Lyons: Government spending truths 

"Reagan proved that deficits don't matter."

—Vice President Dick Cheney, 2002

Given the great hullabaloo in Washington over government spending, here are a couple of noteworthy facts. Under President Obama, the federal budget deficit has been more than cut in half, from a FY2009 high of $1.55 trillion (largely inherited from George W. Bush) to an estimated $642 billion this year, according to the Congressional Budget Office.

However, a recent Bloomberg News poll shows that 10 percent of American voters are acquainted with this indisputable fact. Fifty-nine percent mistakenly believe that the deficit has risen under Obama. Another 26 percent think it's remained approximately the same. It's hard to run a democracy given such widespread public ignorance.

Militant ignorance, much of it. Fully 93 percent of Tea Party members subscribe to the false belief that government spending is skyrocketing out of control. No wonder they're running around with their hair on fire.

But hold that thought, because there's more: measured as a percentage of the overall US economy, the federal budget deficit has shrunk from 10.1 percent in 2009 to 4 percent today. Given increased revenue and decreased spending, the CBO projects the figure will decrease to 2.1 percent by 2015.

"By comparison," the May 2013 report notes "the deficit averaged 3.1 percent of GDP over the past 40 years."

And for this we needed a government shutdown?

And yes, I said decreased government spending. Contrary to the myth of federal profligacy under President Obama, total expenditures for FY2013 and 2014 (which began last Oct. 1) have actually gone down for two years running, together with government employment.

Overall, since 2009 government spending has risen at an annualized rate of only 1.4 percent, as compared to 8.1 percent during George W. Bush's second term, 4.9 percent during Ronald Reagan's, and 5.4 percent under George Bush the Elder. Bill Clinton averaged 3.9 percent during his second term.

(Incidentally, the CBO projects that the Affordable Care Act — assuming the healthcare.gov website eventually gets put in working order — will also contribute to shrinking the deficit, albeit a modest $143 billion over ten years.)

"In other words," writes economist Dean Baker of the Center for Economic and Policy Research "the story of out-of-control debts and deficits is just plain wrong. Less polite people would call it a lie, but it stands at the center of the public debate because the media consider it rude to point out a truth that would embarrass so many important politicians. ...

"During the Reagan presidency spending averaged more than 22 percent of GDP, peaking at 23.5 percent in 1985. This year it is projected to be 21.6 percent of GDP. The latest CBO projections show spending rising back to Reagan era levels towards the end of the 10-year budget window."

Which isn't to say the United States has no long-term fiscal problems. But ultimately, this is also how the scary-sounding $17 trillion national debt will be dealt with over time. (By the way, can you remember when President George W. Bush argued for his infamous tax cuts by explaining that paying off the debt too fast would be a bad thing? If you're a Republican, I'm guessing no.)

With the yearly deficit under control, the size of the national debt as a fraction of a growing GDP becomes steadily less alarming. It's never actually decreased from one presidency to the next, you know. Reagan tripled the debt in eight years; Bush doubled it again. Despite the shrinking deficit, Obama's currently on track to double it again.

It's also true, however, that President Obama helped create his own problems by talking about budgetary issues in personal, moral terms. "Families across the country are tightening their belts and making tough decisions," he announced during his 2010 State of the Union. "The federal government should do the same."

It's a simple, homely analogy that everybody understands. Alas, it's also extremely misleading. US government macroeconomics bears almost no relationship to your family budget. Unlike your family, see, the government lives forever. It needn't ever close the books on a debt it owes largely to itself anyway, as Social Security obligations, interest on government bonds, etc.

The federal government also raises taxes as necessary, manages the level of inflation, regulates banks and, yes, prints money. So no, your grandchildren aren't going to get stuck with the bill. They're going to pass it on to their grandchildren, and so on. It's not an existential threat, it's a bookkeeping convention.

But as I say it's almost impossible to seriously discuss such issues in a country where 90 percent of the citizenry either don't know or aggressively refuse to understand simple budgetary arithmetic.

If it were possible, though, here's one basic question Americans should ponder. If it's not Obama's profligate spending keeping the US economy in low gear, could it be government layoffs and lack of public investment?

Just asking.

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