Friday, April 22, 2011

20% v 24%

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6 comments:

PBM said...

Do massive new tax cuts not count as spending? Because their inclusion in the Ryan plan makes it so the budget isn't balanced until 2030.

April 22, 2011 at 12:23 PM
PL said...

Why can't we reach 20%?
1) Demographics (rapidly aging population, baby boom, etc.)
2) Rising health care costs (exacerbated by aging population)
3) Interest costs from past deficits

Also, Taylor neglects to point out that Ryan's plan would lower spending to less than 15% of GDP by 2050 and come very close to eliminating the entire federal government besides Medicare, Medicaid, Social Security, and Defense. At some point conservatives, in their dream trajectory, would get at Social Security as well. Since they don't want revenue options to be used for fixing the shortfall, they'd have to do everything on the spending side. This means that overall government spending as a percent of GDP would fall to just over 13%. Paul Ryan's vision for government, unsurpisingly since this is what nearlly all libertarians are constantly pushing for as their ideal, is to restore government to its pre-WWII size and role.

April 22, 2011 at 1:24 PM
TJE said...

But I thought Mr. L said of a similar chart the other day:"Very little Medicaid and Medicare spending would be captured outside of the “deficit without these factors” line in this chart. Medicaid and Medicare aren’t problems in this decade."

April 22, 2011 at 3:25 PM
PL said...

once again, long vs. short-term. In the long-run, the factors I listed would make it very difficult (I’d argue politically impossible) to reach those levels. In the short-run, they also play a significant role- exacerbated by the significant interest costs we’ve accumulated from various policy decisions in the past decade.

However, in my comments on the previous post- cited by Professor Eismeier, I made the point that Medicare, Medicaid, and everything else the government does would be almost entirely contained by our system of revenues if everything (Bush Tax cuts, the Great Recession, the Wars in Iraq & Afghanistan, and Presidents Bush and Obama’s response to the recession) captured in that chart hadn’t happened. Hence, my arguing that “Medicaid and Medicare aren’t problems in this decade.” They are only really problems in the out-years, as visually demonstrated by the charts here (http://www.cbo.gov/ftpdocs/102xx/doc10297/Chapter1.4.1.shtml#1092106 )

To show what it takes to get to spending as 20% of GDP in the short-term, I’ll turn to the House Republicans’ budget. In the short-run, the budget gets spending down to 20.25% of GDP (still missing the 20% mark). To achieve this, the budget has to cut total federal health care spending by 25% from the lowest-spending CBO baseline (the extended scenario, which assumes the “doc-fix” isn’t patched). It also has to cut everything else the government does (besides Social Security) to just 6% of GDP.

Let’s say Ryan and other conservatives manage to somehow convince the defense hawks in the party to get defense spending down to the lowest level in post-WWII U.S. history- 3 percent. That’s an extremely ambitious and questionable goal for a Republican like Ryan, since groups like the Heritage Foundation scream bloody murder when defense falls below 4%. But we’ll be extra generous, and say Ryan could get defense to 3%.

That means that non-defense, non-health, non-Social Security spending under Ryan’s proposal (which only gets you close to the 20% goal), requires reducing “other-government” to 3% of GDP. When was the last time “other-government” spending was that low? I can’t find data that goes far back enough to find a year. Using OMB historical tables 6 and 15, “other-government” spending has exceeded the 3% level Ryan would need in every year since 1940. To achieve almost getting spending to 20% of GDP, House Republicans have to essentially put the government (excluding health care, Social Security, and Defense) back to pre-New Deal levels. The government would be restored to performing the same level of functions in this budget area as it did back in the 1930’s (maybe even earlier?). John Taylor should explain to people that to get government spending down to 20% of GDP, most of government would need to look like it did in the 1930’s or earlier. Somehow I think that’s a harder sell, which is probably why Taylor doesn’t talk about that part…

April 23, 2011 at 12:35 AM
TJE said...

With apologies to young man in Powershift video, grow, baby, grow:

http://online.wsj.com/article/SB10001424052748703983104576262763594126624.html?mod=googlenews_wsj

April 23, 2011 at 2:50 AM
PL said...

I'm confused, does Phil Gramm want us to mimic Reagan policy? You know- increase spending, cut taxes, and dramatically increase the deficit. Because that seems like the last thing a rational person would suggest in our current situation.

April 23, 2011 at 6:35 PM

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