Krugman’s Nonsense on US Government Growth

posted by Nima

October 12, 2010 · Posted in General Economics 

Government spending has grown hugely over the past 2 years (well, it also has over the past 10 years and over the past 50 years and over the past 100 years, but I’m not even gonna go there for the sake of this particular topic.)

Meanwhile unemployment keeps rising, growth remains sluggish, and the Great Depression 2.0 is in full swing.

Keynesians, at a loss to explain how the two phenomena can possibly co-exist, have to do what is completely inevitable: They need to make up an alternate reality. A fantasy world, in which their prescriptions of more government spending as the magical panacea to recessions where never tried.

In his never ceasing quest against reality, Paul Krugman joyfully continues to make fact free assertions, while at the same time accusing others of … yes … making fact-free assertions. :)

The answer to the second question — why there’s a widespread perception that government spending has surged, when it hasn’t — is that there has been a disinformation campaign from the right, based on the usual combination of fact-free assertions and cooked numbers. And this campaign has been effective in part because the Obama administration hasn’t offered an effective reply.

Actually, the administration has had a messaging problem on economic policy ever since its first months in office, when it went for a stimulus plan that many of us warned from the beginning was inadequate given the size of the economy’s troubles. You can argue that Mr. Obama got all he could — that a larger plan wouldn’t have made it through Congress (which is questionable), and that an inadequate stimulus was much better than none at all (which it was). But that’s not an argument the administration ever made. Instead, it has insisted throughout that its original plan was just right, a position that has become increasingly awkward as the recovery stalls.

And a side consequence of this awkward positioning is that officials can’t easily offer the obvious rebuttal to claims that big spending failed to fix the economy — namely, that thanks to the inadequate scale of the Recovery Act, big spending never happened in the first place.

But if they won’t say it, I will: if job-creating government spending has failed to bring down unemployment in the Obama era, it’s not because it doesn’t work; it’s because it wasn’t tried.

OK, Krugie. How about we have a look at some … you know … facts? Because, you’re absolutely right, making fact-free assertions is a bad bad bad! Here is the latest chart on total US government spending as % of GDP, that is all federal, all state, and all local expenses, even including federal grants. This chart does not include any estimates except numbers before 1948. All recent numbers are 100% finalized:

government-expenses-growth-1930-2009-b2

Just for the sake of 100% certainty, I am not including the projections for 2010 and the following years, but only confirmed and finalized data!

I mean, this stuff is out there, at the click of a Search button, readily available to anyone who is unbiased, curious and interested in truth and objective analysis. So why is it that a Paul Krugman would ignore it? Hmmmmmm … really really I wonder … :)

Luckily there is a very simple and uncomplicated solution … tune out from such clowns.

Update:

I will below list the most popular counter “arguments” to what I wrote above:

1. Absolute vs. Relative Figures

This is almost a given for bigots. When they see relative numbers they will tell you that spending only went up as % of GDP because GDP fell, because, you see, we are in a recession and so all the stuff I wrote above doesn’t count!!

OK, then let’s have a look at the absolute numbers, in $ billions:

2000 2,830.5
2001 2,982.8
2002 3,208.4
2003 3,432.6
2004 3,610.1
2005 3,860.1
2006 4,118.5
2007 4,289.4
2008 4,668.0
2009 5,139.9

Absolute numbers, anyone?

2. TARP doesn’t count!

Once people see that their assertion is completely wrong they will have to adjust the numbers to their liking. When reality doesn’t conform with bigoted ideas, then reality has to be modified. The inevitable outcome is that they will start excluding certain categories of government spending, with the objective of finally arriving at an adjusted number that fits in their small mental box.

TARP is a popular one because, you see, it will be paid back!

To that I can only say: That’s great! So then once it does get paid back, and Congress, in its almost infinite wisdom and fiscal prudence, decides to pay it back to the people without borrowing any more money, then I will gladly review the budget numbers at that time and be impressed by how much the budget declines in that year.

But as it stands currently, the money has been spent and pumped into circulation. So how about we observe actual, current numbers that we know of, and don’t make up an alternate reality or pretend to know the future?

I have my own predictions: I say none of this money will be paid back to the people, it will all be spent on other programs. But am I using that as part of my current argument? No. Because it is a guess, albeit one that I believe is a bit more accurate and a bit more based on economic history of, say, the past 5000 years of public finances. But I may be wrong and I would gladly stand corrected.

At any rate, such guesswork is completely misplaced when it comes to observing actual numbers.

But the good thing about a logical and consistent position is that it doesn’t matter what you throw at it. It stands on a firm and unassailable structure.

So let’s say TARP is completely irrelevant and the money is magically to be excluded from the calculation. The total actually handed out under TARP at this point is $356 billion. So let’s deduct that number, in equal proportions from the budget of 2008 and 2009, just for the sake of these people’s argument, just to try to make it as easy as possible for them:

That gives us $4,490 billion for 2008 and $4,961 billion for 2009, or 31% and 34.8% of GDP respectively.

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Comments

10 Responses to “Krugman’s Nonsense on US Government Growth”

  1. Captain Obvious on October 12th, 2010 10:59 am

    Nina does not understand the data in the plot.

    As % of GDP? Of course there is a big uptick because the recessions killed GDP growth.

    If government spending is constant and the GDP shrinks then spending/GDP as percent goes up.

    If government spending is cut (goes down) but GDP shrinks faster than the cuts then spending/GDP as percents still goes up.

  2. Nima on October 12th, 2010 12:03 pm

    OK, then let’s have a look at the absolute numbers, in $ billions:

    2000 2,830.5
    2001 2,982.8
    2002 3,208.4
    2003 3,432.6
    2004 3,610.1
    2005 3,860.1
    2006 4,118.5
    2007 4,289.4
    2008 4,668.0
    2009 5,139.9

    Damn, why is it always us libertarians who have to be the googlebots for all the lazy and illiterate suckers out there who have made it their profession to take mental craps wherever they can? :))

  3. [...] #23 U.S. government spending as a percentage of GDP is now up to approximately 36 percent. [...]

  4. Um, yeah... on October 13th, 2010 2:17 am

    Here’s your statement:

    “Government spending has grown hugely over the past 2 years”

    and here’s Krugman’s statement:

    “…there’s a widespread perception that government spending has surged, when it hasn’t”

    Using your adjusted figures:

    That gives us $4,490 billion for 2008 and $4,961 billion for 2009, or 31% and 34.8% of GDP respectively.

    That means we saw about a 0.5% increase in 2008 and a 3.5% increase in 2009. These seem to mirror similar increases we’ve seen during economic downturns over the past 40 years (according to your chart).

    So based on my reading of the data Krugman’s statement is more accurate. Spending has increased, but it hasn’t increased “hugely”.

    I don’t know why accusations of dishonestly are really necessary here. The benefits and disadvantages of Keynesian vs. laissez-faire economics are pretty well understood.

    If you look at your chart you’ll see that in reality spending as a percentage of GDP has hovered around 31% for 40 years. Overall, during this period the economy experienced moderate growth. During this period the US economic crises were far fewer and less severe than they had been in previous US history. All of this is consistent with Keynesian goals.

    Laissez faire theorists (like the Chicago school) argue that overall growth would be much higher under their system, and they are correct. However, the economy would also be much more volatile, “boom and bust”. Laissez faire theorists argue that the long term benefit of higher growth outweighs this disadvantage.

  5. Scott M. on October 13th, 2010 9:55 am

    Nima, I stumbled across this blog post and probably won’t be back (nothing personal) but it seems to me there isn’t much to be drawn from the post above. Many other countries that have this much government spending as a percentage of GDP are doing just fine. The problem to my mind is we’re only taking in about 25% GDP in the form of taxes yet spending 35%.

    Please see the following link:

    http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

  6. Nima on October 13th, 2010 10:50 am

    @Scott: I am well aware of the fact that the US is not the only country with this level of government involvement. And here is the good news: I never claimed anything to the contrary! :)

    As far as “they are doing just fine” is concerned. If you consider massive debt loads that will drive entire systems into bankruptcy and will leave millions unemployed and starving “just fine”, then, yes, maybe in that sense we are all going to be doing “just fine”.

  7. Nima on October 13th, 2010 10:57 am

    @Um, yeah…:

    Interesting, so you completely disregard my argument as to why TARP shouldn’t be ignored in the first place, and immediately jump on my generous benefit of the doubt proposition? Boy, if you applied even a fraction of that scrutiny to Krugman … Wow … just WOW!!

    To say that the system of interventionism is more stable, yet less productive, than one of what you call “laissez faire” is a well known superstition that I have heard and myself thought about so many times that I can’t help but find it funny when people still bring it up.

    I have explained over the years why reducing aggression within society brings about maximum stability, order , and peace, while increasing aggression will always breed more chaos, instability, and wars.

    The historical evidence is on my side. Conceptual proof I have provided plenty. You are welcome to prove me wrong.

    But please, pleeease, don’t think you can deal with this topic in one quick and boring comment by bringing up ideas that a 5 year old could come up with without much thought.

    It makes you look plain silly!

  8. Is Socialism Winning the Wealth Game? | on October 20th, 2010 7:28 am

    [...] #23 U.S. government spending as a percentage of GDP is now up to approximately 36 percent. [...]

  9. [...] #23 U.S. government spending as a percentage of GDP is now up to approximately 36 percent. [...]

  10. [...] #23 U.S. government spending as a percentage of GDP is now up to approximately 36 percent. [...]

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