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It's A Spending Problem

July 14, 2011, 10:57 am

So, should our deficit today be considered a spending problem or a taxation problem?  Kevin Drum argued yesterday it is a tax problem, and used a historic chart of spending as a percent of GDP to make his point.

I have to thank him.  I would have normally been skeptical of such an analysis yielding much that was useful, but I was forced to do the analysis to correct some obvious data errors in Drum's chart.  Having done so, I found the exercise useful and it became the basis for my column this week at Forbes.  The short answer, its a spending problem.  For more, hit the link.

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Category: Politics
  • Mesa Econoguy

    Outstanding column.

    Similarly, the left is currently screaming that "the rich" aren't paying their fair share, which also appears to be wrong:

    http://online.wsj.com/article/SB10001424052748703581204576033861522959234.html?mod=WSJ_Opinion_LEADTop

  • http://www.blog.horton-brasses.com Orion

    There are a couple of things that would be interesting to know.

    One-add a third line to the column to measure economic growth on the same chart. IE, if there is a correlation, negative or positive, in economic growth relative to government spending and taxation, it should be plainly apparent.

    Two-and I think this is a valid point for your critics (and Keynesian economic folks in general)-You state: "By choosing a start date in the recession year of 1981, it skewed the results by cherry-picking the cyclical peak of government spending, and the trend lines were absurd in the context of recent spending levels." So is it possible that the economic growth of the 1980's, after said peak, was high because of recession era government spending? I tend to doubt it, but maybe there is truth to it. Again, adding a third line to the chart would help.

  • Andrew Hofer

    One thing I think you should be on guard about - It seems to me government should take a naturally *shrinking* share of GDP, just as other staples have - food, etc. We should not accept that it isn't growing if its share of GDP is flat. The idea that government many years ago, when many employed people could barely pay for their residence and food, should be the same share of GDP as today, when we have a low income obesity problem, is absurd.