US Federal Spending by President

By Marc Chandler, Global Head of Currency Strategy, Brown Brothers Harriman

Here is a Great Graphic from MarketWatch two months ago. MarketWatch is owned by Dow Jones, and is not known for its left leanings. The information is as stunning as it is counter-intuitive: federal spending has gone up less under President Obama than any president since Eisenhower.

Many friends and critics of Obama want to attribute the 17.9% increase in government spending in fiscal 2009 to Obama, but a closer look at the facts indicate that it was President Bush’s. FY’ 09 began four months before Obama took office.

Obama’s first budget, FY’10 saw federal spending fall 1.8%. His second budget, FY ’11 saw federal spending increase 4.3%. This year’s budget saw a 0.7% increase in federal spending. The FY ’13 budget calls for a 1.3% decline.

This helps explain why the government sector has been and continues to be a drag on GDP. The federal spending is insufficient to offset the drag from state and local governments. This is likely to be evident at the end of the week, with the first look at Q2 US GDP.

Marc Chandler

Marc Chandler

Marc Chandler has been covering the global capital markets in one fashion or another for nearly 25 years, working at economic consulting firms and global investment banks. Chandler attended North Central College for undergraduate. He holds masters degrees from Northern Illinois University and University of Pittsburgh in American History and International Political Economy. Currently Chandler teaches at New York University Center for Global Affairss, where he is an associate professor.

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Comments

  1. Yes. Federal deficits need to be in the $quadrillions rather than the mere $trillions that Obama sinks into oblivion every single year. Very astute observation, Marc. You should get a Nobel Peace Prize — or at least share Obama’s. ;-)

    • Have you taken the time to learn about sector balances and how they impact an economy?

    • Most of the job losses have come at the state and local level, as governments try to deal with entitlement/retirement costs.

      Also, in addition to not counting the 2009 stimulus package, Chandler also discounts the future spending increases of Obamacare.

      • On the state and local job cuts – I figured this would come up when that comment was made so let me explain why it is Obama’s fault. The states are currency users with balanced budget amendments. So, if they don’t get federal aid during an economic downturn then revenues decline and they HAVE to cut spending to meet the balanced budget amendment. What Obama did early in his term was pass healthcare. This ignored the fact that the states were going to need a huge amount of federal aid or face cuts. So this ultimately falls at Obama’s feet. Had he better understood this dynamic he would have not pressed so hard on healthcare and would have instead focused more attention on the coming state funding woes. But he has no idea how our monetary system works so he pushed for healthcare and let the states wallow in a similar misery that Europe is undergoing.

  2. Now that we have the name-calling out of our systems, the numbers remain clear – it’s people named Reagan and Bush that got us in the dumper.

    • That chart is flawed, and you should learn basic arithmatic.

      It starts with Obama’s first fiscal year – September 2009.
      By that time he(and Bush before him) had pushed up the federal spending to historical record highs(25 %) aside from world wars. Historically speaking, spending has been at 19-20 %.

      So that he has grown spending little isn’t a surprise. You can’t exactly lavishly grow spending as a percentage when you begin at levels surpassing all non-war years of the FDR era. That he has not let it retreat it more normal levels is the big story.

      My god some people on the left are stupid.
      (And I’m a Keynesian myself!)

      • David – try some other math…

        Reagan 1, 2 and Bush 1 cume was a 20.2% increase.
        Bush IIa, IIb and Obama cume is 17.6% increase.

        The only reason why the 2nd set isn’t higher is Obama’s low percentage increase. How is it stupid to point that out????

        Further, total spending is not high enough (or rather deficits aren’t high enough since they could be increased further with tax cuts) to combat the deveraging economy, that still has a growing population and growing savings rate. Obama should have spent another $2 trillion.

        The bottom line is Obama if Obama was the big spender he is claimed to be, then the economy would be doing far better than it is now. Instead he barely added to the baseline level of spending when the economy is in dire need of a lot more money.

    • According to the asterisked note for 2003-9 (Bush’s second term), stimulus spending for 2009 was reaassigned to Obama.

      This also relates to David’s comment. If this is the case, the low figure for Obama seems hard to believe, but that is what it says.

    • keep in mind that the stimulus was 1/3 tax cuts – so only 2/3 spending. And it was also a 10 yr bill… granted most has already been spent. but most just assume 2009 had $800B+ of new spending. Obama’s new spending has only been the stimulus and automatic stabilizers, because the GOP has blocked every possible Obama spending bill. So if the GOP hates gov spending (that’s a laugh) they should just take credit for the 1.4% increase rather than claim Obama is spending like crazy when he clearly isn’t

      • There is a huge amount of extra spending (trillions) built into ObamaCare, but most of it takes effect in 2013 onward. Very little has been spent yet.

  3. What is said about Obama vs. who Obama is, and what he has done, are two very different things. The GOP has created an imaginary person, and that is who they are running against.

  4. Year Outlays(000,000)
    2005 7.81% 2,471,957
    2006 7.41% 2,655,050
    2007 2.77% 2,728,686
    2008 9.30% 2,982,544
    2009 17.94% 3,517,677
    2010 -1.75% 3,456,213
    2011 4.25% 3,603,061

    Here are the numbers from the White House OMB.
    One could make these numbers say anything to support anyone. http://www.whitehouse.gov/omb/budget/Historicals

    Kind of reminds me of that old quote about lies, damnable lies and statistics

    • TARP was in FY2009. So was Obama’s stimulus, and the Obama expansion of unemployment benefits to 99 weeks (a HUGE outlay). It looks like the TARP and the Stimulus established a new budget baseline. I don’t know how the article chart gets Obama’s increase at only 1.4% unless they are only counting discretionary spending. Automatic benefits like food stamps, unemployment, disability, welfare, etc… are non-discretionary, but the eligibility and benefit rules were changed in 2009.

      • Given that unemployment was already up when Obama entered office, it may be that the unemp. insurance extension isn’t counted as a penalty. He just kept that spending high.

        This is a good reason to look at the long-term effects of new policies, not just the transient change in spending from point A to point B. (Not that Obama has caused *that* much change in long-term spending either, for that matter.)

  5. From an MMR/MMT/general stimulus perspective, shouldn’t we actually be talking about deficit spending here?

    I calculate the average deficit under Bush’s years as about $440 Billion ($300 B if the 2009 year isn’t counted.)

    Obama averages around $1.30 Trillion.

    I should also add that the numbers would be a lot more meaningful if adjusted for inflation/deflation. Budgets will naturally grow faster during times of inflation, and shrink during deflation (assuming no attempts at tax and spend economic tinkering).

    • MMT has nothing to do with this website any longer so I don’t speak for them or what their opinions might be. Marc is certainly not an MMTer and probably not even an MRist. MR generally tries to steer clear of the politics involved in matters likes these. What’s most important to MR is just understanding how the system works. In this regard, the federal spending has been a big help over the years since our understanding of MR shows that the additional net financial assets and cash flow from govt spending has helped bolster the economy during the balance sheet recession….Deficits or not, the govt spending was positive in many different ways.

      • Cullen, I do understand your divergence with MMT. I didn’t realize you had dropped the extra “M” though…

        I just thought that for many flavors of economic thought, the deficit is more important as an economic driver than total spending.

        In my current understanding MR, it’s not just government spending that is stimulative. It’s the actual deficit that allows creation of vertical money.

        In other words, if the budget is balanced, the vertical money supply can’t be increased fiscally. Or am I wrong about that?

        Thanks.

        • The differences between MR and MMT have become pretty enormous so if we blur the lines between them then readers will misunderstand crucial points. For instance, regarding your remarks – MR doesn’t even use the term vertical because Basil Moore and others originally used the term in a form that MMT later mangled and totally changed the meaning of – it’s very confused in that regard. We just cut it out for sake of clarity. It’s better to use “inside money” and “outside money”. Inside money is bank money – it’s inside the private sector. Outside money is govt money because it’s created outside the private sector – that’s notes, coins, reserves, t-bonds. Most of the money in our economy is inside money – bank money. Very little money is actually created by the govt.

          Most govt spending is reusing inside money. Procuring it in bond sales and tax receipts and sending it back out. MMT says money gets destroyed when taxes are paid. This is wrong and verifiable. Money gets credited to a specific account and then debited from that account then credited to another account. That’s not destruction. It’s redistribution. What the govt can do is create net financial assets through t bonds. They do this by procuring funds from the private sector in bonds sales and crediting two different accounts – one with a t-bond and the other with the spending proceeds. This makes the private sector more liquid and stabilizes their balance sheets to some degree. Tax spending is just recycling money from one person to another. I like to think of govt spending as being most beneficial during a downturn because it can alleviate a paradox of thrift environment and essentially unchoke an economy by adding spending that otherwise might not exist. In this regard, govt is like a cash flow machine or liquidity facilitator.

          Let me know if you have any questions there. I would also recommend that all readers reread my primer since we’ve added explanations to these detailed changes.

          http://pragcap.com/understanding-modern-monetary-system

          • That’s such a nice clean way of thinking about this. I love the MR view that government is a currency user also. You guys need to get this out into the mainstream. You’ve taken the good stuff from MMT and dumped all the political baggage and incorrect points. It’s great work.

          • Cullen, thanks, that helps! Just a couple things.

            1. So in MR’s view, deficits are the only way to create new outside money?

            2. I read your website nearly every day, and I’ve read all of the “long form” stuff you’ve ever written. Some of it multiple times, until I understood every paragraph. The only caveat being, I thought I finished all of that stuff 1.5-2 years ago. So I must have missed some of the changes you have made.

            As someone who reads you daily (sometimes checking in 15-20 times a day), I’ve managed to miss some of these developments. Do you have any recommendations for how I might better be able to keep up? I read the MR site once in a while, but it is WAAAAYY to deep for me to follow on a regular basis.

            • Hi Jay,

              Unfortunately, MR is just developing in the last 6 months so you’re not alone in missing changes. This is all evolving out of the disagreements with MMT and other schools and we’re working hard with a great group of people to develop it more fully. The best thing you can do is head over to the MR site and read the Understanding Series here. Digest each section on its own. I don’t think it will overwhelm you at all. http://monetaryrealism.com/understanding-monetary-realism-the-series/

              And as always, come back with questions.

              Regarding your first question – outside money is created when the Fed creates reserves or when the govt creates notes and coins for circulation. Also, t-bonds are created by the Treasury and their issuance results in an increase in net financial assets. Most money is inside money and is restricted to bank creation of loans/deposits. We’re mostly users of inside money. And most govt spending entails a recycling of this inside money through the economy.

              • Maybe the right answer is that during normal times inside or horizontal money is dominant, but since all inside money is offset by a debt, the government must monetize the deposits created with inside money during Depressions. In fact, one could argue that the sum total of inside money is negative since the money owed in all loans exceeds the value of the deposits created by the loans, as the interest rates on loans are always higher than the rate on deposits. When banks collapse, governments must print to offset part of the loss.

        • By the way, I just read Wray’s latest. Apparently he’s started referring to capitalists as “undertakers” and believes the housing crisis was only the fault of the bankers. He calls for Wall Street’s destruction. You’d have to be naive to not see how they’re driven almost purely by a policy agenda. I don’t like to stoke the MMT fire because they’re an irritable bunch and can be very nasty in comments, but it’s become so blatant that many of my concerns expressed during the JG debates are true….and I got absolutely raked over the coals for disagreeing with the JG (not even disagreeing, but being apprehensive about its implementation).

          • Cullen – Don’t muddy yourself with this stuff. I think you made a mistake getting so involved in MMT. You’re best when you’re thinking independently and not spreading someone else’s opinions. But your strength is not getting involved in politics and petty arguments. Just don’t do it. You won’t regret it.

          • Yup, almost all of them are bleeding heart progressives. I personally find the term “the 99%” nauseating and pointless. Warren Mosler seems to be one of the few sane ones who doesn’t get caught up in the political crap and has real-world experience in money markets. I like Hudson also even though he comes across as a bit conspiratorial, which is kind of fun to hear sometimes, especially when he is on a rant about the “rentiers”.

            They and their minions can get so partisan and arrogant about their theory, that they will denounce anyone who dare disagree with them as “neoliberal charlatans”.

      • CR, I’ve been reading the new stuff (nice work, by the way). For those of us who’ve been reading your work for a while, do you have an article explaining what, specifically, has changed in your views? The “Understanding the MMS” series is great, but beyond the change in policy recommendations, I’m unclear as to what changed from MMT to MR.

        In addition: Would you still say that budget surpluses are deflationary (to a first order, i.e, excluding credit and capital transfers)? That base money is initially created through a government debit? (either government spending or Fed creation of reserves through purchases of assets).

        • Here’s a piece detailing some of the differences between MMT and MR. Many of the big picture ideas are consistent (like the USA not being able to run out of money), but what MR does is dive deep into the institutional relationships, what money really is, what inflation really is and describe exactly how our system works. We also stopped using some of the confusing metaphors and misleading ideas (like the MMT idea that taxes destroy money). MMT is more of a progressive political approach that describes a system that COULD be, not a system that IS. That’s where we disagree. See the details here. It might appear as though MMT and MR agree on a lot, but we actually have totally differing views of the world. http://pragcap.com/how-is-mr-different-from-mmt

  6. The correct way to compare federal spending by President is as a % of GDP. Federal spending was close to 20% under the Carter administration, dropped to 18% under Clinton, and is currently at 24% of GDP. Bottom line, Obama has presided over higher federal spending than the 5 presidents that came before him.

    • He also inherited the worst financial crisis since the Great Depression, that was partly precipitated by Clinton’s “surplus”.

  7. The main issue in that chart is that total federal spending is far from the same as budget spending. I’m quite surprised that so many have missed it.

    When one looks at total federal debt growth *per capita*, and starts the count one year into the start of the presidential term, Obama still comes out as #2 after Reagan in total debt growth and far ahead of both Bush terms and Clinton too.

    http://www.nowandfutures.com/images/debt_only_capita_presidents5.png

  8. I’d spend time responding to you, but the fundamental dishonesty you show by assigning 2009 spending to Bush shows there’s no point.

    Who signed the 2009 budget? Obama. Who passed the 2009 budget? A Democrat controlled Congress.

    Did you include the 2009 Democrat “stimulus” in with that 2009 “Bush spending”?

    Did you include TARP in the Bush spending? Did you add that one time only expenditure to the “Obama baseline”? Did you subtract TARP repayments from Obama’s spending, or from Bush’s spending?

    Did you add the Iraq military spending to Bush’s total? Did you credit Obama with “cutting spending” for the (planned by Bush) decrease in military spending in Iraq?

    Do you have the slightest shred of honor or decency, or are you just a left-wing propagandist?