A Real Plan for Deficit Reduction

The Congressional Progressive Caucus has a budget proposal out that is worth considering. It should embarrass the Obama administration and any supporter of the administration still harbouring the illusion that the president is all about hope and change. Krugman gives it a thumbs up, the folks at The Economist give it a thumbs up too, ditto The Guardian . . . and, of course, I have to say that my own Congressional Representative is a CPC member . . . Louise Slaughter does Western NY proud!

Who Is To Blame For The "Increase In Federal Spending?"

Facts are indeed such stubborn things.  Paul Krugman seeks to quickly ask the question of why federal spending has apparently increased so much in recent years in a blog-post today that I found most interesting.  Basically what massive new federal program signed onto by the Obama Administration is spending all this money?  Uh, Professor Krugman:

A large part of it is a slowdown in GDP rather than an accelerated rise in government spending.

Nominal GDP rose at an annual rate of 5.1 percent from 2000 to 2007; it only rose at a 1.7 percent rate from 2007 to 2010. How much would the ratio of spending to GDP have gone up if spending had stayed the same, but there had not been a slowdown? Here’s the answer:

So about half of the rise in the ratio is due to a fall in the denominator rather than a rise in the numerator.

That still leaves a significant rise in spending. What’s that about? Here’s one way to look at the federal budget; I compare growth rates in spending from 2000 to 2007 and from 2007 to 2010:

CBO

“Income security” is unemployment insurance, food stamps, SSI, refundable tax credits — in short, the social safety net. Medicaid is a means-tested program that also serves as part of the safety net. Yes, spending in these areas has surged — because the economy is depressed, and lots of people are unemployed.

What we’re seeing isn’t some drastic expansion of Big Government; we’re seeing the government we already had, responding to a terrible economic slump.