DEFICIT DEBATE AUGUST 26, 2013
Conservative Republicans are at it again, threatening to cut off the government’s borrowing authority if they don’t get their way on spending. One reason they get away with such mischief is that they prey upon common misperceptions about the budget—in particular, the widespread sense that nobody in Washington cares about the deficit. The evidence suggests otherwise: The deficit is actually coming down these days. And a huge reason is changes in government policy.
In an ideal world, the media would help correct these misperceptions. But sometimes it ends up reinforcing them. The lead story in Sunday's edition in the Washington Post is a perfect example.
The article’s headline is “After six budget showdowns, big government is mostly unchanged.” And the writer, David Fahrenthold, makes several points that supposedly show just that. Federal spending today, Fahrenthold points out, is $3.457 trillion. In 2010, it was $3.455 trillion. "It is not down by that much," Fahrenthold writes. Similarily, the federal workforce back then was 4.3 million. Today, it’s 4.1 million. And while reformers talk frequently about reducing wasteful spending, they keep funding parochial programs like the Robert Byrd highway in West Virginia. Despite its reputation as a “wasteful road to nowhere,” Fahrenhtold says, it has outlived Byrd and will require $40 million a year in new federal spending until 2035.
No facts in the article are inaccurate, as far as I can tell. And I don't want to pick on Fahrenthold, who did some nice reporting on the resiliency of pork barrel spending. But the lack of context is all too common in media coverage of fiscal issues. And it creates a false impression of what’s taken place in the last few years.
First there is the use, or potential misuse, of the numbers themselves. Jonathan Chait takes a closer look at that reduction in government spending from $3.457 in 2010 to $3.455 trillion this year—and its supposed insignificance:
Is that really “not down by much”? Given that some growth is required every year merely to keep pace with higher costs and a growing population, a cut in unadjusted dollar terms over three years is actually a lot. Government spending has actually dropped by 2 percentage points of gross domestic product since 2010. That’s a very fast drop, especially given the backdrop of an economy coping with the vast fallout from the largest economic crisis since the Great Depression.
And that’s not all. You wouldn’t know it from the article, but the short- and medium-term outlook on the budget has improved substantially. The government is taking in more money, and spending less on programs, than most experts had previously assumed it would be. Among the reasons: Some of the Bush tax cuts lapsed, while federal spending on Medicare and Medicaid is rising more slowly than earlier projections had predicted.
One way to measure the difference is to look at predictions about the “debt-to-GDP ratio”—that is, the relationship between the government’s debt and the size of the economy. Last month, analysts at the Center on Budget and Policy Priorities did just that, using the latest government estimates (see graph below). The improvement they found was stark:
Although the rising debt-to-GDP ratio remains a concern, we no longer project the debt to grow at an explosive rate, as many previous estimates (including ours) indicated and as many analysts and policymakers have taken as conventional wisdom about the long-term outlook. Since we issued our previous long-term projections in early 2010, the projected debt-to-GDP ratio in 2040 has shrunk by half — from 218 percent of GDP to 99 percent. The long-term “realistic baseline” of the Committee for a Responsible Federal Budget (CRFB), a nonpartisan fiscal watchdog, paints a similar picture, with a projected debt-to-GDP ratio of 108 percent in 2040. (CRFB issued its projection before the Medicare and Social Security trustees released their 2013 reports, which slightly improve the outlook.) The Center for American Progress’s recent long-term forecast is also similar.
These improvements aren’t all a product of changes in government policy. Experts still aren’t sure to what extent the slowdown in government health care spending is a product of Obamacare, and to what extent it reflects other factors.
And just to be clear, the country isn’t necessarily better off simply because the deficit is coming down. One reason the deficit is coming down are cuts to so-called discretionary spending, including those from budget sequestration. But the government’s top economic priority right now should putting people back to work. If anything, deficits should be a little higher, so that government could be hiring workers or at least not shedding them.
Still, to the extent voters are worried about deficits and debt, they should clearly be less worried about the short- to medium-term now than they were a few years ago—and they should know recent policy changes are responsible for the improvement. Says Henry Aaron, the economist and senior fellow at Brookings:
There have been huge shifts in budget policy, the result of which is that budget projections indicate that the problem, as measured a couple of years ago, is about 75-80 percent solved.
There are obviously very legitimate questions about the proper size of government. Some think it should be even smaller than it is now, while some of us think it should be bigger. As for the deficit, there’s more work to be done, as Aaron and the Center on Budget analysts both point out. The gap between government revenues and expenditures really is likely to expand decades from now. At some point, it will become a more serious problem.
But if we want to prepare for that day, we shouldn't deny the progress that has taken place. We should recognize it, if only to get some ideas about what else we can do.
Update: Dean Baker, from the Center for Economic and Policy Research, has an even closer look at the numbers.
Jonathan Cohn is a senior editor at The New Republic. Follow him on twitter @CitizenCohn