Evan Soltas
May 24, 2012

Non-cents-ical

I've been observing warily the argument about whether government spending has been rising quickly under President Obama or not. (See here, here, and here.) I don't like to wade into these sorts of arguments, but perhaps this objective, data-driven perspective will help to put the debate on firmer footing, rather than on the artful manipulation of numbers.

Real federal government expenditures have risen, by my calculations, 10.4 percent between the first quarter of 2012 and Q1 2009 -- that's current quarterly federal government expenditures divided by the GDP deflator.Depending on where you set your start date, that is also roughly the rate at which real federal government expenditures have grown historically, as you can see in this graph of the natural log of real federal expenditures since 1947, when FRED's dataset begins.

What clouds this entire debate is that real federal government expenditures rose very quickly in the second quarter of 2009, they haven't grown since then. (See this graph again.) This matters because in combination, Obama's rate of real federal government expenditure growth has been largely normal -- not ballooning, as the conservatives insist, nor the slowest in postwar history, as the liberals suggest.

Also, using the "real federal government expenditures" measure itself is incorrect to argue that Obama has presided over either a spending binge or fast.

What both sides should be looking at, rather, is "real federal government consumption and investment." That is real federal government expenditures less transfer payments (see page 7). If it's been a blowout few years for government spending, then we should see real federal government consumption and investment soaring. But we don't. Instead, we see that this measure has stopped growing and recently has gone into contraction.The difference is transfer payments, as economist Timothy Taylor has written. They are what soared in early 2009 and have since begun to contract, explaining the same phenomenon in real federal government expenditures. Transfer payments are programs like unemployment insurance and food stamps -- they are the "automatic stabilizers" of fiscal policy over which the President has little short-run control. They are the most "conservative" (i.e. non-discretionary) form of fiscal stimulus which exists. Furthermore, not expanding transfer payments during a recession has legitimate humanitarian costs.