Smoke and mirrors

by Russ Roberts on July 15, 2011

in Budget Issues

The focus on the size of the spending cuts is a red herring.

What matters is spending.

According to Paul Ryan:

The President’s proposing we spend $46 trillion over the next ten years. With the debt limit increase, we’re saying ‘let’s spend 43 and a half.’ That’s not asking a lot over a 10 year period. And it will be a small down payment on what will be necessary to prevent a debt crisis. And the President won’t even do that.

Is Paul Ryan right? Is the President really proposing to spend FORTY SIX TRILLION DOLLARS OVER THE NEXT TEN YEARS? I don’t know. Haven’t seen that number before which either tells you a lot about Paul Ryan or how easy it is for politicians to manipulate us.

The federal government spent $3.5 trillion in 2010. That’s up from $2.5 trillion in 2005. Going to $4.3 trillion (43 trillion over ten years) IS NOT A CUT.

Paul Krugman writes in yesterday’s Times:

President Obama has made it clear that he’s willing to sign on to a deficit-reduction deal that consists overwhelmingly of spending cuts, and includes draconian cuts in key social programs, up to and including a rise in the age of Medicare eligibility. These are extraordinary concessions.

Draconian? Where? Either Krugman or Ryan is wrong. And the debate is all theater.

Be Sociable, Share!

Comments

comments

60 comments    Share Share    Print    Email

{ 60 comments }

indianajim July 15, 2011 at 1:43 pm

“Either Krugman or Ryan is wrong.”

Wouldn’t surprise me to learn that they are both wrong, because as you also said: “…the debate is all theater.”

Russ Roberts July 15, 2011 at 1:50 pm

Yes. Should have said “At least one of them is wrong.”

juan carlos vera July 15, 2011 at 2:28 pm

We have a problem if this statement amounts to this debate…

Jim July 15, 2011 at 2:59 pm

Yes. Mr. Ryan, having formed a budget which ‘balances’ the deficit over 10 years and makes no inroads on the debt, is being vilified in the press and by Progressives as being draconian.

It is also interesting that his solutions are only a nod towards free markets; they are mostly based on progressive taxation rates and eligibility of bankrupt social programs based on Ponzi style taxation.

juan carlos vera July 15, 2011 at 2:00 pm

All politicians and their propagandists, make me sick… Your mission in this world is cheating and stealing. Paradoxically, the society is the one who idolizes and maintains this band of thieves…

Scott G July 15, 2011 at 2:01 pm

Can you just whip out a quick rap video on this topic showing that it’s all smoke and mirrors? I’m willing to donate.

Art Woolf July 15, 2011 at 2:03 pm

Using data from the CBO’s long term budget outlook (http://www.cbo.gov/doc.cfm?index=12212), and their underlying data (http://www.cbo.gov/ftpdocs/122xx/doc12212/2011-LTBO-Supplemental-Data.xls) I get total spending 2012-2021 of $43.2 trillion. I used CBO’s Alternative Fiscal Scenario which shows spending as a percent of GDP and their forecast of real GDP in the Economic Variables tab.

Dan J July 15, 2011 at 2:15 pm

You MUST remember that democrats, Krugman, and Obama tell us that for every dollar not taken by the federal govt IS spending. So, if they propose cutting a loophole in tax code or rise income taxes, then that is a cut in spending. This is absolutely what the Obama admin means by cutting spending. He has said this many times over.

Michael July 15, 2011 at 2:48 pm

Bingo!

I_am_a_lead_pencil July 15, 2011 at 2:59 pm

Examples?

Dan J July 15, 2011 at 6:12 pm

I despise doing the work for you, but will …. Giv me some time.

Dan J July 15, 2011 at 6:13 pm

He has said it in a couple of speeches

Tim July 16, 2011 at 5:41 pm
River July 15, 2011 at 2:18 pm

I believe they both incorrect. Ryans proposed budget does not cut in the sense of the word business people use the term. We think cut means we spend less next year than we did this year. Ryans budget spends more but less than Obama’s proposals. The link below is one look at it.

http://globaleconomicanalysis.blogspot.com/2011/04/interactive-map-paul-ryan-vs-obama.html

Mr. Krugman’s assertion that the cuts are draconian don’t hold water since the safety net is held in tact with the Ryan proposal and in fact spending increases – there are not any cuts- simple don’t acllerate as fast as Dr. MRI man would like.

Mark Cancellieri July 15, 2011 at 2:20 pm

Yes, Obama’s budget originally included spending of $45.952 trillion over ten years. See Table S-1 of the Summary Tables:

http://www.whitehouse.gov/omb/budget/Overview

It should be considered fraud when politicians claim that they are cutting spending while spending would increase. Of course this would mean the President and entire Congress would go to jail (which probably isn’t a bad idea).

vikingvista July 15, 2011 at 5:06 pm

“the President and entire Congress would go to jail”

Would be the best, and perhaps most just, thing to ever happen to this country.

River July 15, 2011 at 2:20 pm

Oops ” as fast as Dr. Krugman”. May have been a Freudian slip.

vidyohs July 15, 2011 at 2:30 pm

I have lived through 5 of these confrontations of the public who want less spending and the less taxes that go with it, and those who want more taxes and increased spending for the vote buying power that brings.

In every single case as the momentum for the less taxes and less spending gathers steam and polled popularity, the politicians and their sycophants begin to beat their drum of “if you force cuts on us, we will cut the programs most essential to harmonious, peaceful, and safe society….i.e. police, education, medical aid, road maintenance, and commitments to retirees.”

And, it always seems as if the leaders of the less taxes and less spending go brain dead and do not fight back by publicly making an issue of those choices and pointing out that cuts could be made in such things as monetary gifts to industries such as Archer Daniels Midland, Unions, State Dept using 770 million dollars to rebuild and refurbish Mosques in the middle east, decreasing assistance to farmers, wool subsidies, and God knows how many of the other plethora of stupid programs that make up a goodly percentage of the national budget.

The statists should be hammered relentlessly with the truth of their hypocrisy, yet our side let Clinton get away with it in 94 and they are letting Obama get away with it now.

Tim July 15, 2011 at 5:01 pm

“Our side…”?????? You mean the two-faced GOP? If that’s your side so be it. I’ve said it before and I’ll say it again, BOTH parties are crooks! I don’t care one iota about Republicans because, in my opinion, they are worse. At least with Democrats, you know you will get more taxes and spending.

But we should be honest with ourselves here. The American people like big government….fact. They just don’t like having to pay for it. Time and time again when you present people with options of what to cut the answer is the same, “Don’t cut. But don’t tax either.”

The Other Tim July 15, 2011 at 5:19 pm

I agree with the sentiment, but I don’t think it’s entirely unreasonable to demand that government not cut services while simultaneously taxing less to do so. Private businesses do more with less all the time. Productivity isn’t tied to any specific amount of money, it’s tied to what human ingenuity can do with scarce resources.

I would really like to “failure to continue to provide last year’s services with 50% less money” become a just cause for firing bureaucrats.

Another Tim July 15, 2011 at 6:17 pm

You bring shame on the name of Tim such idiotic assumptions and statements.

SweetLiberty July 15, 2011 at 2:39 pm

This year we spent about $5,000 on a family vacation. Next year, I have proposed that we spend $10,000. My wife, being fiscally responsible, says that we actually can’t afford to spend more than a total of $2,000 on a vacation next year without going in the hole. I’ve seen the numbers and agree. Therefore, I will concede to reduce my proposed vacation spending next year from $10,000 to a frugile $7,000.

Question: Does my proposed vacation spending reduction make me a Republican or a Democrat?

J Howe July 15, 2011 at 3:16 pm

Sounds like a draconian cut to me. You must be a Republican. If you were a Democrat you would just insist that someone give you the additional $3000 in the name of fairness.

Methinks1776 July 15, 2011 at 4:34 pm

Well, if he were a Democrat and he’s getting the money from someone else anyway, his budget should increase to at least $20,000. The rich can afford it.

PrometheeFeu July 15, 2011 at 5:29 pm

Are you implying that tax money spent by Republicans is not somebody else’s money?

Methinks1776 July 15, 2011 at 9:43 pm

No.

vidyohs July 15, 2011 at 3:26 pm

:-) Like.

Kai July 15, 2011 at 2:46 pm

Seems to me all politicians are irresponsible; it’s just that some are less irresponsible than others. I wish there were a Warren Harding or Calvin Coolidge to turn to, someone who -like them- has the sense to whittle down spending.

Slappy McFee July 15, 2011 at 2:48 pm

This is why I always have disagreed with using government spending as a percentage of GDP as a measure of anything. It is also why I complain when people refer to tax RATE decreases as tax cuts. We are taxed in actual dollars (taxed, borrowed, inflated) and they pay in actual dollars. Focus on that and nothing else.

BTW — Minnesota is going to spend a extra $1.5 billion over the next biennium and this is being deemed draconian and immoral. Sad, so very sad.

vikingvista July 15, 2011 at 3:31 pm

Good point. Can someone tell me why it makes sense that government spending and taxes should be proportional to income earned? Does a billionaire spend the same proportion of his income on food, cars, clothing, and housing as a software engineer or plumber?

It seems to me, that as a country’s people become wealthier, the cost of government relative to their incomes should DECREASE.

It is as simple as this: the looters will take as much as they can possibly get away with.

Tom D July 15, 2011 at 2:50 pm

As Mark Cancellieri has shown above in the link provided, Paul Ryan is correct! President Obama has proposed that the Federal government spend $46 trillion over the next 10 years. The baseline budget will increase at a slower rate with the so called “spending cuts”. As usual in Washington a cut in spending is a cut in the rate of increase. But even a cut in the rate of increase is enough to have the liberals screaming bloody murder.

SweetLiberty July 15, 2011 at 2:58 pm

It seems like government spending as a percentage of population is a better measure than spending vs. GDP. Government should not increase spending just because we happen to be more or less prosperous as a nation, but rather should confine itself to the few things government should be doing according to the constitution, scaling those services based upon population and need.

Smash Equilibrium July 15, 2011 at 3:26 pm

“The federal government spent $3.5 trillion in 2010. That’s up from $2.5 trillion in 2005. Going to $4.3 trillion (43 trillion over ten years) IS NOT A CUT.”

It’s heaps better than the 52.1 trillion they would hit if we let them keep up at that clip. Not that that’s any consolation.

Mesa Econoguy July 15, 2011 at 4:02 pm

I’ve got odds on Ryan being a hell of a lot more accurate than Krugfart.

W.E. Heasley July 15, 2011 at 4:25 pm

“The President’s proposing we spend $46 trillion over the next ten years. With the debt limit increase, we’re saying ‘let’s spend 43 and a half.’ That’s not asking a lot over a 10 year period. And it will be a small down payment on what will be necessary to prevent a debt crisis. And the President won’t even do that.” – Paul Ryan

Regardless if the number is $46 or $43 trillion, the number, to a large degree, is not “spending” as in payroll, a new bridge, etc. as it is “politico promises through the mechanism of government”.

An item that should wake up James and Jane Goodfellow, publicized by none other than Obama himself, is the fact the federal government sends out 72 million checks per month. That should give one a quantitative image of the size of government and the dependency upon government.

A second item is that in August, 2011 if the U.S. government paid debt service first, then entitlements second, there is little money left over for anything else. That should be an eye opener to John Q. Public as that is a snapshot of the future if spending is not curtailed.

Thirdly, someone needs to start calling “entitlements” by their real name: politico promises through the mechanism of government. The Goodfellows and the Publics should clearly see they have been hoodwinked. Social Security, Medicare, and Medicaid are politico promises that the politicos knew were not possible.

Note: remember this phase over the last three decades which has now completely disappeared: “The U.S. is the wealthiest country on earth and we can’t allow XYZ to occur in this country, the wealthiest of all countries!”. The illusion that any problem could be solved with more money and that we had plenty of money…..that ridiculous argument has been retired.

vidyohs July 15, 2011 at 4:41 pm

And regarding your point #2, what does the only complete audit of the government ever done tell us?

http://www.uhuh.com/taxstuff/gracecom.htm
“Resistance to additional income taxes would be even more widespread if people were aware that:

One-third of all their taxes is consumed by waste and inefficiency in the Federal Government as we identified in our survey.
Another one-third of all their taxes escapes collection from others as the underground economy blossoms in direct proportion to tax increases and places even more pressure on law abiding taxpayers, promoting still more underground economy-a vicious cycle that must be broken.
With two-thirds of everyone’s personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the Federal debt and by Federal Government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services which taxpayers expect from their Government.”

Does anyone, anyone at all, believe for a nanosecond a thing has changed vis-a-vis the income tax, its collection, and use, since the Grace Commission Report?

Vangel July 15, 2011 at 5:00 pm

“Either Krugman or Ryan is wrong.”

Krugman is wrong. There are no draconian cuts. But Ryan is hardly in a position to criticize because his budget proposal would have increased the debt limit by around $9 trillion over the next decade. The only budget proposal that I have seen that seems to have merit comes from Rand Paul.

vikingvista July 15, 2011 at 5:09 pm

“The federal government spent $3.5 trillion in 2010. That’s up from $2.5 trillion in 2005.”

So…they should be able to cut $1 trillion from the budget this year without anyone hardly noticing, no?

Henri Hein July 15, 2011 at 5:35 pm

In Ryan’s defense, when he (or any other politician) talk about cuts, they mean cuts in discretionary spending. Non-discretionary spending will increase, and it may increase more or less, in total dollars, than decreases in discretionary spending. So yes, total spending can go up even though they cut the discretionary budget.

Pom-Pom July 15, 2011 at 8:52 pm

Maybe. But it is still obfuscation.

Pom-Pom July 15, 2011 at 8:54 pm

Is someone going to say “but in inflation adjusted dollars, it is no increase at all.”

MattW July 15, 2011 at 9:18 pm

The CBO Budget and Economic Outlook for 2012-2021 projects nominal spending of $46,055 billion. That ends up being 23.48% of GDP over the same time period (again, CBO projections. Side point: there are no recessions projected in there; not that it’s possible to project one, but by the time 2021 comes along it will have been 15 years since the beginning of this last one, and the likelihood that the US will go 15 years without a recession seems minuscule to me).

Tom D July 15, 2011 at 9:46 pm

It may take 15 years for the economy to recover from the last recession the way things are going.

Josh S July 16, 2011 at 12:21 am

I ate three cookies yesterday. I ate five cookies today, but I was thinking about eating seven cookies. See, I reduced my cookie consumption! Now why am I still getting fat?

Richard Stands July 16, 2011 at 1:29 am

Perhaps it would be useful to stress the distinction between a “budget cut” and a “spending cut”? I doubt sincerely very many (if any) of the latter are being proposed or would be implemented.

vikingvista July 16, 2011 at 1:58 am

And the latest doublespeak: “Revenue enhancement” = “Tax increases”. Because, you see, revenues cannot increase without a tax increase.

Greg Webb July 16, 2011 at 2:10 am

Ryan is right; Krugman is wrong; and debate among politicians is not theatre…it’s just a chance to give the public a song and dance.

vikingvista July 16, 2011 at 3:31 am

Bread and circuses.

Brought to you by the three branches of government: legerdemain, extortion, and cronyism.

Greg Webb July 16, 2011 at 2:33 pm

And, don’ t forget, those politicians all care about you…all while pocketing for themselves as much of the taxpayers’ dollars as they can get hold of. But really, they do care…trust them on that.

Steven July 16, 2011 at 8:50 am

Fascinating that Russ Roberts doesn’t have the time to do even the slightest research on Paul Ryan’s claim before saying, “Haven’t seen that number before which either tells you a lot about Paul Ryan or how easy it is for politicians to manipulate us.”

The fact that it is SO EASY to verify Ryan’s claim with a simple google search (that will lead you to the White House OMB web site and the source of the numbers) TELLS ME A LOT ABOUT RUSS ROBERTS.

Greg Webb July 16, 2011 at 2:37 pm

Steven, Russ says in his post, “Is the President really proposing to spend FORTY SIX TRILLION DOLLARS OVER THE NEXT TEN YEARS? I don’t know.” Your trying to make something about Russ not researching Paul Ryan’s claim before posting his comments tells me a lot about you.

Steven July 16, 2011 at 8:58 am

But beyond whether this or that talking head is right, the really important question is: “What are YOU doing about the mess in Congress?” I see a whole lot of complaining, then I see a bunch of libertarians saying, “It’s a waste of time to vote.”

Everyone here is smart enough to know the rules of this game: Politicians make the rules up! So if YOU are going to fix anything, it won’t be because YOU wrote a really slick blog entry or a pithy comment. It will be because YOU became the politician who changed the rules.

Greg Webb July 16, 2011 at 3:03 pm

Steven, you said, “What are YOU doing about the mess in Congress?” I see a whole lot of complaining, then I see a bunch of libertarians saying, “It’s a waste of time to vote.” I vote as I suspect most libertarians do. And, the “complaining” that you are referring to is discussion, which is how political movements are started that can change the political debate and government.

You also said, “Everyone here is smart enough to know the rules of this game: Politicians make the rules up!” No, politicians do not make the rules, rather political movements do, and those political movements can sometimes be outside the law.

The last major sweeping political movement was the progressive movement, which fundamentally expanded the federal government’s power through, among other things, the Supreme Court’s “re-interpretation” of the Commerce Clause of the United States Constitution. But, Supreme Court decisions have been overturned before as when the Court previously held that people could be property and slavery was legal despite the policy reasons underlying the Constitution. I believe that this political movement will grow primarily because “the best and the brightest” of the Obama Administration have proven that their blind ideology is a failure. And, though it may take years, I believe that government will be once again put back in its Constitutional cage.

The key to furthering this political movement is greater knowledge through informal discussion rather than spoon-fed politically correct talking points from the state-supported media. In the 1930s, many people were convinced that experts should run the government. Now, more people are realizing that “experts” do not have common sense and are working for their own best interests rather than “the people” as claimed.

But, by your comments, you seem to not like the discussion on Cafe Hayek. And, that is fine. Please go back to watching Comedy Central to continue your statist political programming.

Steven July 18, 2011 at 9:55 am

Greg, you make many wrong assumptions. Actually I love the comments on Cafe Hayek. And I’m a voting libertarian. But many, many libertarians follow Roberts’s and Boudreaux’s suggestion that staying away from the ballot box makes more sense.

Where you and I firmly disagree, though, is whether “the key to furthering this political movement is greater knowledge through informal discussion.” I still say the key to “furthering this political movement” is for libertarians to become more doers than discussers.

While conservatives and libertarians are great at logical discussions, over the last 80 years they have been largely absent from the field of practicing politicians. Disdain for all politicians, such as is commonly heaped by the owners and commenters in this blog, keep the logical thinkers from becoming the implementers of public policy. So we have a nation of liberal doers, bred over several generations, and unopposed by a similar cadre of conservative doers.

So Greg, you stay right here discussing. I’ve got some doing to attend to.

Clyde Dotson July 16, 2011 at 10:13 am

Dear Sir,

I took the OMB figures from their table 1.1 and worked with them some. If you take the increases from their projected figures for 2012, 2013, 2014, 2015, and 2016 and compute the annual rate of increase you find it averages 5.7%. If you increase the last figure (2016) by 1.057 to get 2017 and continue that rate of annual increase through 2021 you end up with a figure 5,894,812,000,000. That is an increase of 55 Trillion not 46 Trillion.

Greg Webb July 16, 2011 at 3:09 pm

I clearly like Paul Ryan over bigger-government statists like Paul Krugman, Barak Obama, Harry Reid, Nancy Pelosi, etc.

Robert Bosich July 17, 2011 at 12:54 am

Simple. If no money in wallet and credit card on verge of denial. Your compelled to modify behavior.

Liberals live in Utopia and see no boundaries or constraints…thet sort a steal your money…redistribution…wa la!

anthonyl July 17, 2011 at 8:57 pm

What if we all refuse to pay taxes as a statement of our mounting frustration.

anthonyl July 17, 2011 at 9:12 pm

We need to get back to a discussion of the things we don’t want and shouldn’t have the federal government do for us. What are the duties we can take back. It is my opinion that we can do everything for ourselves or through profit seeking ventures. Even defense and national security! Private Is, mercinaries, private security, private diplomats, even courts could be replaced with private mediators. Congress would just be left with a law or two to pass every year or so. Taxes could be collected at a rate of about 1% of income. This should be plenty for our governments necessary activities.

Greg July 19, 2011 at 10:18 am

Don, is this really the first time you’ve seen a long-term spending estimate?

Previous post:

Next post: