Monday, July 21, 2008

More Re: The $125 Billion Binge   [Peter Robinson]

Last Friday, I posted a chart on what can only be termed, alas, Republican overspending—that is, the enormous increase in domestic spending during this administration, most of which, of course, took place while the GOP held not only the White House but both chambers of Congress—from an article by Glenn Hubbard, the dean of the Columbia business school, and John Cogan, a colleague of mine here at the Hoover Institution.  (You'll find the article, "The Coming Tax Hike," in the most recent issue of the Hoover Digest.)  Readers instantly began peppering me with questions about the chart, and over the weekend I swapped emails with John Cogan.  Below, the chart once again—and below that, answers to most frequently asked questions.

The chart:

The Q & A:

Q:  Isn't most of the increase accounted for by just two items—increases in defense spending as a result of the war on terror, and the new Medicare prescription drug benefit?

A:  No.  The chart shows only non-defense discretionary spending, therefore excluding both defense spending and the Medicare prescription drug program.  Readers can check on the vast increase in non-defense discretionary spending for themselves.  Go to the 2009 federal budget, flip to "Historical Tables," and then look at table 8.1.

Q:  Aw, c'mon.  Shouldn't you lay off Bush?  For all his grand talk, Reagan increased domestic spending, too.

A:  Under Ronald Reagan, non-defense discretionary spending grew at an annual rate of 2.6%, about the rate of inflation. Under George W. Bush, it has grown at an annual rate of 6.2%.

Q:  If Bush's spending is causing such an awful strain, why is it that in 2007 the deficit was half what it was just three years earlier?

A:   Because economic growth has proven so buoyant, for which, let it be duly noted, George W. Bush's tax cuts deserve a whole lot of the credit.  Here's the way John Cogan and Glenn Hubbard put it:

Last year's federal budget illustrates the importance of economic growth to the budget's overall health. The budget deficit was recorded as 1.2 percent of GDP, half its average level during the past four decades. This deficit was modest even though Congress has been on a decadelong spending binge; even though not a single entitlement program has been significantly reduced since the late 1990s and two entitlements, Medicare and farm support payments, have been significantly increased; and even though we are in the midst of costly but necessary wars in Iraq and Afghanistan.

To say that Bush's tax cuts have been good for the economy, however, is not at all to say that his spending increases don't matter.  They do—in large part because of the pressure they place on the tax cuts.  If, as now seems likely, the current economic turbulence reduces government receipts, increasing the deficit, then even a President McCain will find it nigh unto impossible to prevent the Bush tax cuts from expiring.  

Q:  The chart shows the increase in spending in dollar terms.  Haven't you been able to find a chart that shows the increase in spending as a proportion of GDP?

A:  No, I haven't—not in the time I've had available for Googling this weekend, which, since I've been scrambling to get the family ready to go back East for a couple of weeks (we're off at 4.30 this very morning) amounted to a little under half an hour.  Sorry about that.  And I'll check in the from the beach when I can.

07/21 01:05 AMShare