Sunday, October 24, 2010

A Tale of Two Columnists

Ed Lotterman head shotThe Pioneer Press's Ed Lotterman is retiring soon, and once he does, the paper's readers will have lost a voice of reason. The good news is he's spending his last months at work turning out columns that should be compiled into a book of economic sanity.

Today's column is titled Reality of Federal Spending Doesn't Fit Myth, and I'll quote it completely since the PiPress has the annoying habit of taking their stories down after they've been up for only a few weeks:

Charles Mackay wrote his book "Extraordinary Popular Delusions and the Madness of Crowds" 170 years ago, but the phenomenon is alive and well today.

The fact that people cling to beliefs that are at odds with readily available data might be amusing if the social costs in terms of bad government policies driven by voter ignorance were not so high.

France faces this right now. Protests, peaceful and violent, are part of French national culture, but any dispassionate observer can tell that nation's current work and pension system is fiscally unsustainable. The longer they delay reform, the harder the adjustment will be.

Many in the United States snicker at the French but cling to their own denial about the choices we face. People who think we simultaneously can lower taxes and eliminate budget deficits while not cutting Social Security or Medicare or other widely supported programs are as misinformed as any marching French citizen.

Since we are just over a week from the election, it is useful to look at the actual data related to some of these popular misconceptions. To do that, we turn to two sources: the Economic Report of the President, 2010, and the Bureau of Economic Analysis, Department of Commerce.

For example, the idea that federal taxes and spending grow inexorably, year after year, is widely accepted.

Yes, both have grown in dollar terms, but relative to the overall size of the economy, the changes are much less striking.

One can "prove" that government outlays relative to GDP have mushroomed by cherry-picking specific years. For example, from Fiscal Year 1950 to FY 2011, federal spending as a percentage of GDP grew from 15.6 percent of GDP to 25.1 percent.

But if one takes average by decade, the change is less dramatic. In the 1950s, the average was 17.6 percent, rising to 22.2 percent in the 1980s. But in the 1990s, it fell to 20.7 percent and was an even 20 percent from 2000 through 2009.

Yes, the average for 2009, the last Bush budget year; 2010, the first Obama one; and projected numbers for FY 2011 that started a few weeks ago, is 25 percent of GDP. But that is skewed by the $700 billion TARP program initiated by Bush and Obama's $787 stimulus program, along with sharply higher outlays for unemployment benefits.

But these recession levels are only slightly above the 23.5 percent in Ronald Reagan's third year in office. No president until Obama had average outlays as high as the 22.3 percent average for Reagan's eight fiscal years. A growth of 2.7 percent of GDP in 30 years is hardly explosive.

Federal taxes relative to GDP are remarkably stable, tracking from 17.2 percent to 18.5 percent of GDP over six decades. At 14.8 percent for 2009 and 2010, they were the lowest since the recession year of 1959 at the end of the Eisenhower administration. Some of these low receipts are due to the one-time $116 billion tax cut embodied in the Obama stimulus and delivered through lower withholdings, but most of it is due to recession-driven lower incomes.

Some categories of spending have increased sharply. Defense outlays surged after 2001 and have grown as a share of GDP in the two Obama budgets. This is due to large inflation-adjusted dollar increases but also to the fact that the denominator — GDP — remains below 2007 levels. Yet at 4.9 percent of GDP, 2011 defense outlays are a full percentage point lower than under Reagan and half of what they were in the 1960s.

Health is the one area that does increase inexorably in both absolute dollars and relative to GDP. There are two categories — Medicare, funded through FICA taxes, and "health" that is primarily Medicaid but includes the VA and Indian Health systems and the Children's Health Insurance Program.

Inflation-adjusted Medicare outlays for 2010 were 5.4 times as high as in 1980, and all other health grew by a factor of 6.1. The average annual growth rates were 5.8 percent and 6.2 percent respectively, while inflation-adjusted national output only grew 2.8 percent annually.

So health spending outpaced real GDP growth while federal outlays as a proportion of the overall economy remained constant. This means federal spending on other items is dropping in relative terms. All government outside of health care fell steadily from a post-World War II high of 20.6 percent in the Reagan administration to an even 15 percent for 2000-2009. In the Obama budgets, it is back up near 20 percent but will fall if the stimulus package and defense increases are not renewed.

"Tea party" enthusiasts often argue that burgeoning federal spending is driven by exploding "entitlements" but then stridently deny that Social Security and Medicare fall into that category. As the expression goes, "Against ignorance, even the gods struggle in vain."

Yes, "income security," the category that includes unemployment benefits, food stamps, Temporary Assistance to Needy Families, rent subsidies and other programs thought of as "welfare," has grown slightly faster than GDP, if one includes the big unemployment and Food Stamp increases since the current recession began. But otherwise, outlays relative to GDP in 2000-2007 were exactly equal to the averages under three presidents from 1980-1999 and only slightly above levels in the 1970s under Nixon, Ford and Carter.

The important fact remains that even with sharply increased spending in the past three fiscal years, if one excludes medical spending, the relative size of government is smaller than in the last major recession. With medical programs included, it is only 2 percentage points of GDP higher.
A few miles up the river, Katherine Kersten writes in her Star Tribune column about a new book that's probably getting lots of attention on Fox News, Radical-in-Chief: Barack Obama and the Untold Story of American Socialism. Kersten describes its writer, Stanley Kurtz, as if he were an impartial academic (gee, he has a Ph.D. from Harvard!) who had an open mind going into the project, never mentioning the fact that Kurtz is part of the Hudson Institute and the Hoover Institution, two conservative think tanks.

I haven't read the book, obviously, since I just heard of it today, but Kersten's column is full of quoted terms such a "hard Marxist," followed by her own use of heavily connoted words like "cronies" to describe Obama's advisers. She then goes on to write one of the most astounding statements I've ever seen, even from her:
We see [Saul] Alinsky's ghost in Obama's tactical ruthlessness, and his ferocious, unprecedented demonization of opponents.
Obama Photoshopped to look like the devil with the caption It wasn't Obama who wrote the book on demonizationUnprecedented demonization of opponents!? Obama, who can't even put on a good fight against the Party of No? And Kersten pretends to think he tops the demonization work of Republican operatives like Lee Atwater and Karl Rove? Not to mention the literal demonization seen in the many images of Obama as the Joker, the devil, and Death.

If Kersten really wanted to know if Obama is a socialist, she wouldn't have to rely on a book like Kurtz's. She could just ask people who are socialists if they feel like Obama is carrying out their agenda. The answer would be a big red no.

1 comment:

MarshaQ said...

Thank you. Head is spinning.