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On Krugman on Spending

Posted By Don Boudreaux On June 4, 2012 @ 4:35 pm In Budget Issues,Myths and Fallacies,Reality Is Not Optional,Stimulus | Comments Disabled

Here’s a letter to the New York Times:

Paul Krugman writes that “Adjusted for population growth and inflation, [local, state, and federal government] spending has recently been falling at a rate not seen since the demobilization that followed the Korean War” (“The Republican Economy [1],” June 4).  This claim is highly questionable.

Although he doesn’t specify his meaning of “recently,” he must not have in mind the years since the current downturn began.  After all, inflation-adjusted total government spending per capita is five percent higher today than it was in 2008.

Elsewhere in his column, though, Mr. Krugman suggests that he’s thinking back only to 2009.  It’s true that such projected spending for 2012 will be down by just under five percent from its 2009 level, but this statistic is largely an artifact of the huge – nearly 11 percent in a single year – spike in such spending that occurred in 2009 over 2008.  Compared to the average of such annual spending for the ten-year period 2003-2012, spending in 2012 is higher by 5.6 percent.  More significantly, compared to the average of such annual spending for the decade leading up to the downturn (1999-2008), such spending in 2012 is higher by 17 percent.*

Mr. Krugman misleads your readers by asserting that real total government spending today, adjusted for population growth, has been “slashed.”

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

* All per-capita dollar figures for combined federal, state, and local government spending are found here [2], and are adjusted for inflation using the Minneapolis Fed’s inflation adjustor [3].

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URLs in this post:

[1] The Republican Economy: http://www.nytimes.com/2012/06/04/opinion/krugman-this-republican-economy.html?_r=1&ref=opinion

[2] here: http://www.usgovernmentspending.com/total_2000USht_13hs5n

[3] Minneapolis Fed’s inflation adjustor: http://www.minneapolisfed.org/

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