Airs – Ian Lance Taylor

Government spending

Greg Mankiw, a well known economist, has a nice picture of projected U.S. government spending in 2020. Refer to this when you hear somebody say that we can balance the budget by eliminating waste.

I believe that this picture does not cover things like the Iraq and Afghanistan wars, which the Bush administration funded through emergency spending measures (they appear indirectly in the interest payments). Fortunately the Obama administration has so far been presenting an honest budget, as the Bush I and Clinton administrations did in the past.

As always, the best way to stay on top of government spending is to grow the economy without growing services, as was done during the Clinton years. The economy is starting to grow again, but too slowly to even keep up with population growth. As China’s economy appears to be currently overheated, it will be interesting to see to see how the U.S. economy reacts as China is forced to slow down.

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Ian Lance Taylor

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4 responses to “Government spending”

  1. fche Avatar
    fche

    In the US federal system, the budget seems most under the control of the ruling party in Congress. If so, to what extent is it appropriate to associate budgetary habits with the president?

  2. Ian Lance Taylor Avatar
    Ian Lance Taylor

    The president proposes a detailed budget and Congress edits it. Generally the president succeeds in setting the broad strokes of the budget.

    What the Bush II administration did was propose a budget which did not include the costs of the Iraq and Afghanistan wars. Congress would duly pass that budget, after months of wrangling. The administration would then propose an emergency spending measure to support the troops, which Congress would pass quickly after various soap box speeches. Those emergency spending measures were huge, but were not accounted for in the budget. That meant that all the official deficit projections, based on the budget as passed by Congress, were fictional, because they did not include the emergency spending. Keeping emergency spending out of long term projections makes sense when it is truly an unexpected emergency. But the war spending, while necessary, was neither unexpected nor an emergency.

    This is a big part of the reason why Obama’s budget predictions look worse than Bush’s: the Bush projections were fictional.

  3. fche Avatar
    fche

    But isn’t it the case that it is congress where bills for new spending have originated (distinct from the budget bill proper)? And isn’t it the case that multiple presidents have specifically sought ‘line-item-veto’ privileges with the supposed intent of rolling back some of congress’ initiatives? And of course congress has the final say on the budget bills too. So the formality that the president sends over a proposed budget, or for that matter that he can threaten a veto, doesn’t seem to amount to that much blame.

  4. Ian Lance Taylor Avatar
    Ian Lance Taylor

    You are technically correct. But in practice, the major new spending in the Bush administration was the wars, the Medicare bill, and TARP, and the major new spending in the Obama administration has been the stimulus package and the health care bill. Similarly, in the Bush administration, the major reduction in federal revenues—the other side of the deficit coin—were the two major tax cut bills. In all of those cases, the administration took the lead, and Congress fiddled around the edges.

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