Federal Spending Growth
Crossposted at The Street Light.
David Wessel shows us the federal fiscal issue in one chart. The chart depicts an estimate of what the Obama administration’s budget proposal would mean for spending in each major category over the next five years. “The bottom line: Spending on interest, Medicare and Medicaid and Social Security go up – a lot. Spending on nearly everything else goes down.”
I prefer looking at it slightly differently. I think that when trying to understand the federal government’s fiscal situation, at least on the spending side, it is more informative to see how we got to where we are.
We now have an on-budget (i.e. excluding the Social Security program, which continued to run a surplus in 2010) deficit of about 9% of GDP. In the early 2000s, the budget deficit was about 4-5% of GDP. That’s deterioration in the on-budget deficit of about 4-5% of GDP between 2003 and 2010.
Now take a look at the following chart, which shows federal spending on actual goods and services broken into two pieces: spending related to defense, and spending related to everything else. Then I’ve added federal spending on the two Meds: Medicare and Medicaid. (Note that this latter category is actually a transfer payment, not spending by the government on goods and services, since it takes the form of the government reimbursing individuals for medical spending that THEY have done.)
Defense spending has gone up about 2 percentage points since the early 2000s. Med+Med spending has gone up by about 2 percentage points since the early 2000s. All other federal spending has meandered feebly between 2% and 3% of GDP. That slight lift in the green line in the last two years is the “massive” stimulus, or put another way, what “out of control government spending” apparently looks like.
If it weren’t for increased defense spending and the Meds over the past several years, the federal government’s budget balance would have been pretty close to unchanged. Despite the most severe economic downturn in 70 years.
I say again: what stimulus?
UPDATE: To clarify, Social Security is not included in any of the measures shown in the chart above. Social Security is classified as a “transfer payment”, not an actual purchase by the federal government of goods or services. The red and green lines above only show “government consumption expendistures and gross investment”, as it’s described in the National Income and Product Accounts; transfer payments are excluded. The blue line, on the other hand, does show a specific type of federal transfer payments: those related to health care. I think it’s more helpful to leave SS out of this sort of discussion since it’s basically an independent, self-funded program, and is neither the cause of our budget problems, nor an important part of any solution.
It’s not clear to me if “spending on everything else” includes Social Security (OASDI).
Since you refer to SS spending going up “a lot” it would be more informative to show SS spending and SS revenues, including interest on the TF, broken out from other government spending.
On the other hand, I have no problem with interest paid TO SS being shown as part of government spending. As long as you understand that this is not money paid FOR SS, but money paid for “other government spending including defense” that was borrowed FROM SS.
I should be cautious about believing something just because I want to believe it, but it is nice to see a chart which shows where the money goes without trying to obscure the role of defense spending and blame it on future “entitlement” spending.
the recent “payroll tax holiday” complicates the picture… as it was intended to. Our President and Our Congress cut Social Security revenues so the bastards would be able to say “see, SS does increase the deficit.” Well, no, SS did not increase the deficit, the payroll tax holiday did.
Ir is as if the slimy bastard tells you “your daughter is not a virgin” after he has just raped her.
i’m curious, how much SS is “spent” on non-retirees? from a point of personal experience, the brother of a close friend of mine died at a young age leaving 5 children (all under 8 at the time). they each received SS until they graduated from college, even after the mother remarried.
the other thing worth noting is that spending on medical care is approaching spending on defense. that is the basis of the bastards saying “entitlement spending will take half the budget.”
well, perhaps, but you need to think then about what you need more, health care or a new submarine.
if you think you might need the health care, then it’s worth paying for. though it would be better to pay for it through a government program that can control costs.
otherwise, what the graph is saying is that the Medical-Insurance complex will be taking as much of your money as the Defense-Industrial complex.
and the little observed fact that cutting Medicare will not cut your medical costs. just put you in the private market. It seems a little stupid to be running around saying “medical costs are going up; we have to cut our insurance.”
Nice analogy Coberly. You would get banned at Washington Monthly too. My frustration is that charts like this do nothing to change people’s minds because they do not want to find solutions–they want to score points, whether ideological or political. Thinking people without a bone to pick have said for years that medical costs are the 800 pound gorilla and Ike warned about the military-industrial complex. Here we are with a Democratic president undermining social security because of his unwillingness to take on defense or attempt more than modest changes to health care delivery in this country.
“We now have an on-budget (i.e. excluding the Social Security program, which continued to run a surplus in 2010) deficit of about 9% of GDP. In the early 2000s, the budget deficit was about 4-5% of GDP. That’s deterioration in the on-budget deficit of about 4-5% of GDP between 2003 and 2010.”
That’s what gets me about these discussions. Nary a word about the GDP. We are talking about a ratio. It is not like the GDP held steady between 2003 and 2010, is it?
What is the proximate cause of the so-called “deterioration”? Is it not because we had a world-wide financial crisis? Does it make any sense at all to balance the Federal budget in crisis times? Has nobody ever heard of counter-cyclical policy? Has nobody ever heard of the Seven Fat Years and Seven Lean Years?
Terry: “Here we are with a Democratic president undermining social security because of his unwillingness to take on defense or attempt more than modest changes to health care delivery in this country.”
Well, he tried on health care delivery. A lot of good it did him politically.
At least the economic downturn was not only mentioned, but emphasized. However, the fact that it makes % of GDP comparisons wacko was not mentioned.
jeff, you can get that information from the Social Security Administration’s website. There are charts showing “Quick Facts” which break down total SS payments by type and amount. Survivors’ benefits are maybe 20% of benefits paid (my rough guess, probably wrong) but tend to increase in bad economic times. Nancy Ortiz
To be perfectly frank, I don’t give a hot dayum about Obama’s chances of re-election as things stand now. I don’t like the way he does business and think it will do more harm than good both in the short and the long term. Jus’ sayin’. NancyO
that’s the S part of Old Age Survivors and Disability Insurance. That’s one of the reasons you pay for it.
my comment was written before Kash’s update.
I don’t like calling SS a “transfer payment.” The transfer is from your young self to your old self. From when you have the money to when you are going to need it.
The fact that it’s pay as you go is only the mechanism that keeps your money safe from inflation and market losses. It is incredible how many very bright people can’t understand this.
Jeff–I tried to post this comment earlier, but the Flying Purple Comment Eater ate it. Check SSA’s website. There are some nifty charts showing “Fast Facts” about how much each type of beneficiary got by year. Just off the top of my head, survivors’ benefits are maybe 10 or 15% of total payments. That’s just a guess and probably high.
However, one aspect of SS is that people never price in survivors’ and disability benefits when figuring so-called “ROI” on FICA contributions. Turns out Ryan the Deficit Killer received surviving child’s benefits as a kid. Not that it did a damn thing to improve his disposition. But, the fact is that I have the impression he doesn’t think they contributed to his well-being at the time at all. Go figure. NancyO
just from a political point of view, that was a massively mis-managed opportunity. how do you not get everything you ever wanted with a super-majority and 2 rino’s is beyond me.
thanks for the info. admittedly, i have very mixed emotions about it.
do you have mixed emotions about people buying life insurance?
SS is the same. it’s a better deal because even the poor can afford the premium, and the payout is protected from inflation. it is a pretty minimal payout, so if you can afford it, you would want to buy private insurance. but you wouldn’t like it if you had to step over the widows and orphans to get to work if there were no SS. and they probably wouldn’t be buying whatever it is you sell for a living.
they got what they wanted, which was to subsidize the private insurance industry.
Yeah that was my point. I am empathetic with all of the folks who could not buy insurance or had insurance cut off, but the underlying issue is how to get a handle on the costs of providing decent medical care to a nation of 315 million people and the BFD only nibbled at the edges and at tremendous political cost.
“If it weren’t for increased defense spending and the Meds over the last several years, the federal governemnts budget balance would have been pretty close to unchanged.” Hmmm. So the Bush tax cuts weren’t that significant? That’s not what has been argued on this blog for years now. Kash are you getting off-message?
well little john, please hold two things in mind…
Hah – I see your point, Little John. But when I write “the budget balance would have been pretty close to unchanged,” remember that that means the budget deficit would be similar to the deficits we saw during the Bush years. Still quite enormous, in other words. And the reason for those still-enormous deficits is exactly what you identified: the Bush tax cuts.
Note as well that this post was specifically addressing the spending side of the equation; the point is that increased federal spending is largely accounted for by defense and the Meds. There has been little increase in non-defense discretionary spending.
Kash – “We now have an on-budget (i.e. excluding the Social Security program, which continued to run a surplus in 2010) deficit of about 9% of GDP. In the early 2000s, the budget deficit was about 4-5% of GDP. That’s deterioration in the on-budget deficit of about 4-5% of GDP between 2003 and 2010.”
That is misleading. On Budget defict deterioration above 4-5% of GDP did not occur until FY2009. As a percentage of GDP, On Budget deficits for FY2005-2008 were lower than FY2003-2004, and FY2007 was lower than FY2002 as well.
On Budget surplus (+) or deficit (-)
Percentage of GDP
Table 1.2—Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930–2016
Federal Budget FY2012
For those who may wonder about the Total (On Budget and Off Budget) deficit picture, here’s the data.
Total On Budget and Off Budget surplus (+) or deficit (-)
Percentage of GDP
Table 1.2—Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930–2016
Federal Budget FY2012
War is not a business, no one should profit from it. That is why Eisenhower warned of “unwarranted influnece”. Worse it can not be considered a growth industry, takes too much from the whole.
WTen or so years ago, while the US enjoyed a small peace dividend and was paying down some debt I worked with retired military guys who saw the fact that “entitlements” took 65% of expenditures as threatening. I worked in the military industrial complex and not growing with GDP meant the war business was not a growth industry.
Cuts in state medicaid payments have already cost more jobs in health than cutting the defense establishment by $500B a year. And those health cuts have harmed many millions.
I participated in Krugman’s two defense related posts over the weekend.
He first attempted to say defense was not a big source for trimming future outlays because it was wasting only 20% of outlays. That caused a fair amount of angst from myself and the many of his “followers”, so then he did the same chart over many years for defenses’ take of the GDP.
Again he claimed more “savings” in the health arena.
What I was troubled with: cuts in defense do not reduce “benefits” to that many people, mostly to jobs of workers who should be doing such work elsewhere.
Aside from the fear, unwrapping the flag from militarism and possibly losing the burdensome empire there is not much reason for worrying about the cut of 2 thirds the war budget. Well, maybe the decline “unwarranted influence” PAC money of the war profiteers.
Aside from the active duty and reserve, defense related employment is around 2 million, not including the contractors overseas many of whom are foreign nationals.
Cuts in health beyond waste cost pain to scores of millions. That is why health is bigger and growing. There is far more need and far more pain to not meeting the need.
Showing the charts Krugman showed make the debate about entitlements versus war.
He supports the guys I know who see growing entitlements as stealing from their war profits and good jobs, making good jobs for other retirees.
Krugman’s percent putting health against war is making the point that health for tens of missions cannot steal from war profits for the few.
you mean except for Bush’s “defense spending” and his Medicare Drug plan that he didn’t pay for, Bush’s tax cuts weren’t that significant.
yeah, i guess you could say that. Cheney said it: “Deficits don’t matter.” Now alla sudden they do. who coulda thunk it.
you don’t organize facts in your head the way I do. the On budget numbers you cite seem to me to support Kash’s point. All the off budget numbers do is show that Social Security has been helping disguise the deficit.
my political antennae tells me that subsidizing the insurance companies isn’t the end game.
until i heard that story from my friend i never thought of SS as widows and orphans insurance, at least not at that depth, and i know i’m not alone in that assumption. when a guy retires and dies his wife continues to receive some portion of what he paid in (as in my mom’s current situation). the “poor” can afford it because they have to if they work.
Well, jeff–what do you think it is? As far as I can tell, the last thing anyone wants to do is switch to single payer or better yet, socialize the whole shooting match. And, that’s the only way to control costs. I am glad I won’t be alive to see the whole government dismantled at last, but I sure don’t like what I’m seeing so far. NancyO
blaming the insurance industry completely is silly. This is not to say they are not part of the issue. The same as the manufactures of the submarine who sell $20,000 toilet seats and $50 bolts; beneath the insurance companies are pharma with meds, medical device companies, and the medical industry selling procedures with less benefit for the increased cost. Insurance is far less profitable thean the three I menioned. Rising Medicare and Medicaid costs is symtomatic of a rising healthcare industry cost.
not sure i’m following you here.
the very poor cannot afford commercial insurance. the beauty of social security is that it comes straight out of their paycheck without their having to think about it. and the amount is proportioned to that paycheck, so the very poor don’t pay very much.
i guess that’s what sammy would call socialism. to me it looks like insurance, but it’s a kind of double insurance: you pay a premium that reflects your “expected” return… that is your risk of dying… but you also pay a premium that reflects your “expected” inability to pay the first premium. and the way that works is that “the rich” pay a little more than the basic premium in order to cover the second premium. the rich are of course at risk of becoming poor at any time so it’s a fair way to price the whole package.. but most people never think about it that way, and wouldn’t get it if they did.
thing is, at the end of the day, it works. it costs less than commercial insurance and it keeps millions of people out of poverty and for the most part they pay their own costs.
without it “the rich” would have to pay ALL the costs or just watch the poor starve. and that wouldn’t be as good for their finances as they think.
best thing i found… came easy to me.. is just don’t even think about your SS contribution at all, certainly not as “your money” it’s just some strange number that has no effect on you whatsoever… except when you need it.
i had at one point in my life to pay a big bill i didn’t think was fair, and didn’t think i could afford. then it occurred to me, what the hell, it’s all Caesar’s money anyway. paid the bill and forgot about it and lived a better, happier, life.
and contrary to what “most economists” say, i am fairly sure that the pay of poor people is adjusted up so they can pay their share of SS, and the boss pay is share of their share, and they still get a take home about exactly what they would have gotten without SS.
the poor are not generally in a position to “bargain” for their wages. they take what they can get, and the kind of people they work for pay what the traffic will bear.
Thanks. I was getting worried that AB’s message discipline was cracking.
not exactly sure that i “blame” the insurance industry. what we have is a situation where “your money or your life” pricing leads to high costs that lead people to buy insurance that leads to higher costs..
the insurance companies however know where their bread is buttered. you don’t have to make a huge markup to make big money if you have millions of customers who have to pay a lot and a lot, from which you take your cut.
or are you saying that Obama didn’t consult with the insurance industry before designing his health care reform?
thanks, i was forgetting that you are a fool.