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Another look at Spending and Revenues

This is more or less relevant to Beverly’s post from earlier today.

How many times have you heard Boehner, McConnell, Ryan or one of the legion of right-wing talking heads say, “We don’t have a revenue problem, we have a spending problem?”  I refuted that lie repeatedly in this AB post and at the included links.   But this is one of those zombie ideas that simply will not stay in the grave.  

Therefore, some prominent voices have found it necessary to sing out again against the lie. I will add my humble quavery baritone to the chorus.

Here in Graph 1 is Kevin Drum demonstrating how Real Government Expenditures per Capita have changed under the last three presidents.

What we have isn’t a spending problem. That’s under control. What we have is a problem with Republicans not wanting to pay the bills they themselves were largely responsible for running up.

 Graph 1, Real Government Expenditures per Capita

By using real [inflation adjusted] and per capita numbers, Drum has introduced a couple of denominators.  Real expenses per cap is a rational way to display the data, but not the only way. So lest someone cry out about that ol’ devil denominator, let’s have a different look.

Via Paul Krugman we get Graph 2 and Graph 3, from FRED, showing total Government expenditures and Federal Government expenditures, respectively, on log scales.

Graph 2. Government Total Expenditures
Graph 3, Federal Government Total Expenditures

Yes, you can argue that spending was growing too fast under Bush, although it’s funny how few deficit scolds saw fit to mention that at the time. Or you can say that you just want less spending, although as always people who say this tend to be short on specifics. But the narrative that says that spending has surged under Obama is just wrong – what we’ve actually seen is a slowdown at exactly the time when, for macroeconomic reasons, we should have been spending more.

Remember, a log scale represents constant growth as a straight line, and zero growth as a horizontal line.  So, in pure dollar numbers, spending hasn’t quite declined, but it has stagnated to almost zero growth.  Hence Drum’s decline in inflation adjusted, per capita terms.

In Graph 4, we get one more longer range look, using Krugman’s data series, this time on a linear scale.  Also presented is the difference between the two, which is the amount of spending by state and local governments.

 Graph 4, Government Spending at Different Levels

 The red line is total spending at all levels of governemnt, the blue line is federal only, and the green line is the difference, state and local spending.  Note that the green line flattens early in the recession

To bring things full circle, Graph 5 shows Federal Government current receipts.  Look at this and tell me we don’t have a revenue problem.

Graph 5, Federal Government Current Receipts

To drive this point home, Graph 6 shows Federal Receipts as a fraction of GDP.  The purpose of the ratio is to provide context, using GDP as a proxy for the size of the economy.

Graph 6, Federal Receipts as a fraction of GDP

As you can see, revenues/GDP are in a historically low range.

– Federal spending is flat in nominal dollar terms.
– Federal spending is declining when adjusted for inflation and population growth.
– Federal revenues are far below trend lines based on any historical reference you chose.
– Federal revenues as a fraction of GDP are historically low.
– The Republican claim that we have a spending problem not a revenue problem is simply a lie, on both counts.
– Disproportional spending growth has only occurred under two presidents: Republicans Ronald Reagan and George W. Bush. 

The simple fact is we have a revenue problem, not a spending problem.

Why do Republicans lie?

The truth is hostile to their agenda.  PK Explains.

Cross posted at Retirement Blues

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John Boehner Says Defense Spending Is the Problem with the Economy. Awesome. – [UPDATED]

Politico’s Glenn Thrush reports this morning that Republicans believe the GDP report showing the economy is shrinking gives them political “leverage” over Obama, since bad economic news is terrible for the President. But Thrush notes that this shouldn’t be the case, since the contraction was the result of spending cuts, which in theory should undermine the GOP argument that we should cut spending as deeply as possible:
The fact that the shock this time came from a plunge in defense/federal spending should, in theory, bolster Obama’s contention that budget-cutting and trimming entitlement spending is the worst thing for the economy right now. It should, in a more Spock-like world, be an argument against the sequester cuts and big changes to Medicare and Social Security.

Forget about that.

All nuance is lost in the howling gale of an economic “contraction” — and the advantage, at least in the current news cycle, shifts to a down-in-mouth GOP. It’s not likely to be a major shift in the dynamics of looming fiscal fights, but Republicans, in the words of one senior Hill staffer I spoke to this morning, “will take any leverage we can get.”

Thrush very well be right that people won’t take the right message from the contraction. But in a rational world, what should be glaringly obvious is that the belief that this gives the party “leverage” highlights how absurdly incoherent the GOP message about the economy has become. (Read Steve Benen for all the other problems here.)

The economic contraction was driven largely by a steep drop in defense spending. As Ezra Klein details, this shows that “government is hurting the recovery” by “spending and investing too little.” As Ezra notes, “government spending and investment have, at all levels, been contractionary since 2010.”

Yet Republicans are responding to the news of the economic contraction by suggesting invalidates their view that we need to further cut spending to help the economy. Hence their claimed “leverage” in the coming battle over the sequestered cuts, half of which is to defense spending. Republicans are actively using the sequester to force Dems to agree to avert it by offsetting it entirely with other deep cuts to social programs, and no new revenues from the wealthy. In response to the contraction, John Boehner tweeted out this hashtag:


In other words, the contraction confirms that we need more spending cuts.

We all agree that spending cuts hurt the economy. Right? Right., Greg Saregent, Washington Post, today

Okay, look.  If Obama doesn’t now, finally, explain Keynesian economics to the general public, using actual facts–such as the reason for the economic contraction–and point out that Boehner & Co. either are ignorant of the facts or are willing to deliberately misinform the public about such a critically important matter, then he should resign and let Joe Biden explain it as president.  

I mean it.

Obama did a stellar job a week before his inaugural address explaining the debt ceiling law and what “raising the debt ceiling” means–and that ti does not mean what the Republicans’ campaign of disinformation was saying it means.  He should do the same now, on this.  

Presumably, he’ll enlist as his chief speechwriter for his State of the Union address a speechwriter who understands how to easily explain Keynesian economics and the current “contraction” statistics.  But, just as with his inaugural address, he should not wait until that speech to expose the Republican game plan for what it is: a concerted campaign to misinform the public about critical facts, knowing that the public will not know the accurate specifics, and aware that–as Thrush says, outright–the mainstream press will not sufficiently (or at all) apprise the public of those fact.  

In other words: that Romneyism–the flagrant lying, con artistry, as the chief modus operandi–is now at the very heart of what the Republican Party is.

The public did catch on to Romney by the fall.  And, thanks largely to Obama’s statements at his press conference on Jan. 14 abou the debt ceiling, they caught on to that, as well.  And if Obama makes an effort to explain to the public basic Keynesian economics, and cites actual facts, actual statistics, about the fourth-quarter contraction, they’ll catch on this time, too.  And, maybe, finally, to the fact that the Republicans have decided upon a strategy of fraud in order to disassemble the social safety network, including Social Security and Medicare.  

In his State of the Union address, he’ll have an opportunity to finally educate the public about the actual causes of the Greek meltdown, of the actual effect of Tory austerity in Britain, of the actual cause of economic near-collapse in Spain, in Italy, in Ireland, in Iceland–and of the actual effect of the safety net in Germany, in Holland, and elsewhere.  And maybe he’ll even take that opportunity.  But the State of the Union address is two weeks away.  And in responding to Boehner’s tweet at #spendingistheproblem, there’s no time like the present.  Or at least like the next few days.  Just as with the fiscal cliff and the debt ceiling, the Republicans’ political leverage, whether real or fanciful, will turn out to be ephemeral.  

Unless Obama remains mute.

UPDATE: Wow.  Either Greg Sargent is channeling me, or I’m channeling him.  He posted this one minute after I posted my post on AB.

But as I say in my post, Obama shouldn’t wait the two weeks until the State of the Union address to begin making the point.  Just as he didn’t wait a week until his inaugural address to explain to the public what “raising the debt ceiling” actually means–thus pulling the rug out from under Repubs’ disinformation campaign telling the public that it means increasing spending appropriations.  

Sargent titles his post “Make strong case that spending cuts hurt economy, Mr. President!”  (Amen.)  He points out: that

Unfortunately, at times, Obama has diluted this message. During his 2010 State of the Union speech, for instance, the President proposed a temporary spending freeze, and said:

“Families across the country are tightening their belts and making tough decisions. The federal government should do the same.”

But I think it’s a mischaracterization to describe that as a dilution of the Keynesian message.  It’s actually an outright misrepresentation of economic fact; that’s why that statement has been so detrimental.  And, if necessary, Obama should expressly acknowledge that this was misleading about economic fact, and then explain exactly why.

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