fiscal record is that, beside the Recovery Act, the actual fiscal behemoth is the Affordable Care Act. That bill doesn’t start until 2014, however, and so I don’t see how any kind of substantial portion of that cost has made its way into current accounting. That doesn’t mean it’s not a Sword of Damocles.

Lastly, given the success of the Republican Congress at putting up a solid front, I don’t think it ought to be very surprising at all that spending has been much flatter under the Obama administration. But that doesn’t seem like something liberals should be proud of. Also, part of Bush’s legacy is TARP (the bank bailout) which most liberals laud and conservatives hate. The conservatives are wrong, of course, but it challenges the narrative of this simple graph that spending is profligacy and restraint is good. It’s much more complicated.

I believe the CBO has the discretionary spending data I want, but I can’t find it (as an aside, they should make their data publicly available on their site). So I looked at the BEA federal government budget breakdown of expenditures and excluded interest payments, and domestic transfer payments. In the interest of transparency, since there seems to be a lot of data dispute around this issue already, I am linking to my excel file. Real GDP data was pulled from FRED and included in my worksheet.

Let’s look at a couple of graphs.

Here’s my discretionary proxy as a percentage of real GDP. Lots of flatlining after 2009.

Here’s the quarter/quarter percent change in my discretionary proxy relative to real GDP.

These numbers don’t exactly correspond to Nutting’s, but they tell the same general story: the brakes were slammed on discretionary spending the past several years. That doesn’t mean it didn’t rise, but most of the increases came around the Bush/Obama transition, and things haven’t changed very much since. Again, I’m not a budget expert, so no, I can’t account for the individual quarterly fluctuations. I’m looking from 30,000 feet here.

Let’s look at transfer payments, to complete the picture (somewhat).

Transfer payments, of course, increased just as the US economy slid off the cliff. Not sure what happened in Q308 but they were increasing by 7%-8% again in 2009. Those increases haven’t been erased, but they haven’t increased dramatically since Obama took office, either. If Nutting’s figures don’t exclude these transfers, then I believe they artificially inflate Bush’s spending binge figure. If those figures come down as the economy improves under Obama, then they will artificially lighten the impact of spending policies under him.

All of this is to say that stories are complicated, and we should beware of people wielding one graph if we want to truly understand anything.



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