Budget Deficits In Perspective

I took the car into the shop on Wednesday. In the uncomfortable waiting room, an older guy who was waiting for his repair was going on and on and on about how awful all politicians are — they should all be shot — and especially how awful the administration's economic policies are.

I argue that there's plenty of room to criticize the timidity of administration's economic policies — why bail out zombies instead of starting fresh, clean, government run banks and privatizing them eventually? — but that wasn't the substance of grandpa's attack. No, he was talking about the biggest government spending in history, that 'massive' stimulus bill. It was Hoover all over again. I couldn't get him to believe that government spending wasn't at an all-time historic high in percentage terms.

As it happened there was internet access there, so I pulled up this graph and tried to show it to him:

budget09.jpg

But I literally couldn't get him to look at it. “I don't want to argue with a know-it-all,” was his reaction. In other words, “No Facts Please, We're George Bush's Americans.” And when I told him the table had been produced by the US Government, that just iced the cake, “Well, the government,” as if anything they said couldn't be believed.

Some ignorance is impregnable. But I'm putting the chart here for easy reference the next time the car needs work.

And for good measure, here's a link to a chart I found, The Audacious Epigone: Government spending as a percentage of GDP by country which suggests that the US is number 144 of the 160 countries surveyed for government expenditure as a percent of GDP. I'm a little suspicious of this number, since I think for true comparison one should include all state/provincial spending in federal systems, but there it is.

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9 Responses to Budget Deficits In Perspective

  1. denny_crane says:

    Great lawyering there, professor. You persuasive efforts failed, so you leave in a huff and tell the world the trier of fact was an idiot. Stand outside the Miami-Dade courthouse for a day and you’ll hear dozens of lawyers on their bluetooth headsets explaining that it wasn’t their fault, the jury or judge was an idiot.

    Let’s see what happened here… you describe him as “grandpa” (how politically correct of you) and proceed to expect that your wizbang laptopity gizmo on the interwebs is going to persuade men of his generation and rhetoric. Good move partner!

    Great lawyers size up their judges and juries, then craft a message tailored to get that person to listen and absorb the message. One size don’t fit all, paco!

    Ranger on! Next time call Denny Crane and he’ll handle the everyman for you!

  2. michael says:

    I’m with the late Daniel Patrick Moynihan on this one: “Everyone is entitled to their own opinion, but not their own facts.”

  3. Sustained, it's stricken says:

    Objection your honor. This chart appears to end January 2008. Thus it is absolutely irrelevant as to stimulus spending which occurred at the end of 2008.

  4. Sustained, it's stricken says:

    Objection your honor. This chart appears to end January 2008. Thus it is absolutely irrelevant as to stimulus spending which occurred at the end of 2008 and continued into 2009.

  5. Danzig says:

    The phony ‘% of GDP’ argument is a long time favorite of big-government liberals/progressives.

    GDP is a highly flawed estimate of the value of all goods & services produced in the national economy available for consumption. But GDP numbers say nothing about the source of consumption, whether it’s from cash on hand, or mounting debt. GDP numbers INCLUDE “government spending”, such as that for the wars in Iraq and Afghanistan… and Wall St bailouts.

    If the Federal government simply prints more money to spend (..which Bernake is doing by the Trillion$$) — GDP goes up ! {..though nothing of value has been ‘produced’}

    Percentage comparisons from such phony GDP numbers are nonsense. GDP is a rubber-ruler.

  6. michael says:

    I agree with “sustained” that more recent data would be better (although the issue debated in the repair waiting room was the size of government pre-stimulus, so for that use it was less critical). Anyone got a link?

    On the other hand, I think Danzig’s point is not well taken. Even if it were true that GDP is not the ideal thing against which to measure federal spending in order to get an absolute sense of its importance — and I for one don’t know what would be better, and I note the absence of any concrete suggestion — so long as it’s a relatively consistent measure over time, GDP is a pretty good thing against which to measure government spending if one’s goal is to make comparisons over time.

  7. GDP says:

    What? Michael, GDP INCLUDES spending (you really should know this) which skews the numbers to the point of being pretty useless as a comparison, just as danzig pointed out.

    But even if that were not true (which is is, but arguendo) it’s still meaningliess. If GDP goes from $10 to $100, while spending goes from $1 to $5, spending has increased fivefold, while decreased as a percentage of GDP. As GDP has gone from about $2 trillion in the mid-seventies to over $14 trillion today (as memory serves), that leaves a pretty big margin of increase for spending as a percentage of GDP to decrease.

    So next time you try to prove how smart you are to unsuspecting idiot from the great unwashed non-Ivy League, you might want to count to 10.

  8. michael says:

    GDP is the total value of all goods and services produced in the economy. Since we value goods by their market prices, it is by accounting identity equal to spending and investment, including government spending. This is less significant than you make it sound, since in normal times — ie. when the economy hasn’t ground to a halt like it’s doing now — most government spending has something of a crowding-out effect; in other words the economic impact of a dollar is grosso modo similar whether I spend it or the government takes it (taxes) and spends it. I leave it to others to discuss how this changes with deficit spending and inflation, but suggest that the effects won’t in most cases be large enough to mess up the comparison I’m going for.

    The second point above is just plain wrong. The whole POINT of measuring government spending as a percentage of GDP is to recognize that the comparison of the dollar value over time is less meaningful than the relative size over time. The economy has tended to grow. If we looked only at the dollar value 30 years apart, the later government spending numbers will always be higher, even if the government is just providing the same services, at the same prices, to more people. Percentage comparison is only rough and ready, but superior to absolute size, even inflation adjusted. Your example proves my point. Might there be better measures? I would hope, but I don’t know what they are; and I do know that government spending as % of GDP is a very common measure.

    Its worth is especially clear when doing international comparisons. A big economy’s government spends more. Telling me that the US government spends more than the scandinavian governments do in absolute terms doesn’t tell me much. Relating it to GDP gives me a comparative measure that has some relevance to reality.

  9. LACJ says:

    Look, Michael, its very simple. GDP, Danzig and the rest want to believe we are in an era of unprecedented government spending. What they are doing is the intellectual equivalent of refusing to look at the chart.

    This whole debate about what GDP means, and I hesitate to grant it such a lofty status, is just a red herring, a way for them to pretend that your point is not valid. Because they don’t want to. Or maybe what they really want to do is find an excuse to throw in a little dig on you as a liberal professor, however tangentially related to the issue at hand.

    Of course, if all that government spending was on the military you wouldn’t hear a word of complaint out of any of them. Sigh.

    Interestingly and perhaps ironically, I would never have engaged the man at the repair shop. I would have paid him no mind, I am quite sure about that.

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