Had to laugh when I heard it on the news they immediately blamed Bush. You got to be kidding!
Private sector growth + large retractions in Gooberment spending = drop in GDP. Let's bring on more spending cuts. Clearly we need to take more austerity measures at a rapid pace.
Might as well add some more facts.
Real World Economics
So was Bush the big spender, or Obama? Or is there another answer?
Who is really responsible for the mess we are in? Consider two assertions: 1. Federal spending during the Obama administration has averaged 23.5 percent of gross domestic product, which is well above the post-World War II average of 19.1 percent. 2. Federal spending under Obama’s administration has grown at the slowest rate of any since Calvin Coolidge.
Both assertions are correct. But how can that be?
Putting the first in context is easy. The oft-cited 19.1 percent figure hangs largely on lower spending during the Truman and Eisenhower years, both deficit hawks. The average for the 30 years before Obama is 20.5 percent, and that of the free-spending 1980s is 21.8 percent. So the 23.5 percent is not as big a jump as some would have you believe.
Nevertheless, if spending levels are higher, how can growth of spending under Obama be low? The answer is that the big jump in spending took place in fiscal 2009, the last of the George W. Bush administration, in which outlays hit 25.2 percent of GDP. Spending that year was $3,518 billion compared with $3,538 billion for fiscal 2012, which ended four months ago.
Adjusted for even the mild inflation over that period, real spending actually dropped over the first four Obama years.
You may quickly protest :“But Barack Obama was president in 2009, not Bush!” Yes, but a fiscal year starts nearly four months before a new president is inaugurated. And it always takes a while for any new president to get tax or spending changes through Congress and even longer for that to alter either tax revenue or spending.
So, to the extent that any president is responsible for taxes and spending in a given fiscal year, 2009 belongs to the Bush administration, just as 2001 does to Clinton, 1993 to George H.W. Bush, 1989 to Reagan and 1981 to Jimmy Carter.
Didn’t Obama’s $787 billion stimulus plan pass Congress quickly, however, and didn’t it raise spending? Yes. The Congressional Budget Office and the executive branch Office of Management and Budget agree that it added about $260 billion to the 2009 federal deficit. But, just as opponents of the plan pointed out, it takes time for new spending to be implemented. Moreover, about a third of stimulus was in the form of tax cuts, not spending increases. The tax cuts went into effect faster than the spending, so new Obama spending initiatives accounted for, at most, $140 billion of a deficit that totaled $1,412 billion.
So was Bush the big spender then? No, not really. He had asked Congress for and had gotten his own smaller Economic Stimulus Act of 2008. But since that consisted almost entirely of shortterm tax rebates that largely fell into fiscal 2008, it did not increase 2009’s spending or deficit.
Yes, his administration’s Troubled Asset Relief Program did approve spending $700 billion, mostly to bail out teetering Wall Street firms. And some $300 billion of that went out the door right away. So yes, Bush administration initiatives did contribute to the record outlays and deficits, but only in part.
Subtract $140 billion in Obama
initiatives and $300 billion in Bush ones and there still would have been outlays of $3,078 billion, some 22 percent of GDP. Moreover, as defenders of Bush will correctly point out, while he properly submitted a proposed budget for that fiscal year, Congress never passed a budget bill. Instead, as has been true ever since, funding was authorized and appropriations made through “continuing resolutions” by Congress, both houses of which had Democratic majorities in 2008.
So did these Democrats in Congress force through big new programs over the impotent objections of President Bush? Not really. Continuing resolutions are never pure extensions of the prior year’s activities; some minor programs and extra spending get slipped in. But for 2009, those totaled only a few billion. And the president has to sign such resolutions, too, just as he would ordinary budget bills. So Bush had as much power that year as any other president does.
So where did the extra spending come from? Well, comparing 2009 outlays with those of the prior fiscal year, which had ended just as Wall Street was melting down, shows some big increases.
Spending on national defense jumped by $45 billion. Social Security payments rose by $65 billion and Medicare by $ 39 billion. Other health programs, primarily Medicaid and the State Children’s Health Insurance Program, increased by $54 billion. And the “income security” rubric that includes any other “welfare” or “income transfer” programs went up by $103 billion.
Oho! Why did Congress pass and Bush approve big new welfare programs? How could they, if the only funding legislation passed was resolutions that supposedly “continued” the previous year’s programs?
The answer is that they didn’t.
Spending in this category rose primarily in two areas, the Supplemental Nutrition Assistance Program, formerly food stamps, and in the federal portion of unemployment compensation. (And some of the increased unemployment spending, that for “extended benefits,” beyond the statutory entitlement of 26 weeks, was included in the Obama stimulus, so be careful not to double count.) It was not that Congress and the president authorized major new programs, it was that spending on programs set up decades earlier automatically rose sharply as the recession set in.
Add all that to the fact that the 2008 deficit already had been $459 billion and that tax revenue fell by $420 billion and one can see how the hole in the 2009 budget set a record.
Fortunately, spending has pretty much been flat since then, and the annual deficit for fiscal 2012 was down $324 million from four years earlier. But we are still in a mess. More on who is responsible in a column next week.
St. Paul economist and writer Edward Lotterman can be reached at firstname.lastname@example.org.
It was not that Congress and the president authorized new programs, it was that spending set up decades earlier rose as the recession set in.
I'm not an economic genius, but might not private sector growth have been more healthy were it not for the increases in regulation during those 4 years? If so, more vigor in the private sector could have better offset the decrease in govt spending.
And, if we all can agree, that there is plenty of "fat" in the defense budget, then trimming it down (with common sense) should be a good thing? Was Pelosi's USAF plane part of the defense budget ... or is it put somewhere else?
No question that we must be spending more on programs like unemployment, and social welfare, including but not limited to things like food stamps. That portion of Fed spending would have increased, and the graph shows an increase in Fed spending outside of defense spending. Perhaps it was an error not to place a limit of some sort on those automatic budget increases?
One of the problems with a lot of govt spending on all levels is that if a given dept doesn't spend all its money this year, the funding might be reduced next year, rather than automatically increased (if we had a budget, that is!) So dept heads are encouraged to be frivolous v. frugal. Perhaps it would be a good thing to incentivize efficiency?
I think part of the problem with the alternate energy loans was that they gave less good loans due to the fact that there weren't enough good applicants. Paperwork might have been a function for smaller, innovative businesses; not to mention the cronyism. Sort of reminds me of the housing bubble about loaning money to people who could never afford to make the mortgage payments.
Like Gerry, a lowering of the defense budget does no bother me, but there is always the concern that like most government entities the essential functions will disappear 1st.