Click to enlarge

Source: NYT

Category: Digital Media, Economy, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “Change in Government Consumption and Investment”

  1. constantnormal says:

    … a confusing chart, showing something, but because the changes are not normalized to GDP, they are not truly quantifiably comparable between data points … but as they are in constant dollars, they do mean something, it’s just that each data point pertains to a different size economy.

    I think the NYT might be trying to make more of the story than there is … but I must follow Napoleon, and presume incompetence over malice … still, their point about us already applying austerity is accurate, but their chart makes it impossible exceedingly difficult to assess how much austerity is being applied. A whole lot less than there was in the early 70′s, I think …

  2. DeDude says:

    But the issue is whether government has reduced or increased its “consumption and investment” in the short (2-year) term. Introducing GDP as an additional normalizer on top of the constant $ would confuse that issue – particularly at times of rapid change in GDP. You want to normalize away inflation not economic cycles. At more normal times the GDP normalization to GDP would make little difference.

  3. constantnormal says:

    Yes, but changes to the “consumption and investment” without considering how large that is relative to the economy doesn’t tell you a lot about how much austerity or stimulus is being applied to the economy.

    I don’t dispute their central point, that we are already experiencing austerity, but whether it is a lot or a little, one cannot tell from their chart, which makes it appear that it is large in historical context. And that is what my reference to Napoleon was all about, whether the NYT was trying to make it look like we are already experiencing historically significant austerity from the federal government.

    A 5% drop from the increases that took place over the prior 35 years is pretty small potatoes. And to ignore the context of the expansion of the economy over that time (which should be placed alongside the expansion of government C&I for additional perspective) further muddies the waters in attempting to assess the significance of this decline.

    But again, I am not in the slightest disputing that we are experiencing governmental austerity (when we still need stimulus, in places other than where we have been stimulating to date).

    Perhaps just one more chart, showing government spending, and GDP, in constant-dollar terms, no percentages … like this:

    http://research.stlouisfed.org/fredgraph.png?g=g2g

    It’s for the same span of years, and shows pretty clearly that the GDP is sufficiently large that (one would think) austerity of this size (or even from the sequestration) is unlikely to derail the expansion and plunge us back into recession … I think. And it clearly shows that government spending has been in decline for some time now.

  4. streeteye says:

    The chart is just annualized percent change. Can’t get any simpler or less confusing.

    Here’s your ‘spending problem’ – real government (fed, state and local) spending as a percent of GDP (ex transfer payments eg SS/Medicare) :

    http://i.imgur.com/KjNwxrg.png

  5. constantnormal says:

    Thanks … ain’t FRED a wonderfully fabulous tool?

  6. AHodge says:

    the declines shown mostly state and local
    not a federal “austerity” measure
    the good news is S@L now getting their revenue and financing act together balancing budgets in many cases
    soon they will be spending more–adding to the more normal mature recovery
    also housing and auto related we will get to eventually
    then states will by the time we reach the next cycle peak
    again overspend all their booming cap gains profits sales tax receipts
    those will collapse as they usually do in the the next downturn
    and once again states will cutback spending in a panic
    like the one we are just coming out of

  7. theexpertisin says:

    And my taxes just keep going up……..

    interesting.

  8. mitchn says:

    @ theexpertisin says:

    > And my taxes just keep going up….

    Pls. explain. Between 2001 and 2012, your marginal rate went down, your witholding went down, your cap gains rate went down, and your family’s estate tax went down. Where are you paying more taxes?

  9. DeDude says:

    @constantnormal,

    But the economic effects are on the second derivatives, not related to the absolute numbers. Whether you go from “high” to “not so high” or from “average” to “below average” is a different and politically charged debate (that may be easier to put and ideology on than a solid number). The thing you can put a number on relevant for economic (growth) policy, is whether you are going up or down (and by how much). If you normalize to GDP then you sort of say that when the private sector contracts then the “baseline” should be an equal level of contraction in the public sector. I disagree with the idea that pro-cyclical policies should be considered “baseline”. To me the relevant number for defining policy as austerity or expansionary is the change in spending short-term, and an inflation adjusted $ as % relative to 2 years earlier seem to me to be good for that. I think you may be saying that there is a different question that is also interesting (has the long term trend been towards more or less government consumption and investment) – and I would not disagree with that.

  10. victor says:

    The chart in the link shows FEDERAL (ex S&L) Tax and Spend % GDP in United States 1981-2012, which I think would be the relevant metric. I find it instructive in several ways.

    http://en.wikipedia.org/wiki/File:Revenue_and_Expense_to_GDP_Chart_1993_-_2008.png

    This chart clearly shows that the shortfall between FEDERAL revenues and spending was made up by…borrowing from 1981 on with the exception of Clinton’s second term. I recall Regan musing in public: “For the life of me I don’t see the difference between raising revenue via taxation or via borrowing”. The chart shows no evidence of austerity during the past 4 years.