Graph of the Day: President Obama, Fiscal Conservative?
A graph that purports to establish Bill Clinton and Barack Obama as the two most fiscally conservative presidents in modern history has been making its way through the blogosphere, after first originating on Century Foundation Fellow Mark Thoma’sEconomist’s View blog. Thoma’s submitter explains:
Seeing the Krugman commentary comparing real government spending under Obama and Reagan made me curious about what it looks like if you express it in per capita terms? In particular, how does the Obama period compare with other presidencies in terms of penury/austerity versus spendthriftness?
[…]
Ranking since Johnson (starting in 1968), and using the first-quarter comparisons, and calculating growth under Obama through 2011Q4, Clinton is the most austere, followed by Obama. The most spendthrift are (1) Nixon-Ford, (2) Reagan, and (3) Bush II.
So, the story one frequently hears on the right about the massive expansion of government spending under Obama—and liberal profligacy in general—just doesn’t hold up to the facts. Still, there’s been some pushback from commenters wondering about the role of inflation, or whether the story changes when you divide government spending into separate categories for national defense and human resources (employment and social services, Medicare, Social Security, veterans benefits, et cetera). So here is my own version of the graph, which shows annualized growth in government spending on national defense and human resources througout the last seven presidencies, from Q1 to Q1. All of the data is from the Office of Management and Budget historical tables.
And here is annualized real growth in government spending (adjusted using a composite deflator):
No matter how you choose to look at it, the story remains essentially the same. In both graphs, Clinton and Obama stand out as the relative fiscal conservatives next to their spendthrift Republican peers. You can state whatever objections or counterfactuals you like—Reagan was fighting the Cold War, Clinton benefited from a peace dividend, Obama inherited a recession—but, as The Atlantic’s Derek Thompsonpoints out, ”the bottom line is that it is really, truly time for the myth about Big Spender Obama to die.”
UPDATE: Thanks to Mark Thoma and Brad DeLong for retweeting my post, which helped it make the front page of Reuter’s counterparties blog.
President Obama, Fiscal Conservative? - Blog of the Century botc.tcf.org/2012/03/graph-…
— Mark Thoma (@MarkThoma) March 21, 2012
Graph of the Day: President Obama, Fiscal Conservative? - Blog of the Century botc.tcf.org/2012/03/graph-…
— J. Bradford DeLong (@delong) March 21, 2012
Graph of the Day: Infrastructure Austerity Hurts the Recovery
It has been nearly seven years since Congress last passed a major transportation bill. Since then, funding for surface transportation infrastructure has been extended eight times by temporary stopgap measures without any agreement on long-term legislation to maintain—let alone improve—America’s crumbling infrastructure. Congressional staffers now report that the House will not take up the $109 billion Boxer-Inhofe transportation bill that passed the Senate with bipartisan support Wednesday, requiring a ninth stopgap until at least mid-April.
“This used to be the easiest bill to pass on Capitol Hill,” Sen. Richard Durbin (D-IL) told reporters last week. “That’s why the House Public Works Committee has so many members–people couldn’t wait to get on that committee to pass this bill every five years.” But today’s hyper-polarized Congress can’t even agree on basic funding for the nation’s highways, bridges and railroads, which now require trillions in upgrades. Public spending on transport and water infrastructure is near historic lows at just 2.4% of GDP (less than half what Europe spends) and the cost of fixing the whole mess increases with every year we put it off. We’re not exactly “winning the future.”
That’s unfortunate because there has probably never been a better time to reinvest in America. The economy faces a massive aggregate demand shortage. The unemployment rate among construction workers is near 18 percent. And, thanks to negative real yields on treasury debt, money is essentially free. So a major investment in infrastructure should be a no-brainer for Washington, right?
Yet in the months since the recession ended and the stimulus ran out, federal grants to state and local governments have plummeted, causing real state and local investment to drop nearly 15%. Public spending on highway and transportation construction is stagnant or in decline, even as more than 1 million construction workers remain unemployed.
Even to fiscal conservatives it should be obvious that such infrastructure austerity is bad economic policy. America will have to rebuild its aging infrastructure eventually; why not right now?
Brian Beutler, Talking Points Memo:
Republicans like to portray Democrats as big spenders. But the truth is more complicated. Democratic Congresses were pliant under Reagan and the first Bush, and thus federal spending (particularly military spending under Reagan) grew dramatically. For Bush 41, this trend didn’t hold when he needed it and he lost his re-election bid amid a weak economy.
Working with a Republican Congress, George W. Bush too presided over a major increase in federal spending. This, along with the large tax cuts he passed in 2001 and 2003, exploded federal deficits, but also likely helped him through the economic hard times at the beginning of his first term.
Clinton and Obama, who both lost control of the federal purse strings to an intransigent opposing party halfway through their first terms, were comparatively hamstrung. Politically, this proved to be a much bigger problem for Obama than it was for Clinton — Obama, after all, inherited a historic financial and economic crisis. But Obama’s economy is finally picking up on its own, and just in time. This Congress isn’t about to give him a hand — and, for good measure, thanks to last year’s debt limit deal, Obama’s consigned to a continued downward trend in spending for the next couple of years at least.
Graph of the Day: Few Americans Prepared for Retirement
Few Americans are prepared for retirement, according to a national survey that finds nearly half of all workers with less than $10,000 in savings. Sixty percent of respondents to the 2012 Retirement Confidence Survey reported less than $25,000 in savings and investment (excluding their home and defined benefit plans) and 30% were living paycheck to paycheck with less than $1,000 in the bank.
The survey also showed a widening gap between the retirement readiness of high and low income households. Of the 1,003 workers and 259 retirees surveyed, those with low incomes were the least prepared for retirement and the most likely to have dipped into their savings to pay for basic expenses. While 93 percent of workers with income above $75,000 said they had saved money in 2012—the same percentage as in 2009—the number of low-income workers reporting savings declined sharply to just 35%.
It is difficult to estimate how much the average middle class household needs to save for retirement, but it can generally be assumed that a worker with a median income of $50,000 will spend at least half that amount annually during retirement. That puts the conservative pricetag of a ten-year retirement at $250,000—an amount just one in ten Americans have saved—and a twenty-year retirement at half a million. Numbers like those help explain why 87% of respondents worried they will not be able to afford medical expenses during retirement, with 37 percent expecting to work past age 65 to make ends meet. Seven percent said they will “never retire.”
What Slowing Productivity Growth Means for Tomorrow’s Jobs Report
The U.S. economy went on something of a crash diet during the Great Recession, cutting millions of Americans from the workforce and squeezing dramatic productivity gains from those who remained. Unit labor costs dropped and output per hour rose as busiensses became leaner and meaner. But slimming down can only increase efficiency to a point, and as the economy has recovered, the pendulum has appeared to swing back in favor of workers. Revised estimates released yesterday by the Labor Department show that productivity growth slowed to 0.9 percent annualized at the end of last year, down from 1.8 percent in the previous quarter. And unit labor costs rose 2.8 percent, more than doubling earlier estimates.
That bodes well for tomorrow’s jobs report, which is expected to show modest gains throughout the economy. If productivity is slowing, than the only way businesses can expand output is to hire more people. Hopefully that will put sufficient pressure on wages, which have plenty of room to rise against price markup without any inflationary effect.
But let’s not miss the forest for the trees—or in this case, the historic trend for the market correction. The graph below—which plots productivity growth against labor costs since 1990—shows that the divergence between efficiency gains and wage compensation is a long-term trend that is not likely to be altered by the recovering labor market. The underlying problem remains intensifiying income inequality, here expressed as workers’ decreasing share of corporate profits. Although tomorrow’s job numbers are likely to be another piece of good news for the economy—joining high consumer confidence and declining unemployment insurance applications on a growing list of positive indicators—it is critical that we do not allow the conversation about systemic inequality to fade into the shadows. The graph below illustrates a tectonic, not cyclical, shift. We’ll need more than a band-aid to correct our course.
A Recovery for the One Percent
The top 1% captured 93% of the income gains in the first year of recovery.
That is the shocking new statistic from income inequality expert Emmanuel Saez, whose latest data for the World Top Incomes Database shows that America’s richest 1 percent survived the Great Recession just fine. Back in 2011, some commentators,Megan McArdle among them, suggested that the financial crisis might have affected the trend toward greater inequality. No data was yet available to substantiate a claim either way, although a slew of dramatic trend pieces from the New York Times seemed to suggest the party was over for the 1 percent. Saez’s new data should put that claim to rest. Income inequality is indeed back, and rising as fast as ever.
Reblogged: “Why an MRI costs $1,080 in America and $280 in France”
There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.
That may sound obvious. But it is, in fact, key to understanding one of the most pressing problems facing our economy. In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.
There are many possible explanations for why Americans pay so much more. It could be that we’re sicker. Or that we go to the doctor more frequently. But health researchers have largely discarded these theories. As Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi Petrosyan put it in the title of their influential 2003 study on international health-care costs, “it’s the prices, stupid.”
For years, conservatives have been arguing that the United States ought to lower the top marginal tax rate and “broaden the base”—a careful euphemism for eliminating loopholes and deductions, many of which benefit the poor. Now President Obama is putting that orthodoxy to the test, proposing an overhaul of the corporate tax code that would eliminate numerous loopholes and deductions while lowering the top rate to 28 percent. Since few large corporations pay anywhere near the current rate of 35 percent, an effective rate of 28 percent should amount to a tax hike for serial tax avoiders—and a revenue boost for the Treasury.
The proposed framework is not perfect—TCF budget policy analyst Andrew Fieldhouse has an excellent summary of the plan’s merits and shortcomings here, and a follow-up post on debt financing here—but it’s a step in the right direction, and there is a lot at stake. According to a press release this week from Citizens for Tax Justice, General Electric’s latest SEC filing shows that the company paid “at most 2.3 percent of its $81.2 billion in U.S. pretax profits in federal income taxes over the last 10 years.” And GE is not alone—an earlier CTJ report revealed that 280 of the most profitable Fortune 500 companies paid an average rate of just 18.5% from 2008 to 2010, while 78 actually paid zero or less. All together, those 280 companies cost the United States nearly a quarter trillion dollars in taxes that would otherwise have helped balance the federal budget. High profits and low taxes: this is why we need corporate tax reform.
Graph of the Day: Putting the Squeeze on Labor, Part II
Yesterday I commented on what Mark Thoma and Karl Smith both identified as one of the most significant graphs in the White House’s Economic Report of the President. That graph showed how the historical post-war relationship between wages and prices—or more fundamentally, between labor and capital—has broken down over the last thirty years. You can probably guess who has gotten the short end of the stick. Traditionally it has been the case that a competitive market prohibits businesses from raising prices too high or pushing labor costs too low, as both consumers and labor will look elsewhere for a better price. And historically, that dynamic has held: from 1947 until the mid-1980s, American wage earners accrued a proportionate share of economic output as productivity rose. But since the Reagan Revolution, corporate profits have surged while wages have flatlined, breaking the post-war trend that essentially created the American middle class. As I argued in my previous post, the present imblanace between capital and labor is unlike anything we have experienced in two generations. A global oversupply of labor and skill-biased technological change account for much of this inequality. But we cannot ignore that “laissez-faire” policies have encouraged this unprecedented redistribution of wealth to the richest 0.1%, while diminishing social mobility for the poor. Regressive tax policies that privilege capital gainsand loopholes like the carried-interest deduction have created the conditions that allow the Forbes 400 to control as much wealth as 150 million Americans while paying an average tax rate of just 18 percent. We cannot accept that disparity as the new normal.
Graph of the Day: Putting the Squeeze on Labor
The White House’s new Economic Report of the President—broadly, an annual overview of how the president and his Council of Economic Advisors (CEA) view the state of the economy—is generally optimistic for 2012, noting better-than-expected job growth and economic expansion for ten straight quarters. It also underscores just how severe the financial crisis was that the president faced, with revised estimates showing that the economy contracted at an 8.9 percent annualized rate in the last quarter of 2008, not the 3.8 percent initially claimed.
The outlook on wages, productivity, and prices is less rosy. The CEA notes ominously that for the first time since World War II, the historical link between wages and prices has broken. For the last ten years, inflation has been driven by rising price markup, while unit labor costs have fallen behind productivity gains. In other words, prices are increasing and corporate profits are soaring—but workers are being left behind, with labor share of output (the inverse of price markup over labor unit costs) at its lowest level in seventy years.
On the one hand, that means there is now considerable slack in the labor market, so the CEA can predict that the economy has plenty of room to expand without creating inflationary pressures. But it also indicates a tectonic shift, since the Reagan Revolution, in the relationship between unskilled labor and capital. If this new trend holds, then we are looking at an economic environment that is unlike anything we have experienced in the post-war era. Karl Smith is more blunt: “At its heart the issue is that Industrialization Really Was Different, and there is no reason to think it will come again. The reality of this new world is that you cannot simply work hard and make a good living.”
In a way, he’s right. The post-war era really was a unique time in American and economic history, with wage compensation tied to productivity growth—a rising tide that lifted all boats mostly equally. The past several decades have seen that relationship erode, as manufacturing and union jobs disappeared overseas, and corporations sought massive gains in competitiveness and profit at the expense of labor. Globalization and technology share much of the blame, but it is also instructive to look at the experience of other industrialized countries, many of which have been able to mitigate soaring income inequality with education and industrial policies designed to equalize opportunity and share the benefits of economic growth. Once, around the turn of the twentieth century, enterprising young progressives headed to Europe to study policy, returning to America with the seeds of what would become the New Deal, and later, the Great Society. Perhaps it is time, once again, to look abroad for answers.
Simple Solutions to Complex Problems
Via Sarah Kliff, the OECD’s Obesity Update 2012 provides an important example of a complex problem (soaring health care costs) that could be addressed, in part, by a relatively simple solution (healthier diet and exercise).
President Obama has caught plently of flak in the past for similarly modest proposals, like painting roofs white to reduce air conditioning and electricity costs, or keeping car tires properly inflated to improve mileage. Thankfully, that hasn’t stopped the administration from moving ahead with new rules for government-subsidized school meals, which must now include whole grains, reduced fat and salt, and twice as many fruits and vegetables.
It’s a step in the right direction. The OECD estimates that an obese person incurs 25 percent higher medical bills than a person of normal weight in any given year, with obesity responsibile for 5 to 10 percent of all health care expenditures in the United States. And that number should rise by 2020, when the OECD predicts three out of every four Americans will be overweight or obese. So, as employers and families struggle to pay ever-higher premiums, a renewed focus on practical, preventative health policy—like school nutrition regulations—is surely a step in the right direction.
Mitt’s “Entitlement Society” is a Myth
As I wrote earlier this week, the idea that the United States has become an “Entitlement Society,” as Mitt Romney recently put it, is a myth unsupported by the most basic facts. Although the former Massachusetts governor has written that government benefits engender “passivity and sloth,” the truth is that over 90 percent of benefit dollars are spent on the elderly, the seriously disabled, and members of working households—hardly the “welfare queens” that Republican rhetoric evokes.
But the misinformation extends beyond the welfare queen trope. As Lawrence Mishel points out, the argument that the welfare state has significantly expanded under President Obama only works if you calculate that growth by dividing mandatory spending by government revenues. That trick allows you to use as your denominator revenues that are at their lowest levels in 60 years, in addition to a numerator distorted by an unemployment figure more than double the rate a decade ago.
A better way to evaluate the expansion of government benefits is to look at total mandatory human resource expenditures as a share of government outlays. By that standard, entitlements as a share of federal expenditures barely changed between the 1990s and 2007, before the financial crisis. After the recession hit, mandatory spending did rise slightly, to 55 percent in 2010 and 56 percent in 2011—but that is exactly what we would expect from the social safety net during a severe economic downturn. The picture is even rosier if you take the size of the economy as your denominator: mandatory spending as a share of GDP remains essentially unchanged in two decades, and is actually down slightly in 2012.
Source: U.S. Office of Management and Budget Historical Tables
Who Benefits From Our “Entitlement Society”?
“Even Critics of Safety Net Increasingly Depend on it,” read a recent New York Times headline, capturing in a sentence the uncertain and contradictory sentiment of millions of middle class Americans who say they want the government out of their lives, but admit they count on Social Security, Medicare, and other benefits to stay afloat. Chisago, Minnesota—the archetypal heartland county in which much of the article takes place—is illustrative: a former Democratic stronghold, now with a declining middle class and a decidedly conservative outlook, whose residents struggle to reconcile their resentment with reliance on entitlement programs.
The remaining Republican presidential candidates have seized upon that resentment to construct an alternative narrative to the one President Obama favors. While the administration talks about helping hard-working Americans to get back on their feet after the worst economic downturn since the Great Depression, Mitt Romney has warned that the United States is becoming an “Entitlement Society,” with dependence on government fostering “passivity and sloth.” Rick Santorum talks of social insurance “systematically destroying the work ethic.” And Newt Gingrich has called Mr. Obama a “food-stamp president,” suggesting that “the African-American community should demand paychecks and not be satisfied with food stamps.”
But this racially-charged 
narrative—able-bodied young people collecting government benefits instead of finding honest work—couldn’t be farther from the truth. According to a new report from the Center on Budget and Policy Priorities, more than 90 percent of government benefits went to the elderly, the seriously disabled, and members of working households in 2010. The majority of the remaining 9 percent went to medical care, unemployment insurance (which requires previous work experience), Social Security survivor benefits (for children and spouses of deceased workers), and early Social Security benefits. The CBPP analysis also finds that among entitlement programs that target only low-income households, five out of every six dollars were spent on the elderly or disabled (probably a low estimate, as the data comes from 2010, when the national unemployment rate averaged a historic 9.6 percent).
The CBPP data should also quash the Republicans implication that the poor benefit from entitlement programs at the expense of the middle class. In fact, the graph below shows that the middle class receives a proportionate share of benefits, while only the top 20 percent of the population receives less. Compare that to the distribution of tax credits, write-offs and deductions that are available to the rich: the top fifth of the population received 66 percent of the $1.1 trillion “tax entitlements” in 2010, compared to just 2.8 percent for the poorest fifth.
Unfortunately, the deterioration of the middle class has made many Americans susceptible to the politics of resentment that drive Republican misperceptions. In Chisago County, per capita income has fallen 13 percent in the last decade; nationally, median income remains little changed in over thirty years. But instead of questioning the vast upward redistribution of wealth to the top one percent, or why the 400 richest Americans—who control as much wealth as 150 million people—pay an average tax rate of just 18%, many of Minnesotans quoted in the Times article speak stoically of suffering to reduce the national debt and their own reliance on government:
“How do you tell someone that you deserve to have heart surgery and you can’t?” Mr. Gulbranson said.
He paused.
“You have to help and have compassion as a people, because otherwise you have no society, but financially you can’t destroy yourself. And that is what we’re doing.”
He paused again, unable to resolve the dilemma.
