Thinking about Fiscal Matters

Thinking about fiscal policy dominates my time lately. Mostly my concern is with parsing the data in such a way to make sense of the various arguments out there about the proper course for fiscal policy. Recall that I doubt that anyone is willing to reduce spending by enough to balance the budget. So if we are to see balanced budgets at some point, the timing of that is a topic for another post, it seems likely to me that tax increases will be necessary. Anyway, those policy issues will be covered another day.

So today I am thinking about spending, specifically current expenditures by the federal government. There are many ways to think about spending so I am sure there will be other variants of this analysis in the future. Here is what spending looks like since 1980:


So spending goes up and up and up over this time until around 2008. Now the question I asked was how many times spending went down compared to the prior quarter. There are 137 quarters under study in this time frame, and only 16 times did spending go down from prior quarter levels.  That’s 11.67% of the time for those keeping score at home. If anyone is interested it happened 6 times during President Obama’s time in office (so far). The next highest was President Clinton (4), then President George W. Bush (3), President Reagan (2), and President George H.W. Bush (1). Clearly the Congress has a significant role to play in these matters as well, and I will deal with that later, but 16 times is really low. This is why I have my doubts about the ability to reduce spending.

Now spending on its own may not tell the whole story. What happens when we scale current expenditures by nominal GDP? We get a picture that looks like this:



Now we have a situation where 79 times the ratio is lower than the prior value, or 57.6% of the time. The ranking of Presidents is now Clinton (24), Reagan (20), W. Bush (13), Obama (13), H.W. Bush (5). (I did exclude the first quarter of the year when the Presidential administration changed since technically there at two President during that quarter.)  What does this tell me?

The first graph shows that current expenditures increase until recently. The variability of the second graph comes from the nominal GDP numbers. So we have not seen any consistent control of spending, sometimes it just looks better because there has been more growth in the overall economy to make the spending numbers a smaller share of the overall pie.

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