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January 18, 2013 11:42 AM What Government Actually Does

By Ed Kilgore

In drawing up the agenda for the House Republican retreat underway in Williamsburg, I am very confident in asserting that organizers did not for a moment consider America’s preeminent number-cruncher, Nate Silver, as a potential presenter. He is, after all, still being punished for correctly predicting the outcomes of the last two presidential elections.

That’s too bad, because the solons might have learned something—and not just about public opinion. Earlier this week Nate put up a post at FiveThirtyEight that analyzed government spending over time and as a percentage of gross domestic product. You can and should read the whole thing, but I want to draw attention to four particular findings by Nate that are very important as we enter the annual season of national agonizing over federal spending.

The first, and best-known, data point, is that the growth of “entitlement spending” in recent years has very much been the product of a health care cost spiral that has equally affected public and private spending. That’s significant because progressives tend to favor more government intervention to stabilize health care costs (while expanding coverage), while conservatives tend to favor privatization (while abandoning or paying little attention to a goal of universal coverage that used to be a bipartisan totem). Both sides claim their policy prescriptions will break the cost spiral, but in case that doesn’t happen right away, progressives favor socializing the costs through mandatory cost-sharing in private markets and progressive taxes in the public sector, while conservatives favor shifting costs to consumers (or in the case of public programs, beneficiaries) on the theory that Americans should take greater “personal responsibility” for health care.

These are diametrically opposed approaches based on different philosophies, policy goals, and readings of empirical reality. Compromising between them could produce outcomes perverse to both points of view.

The second data point I’d like to highlight is that of all the contributors to “runaway federal spending,” the item that can’t be blamed at the moment is interest on the national debt, which as Nate points out represent less than half the level of 1991 as a percentage of GDP. So for all the endless talk of an unsustainable debt burden that will blight the lives and crush the souls of our children and grandchildren, persistently low interest rates (themselves a refutation of the claim that financial markets are panicked about debt) have made federal borrowing a bargain.

The third often-forgotten fact is that although defense spending is much lower as a percentage of GDP than it was at the height of the Cold War, it’s still a lot of money for a nation in relatively peaceful times, and currently represents 24% of federal spending, up from 20% just a decade ago.

And finally, Nate’s analysis illustrates the remarkably little-understood fact that much of what we think of as “government spending”—the vast array of non-entitlement federal programs that deal with everything from roads and bridges to schools and prisons and environmental protection efforts—represent a very small (2.5% of the budget in 2011) and generally stable (less as a percentage of GDP than it was in the early 1970s) share of the federal budget and of GDP.

Many years ago, I used to do a presentation on the federal budget that including an exaggerated but generally accurate sound-bite: “In this country the federal government doesn’t do a lot other than fighting and anticipating wars, writing regs, and cutting checks.” My main point was that most of what government actually does in the domestic arena is actually done by state and local governments—or increasingly by the private sector responding to regulations and tax credits and other inducements. States and localities have relatively limited abilities to respond to conditions requiring increased spending, thanks to balanced budget requirements and borrowing limitations. So the counter-cyclical role of the federal government in subsidizing state and local services in a recession or a period of stagnant growth is very important—not that you would know it from the repeated “freezes” and “sequesters” to which non-defense discretionary spending is being exposed. Now if you are a conservative who doesn’t believe government at any level has much business running schools or regulating the environment or helping poor people survive, that’s just fine. But progressives, even those who say we need a big, bold, active government, don’t tend to put any kind of priority on aid to state and local governments when budgetary decisions are being made.

If all these numbers seem to exist in a reality parallel and quite different from what we hear in Washington so often, that’s not because they aren’t as important as which “team” is winning this or that maneuver over taxes or the debt limit—or because, as progressives often seem to think, we should just ignore federal spending altogether and focus on raising the revenues necessary to pay for them. It’s a hackneyed but nonetheless acutely true saying that public budgets reflect an agenda of investments and services we choose to tax ourselves to provide. Whether you think federal spending on this or that item is a problem or a solution, it’s fundamental to every question we ask ourselves about the direction of the country.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on January 18, 2013 12:07 PM:

    We need long-term planning after the structural changes that have negatively impacted our economy over past 40 years - some the fault of government, or lack thereof, some the fault of businesses, and some the fault of individuals and families.

    Having said that, it's tough to do, when not only has long-term planning in business gone by the wayside, but in government, too.

    Business leaders have become too fixated on "get rich quick schemes," so that they can make their fortunes early, and retire - before the long-term consequence of their short-term gains can be felt.

    And government has privatized so many functions to business, that it can no longer do long-term planning, because their business "partners" don't, or can't.

    And then, add to all of this, the politics of polarization, impeachment, the wars and occupations, the tax cuts, and other countless political wedge issues, and everything else over the past 15+ years - all meant to get and hold political power, and what you've got is a recipe for a governmental souffle that's guaranteed to fall.

    Oh, now add the "Both sides do it!" narrative from our MSM, and we can be sure that that no one can even agree on the ingredients of that guaranteed-fall-souffle.

    What a fuster-cluck!!!

  • Mimikatz on January 18, 2013 12:11 PM:

    This is why conservatives are so afraid to accept global warming as real. It is a problem that can't be dealt with by private action or states and localities. Not that they don't all have a role, and are doing more than the Feds at this point, but a genuine, planet-saving response is going to take lots more federal intervention, and that is really scary to some people.

    The point that there isn't really much ground for compromising between the extreme GOP philosophy and the prevailing moderate-liberal philosophy is a good one.

  • Cugel on January 18, 2013 12:12 PM:

    Don't try and confuse us with reality! We know what we think! All the blacks and Latinos are on welfare!

    And they are the "takers" who are poor & lazy and unemployed and taking my tax dollars so they can buy plasma big-screen TVs and Cadillacs, and being bribed to vote with Obama-phones, and taking jobs from Real 'Merkins who are the "makers" and they are creating an "entitlement society!"

    sO ThEre!

  • Anonymous on January 18, 2013 12:28 PM:

    ...while conservatives favor shifting costs to consumers (or in the case of public programs, beneficiaries) on the theory that Americans should take greater “personal responsibility” for health care.

    And let's not forget their favorite vehicle for doing this: the interstate insurance scheme.

  • Josef K on January 18, 2013 1:21 PM:

    That’s too bad, because the solons might have learned something—and not just about public opinion.

    Doesn't that presuppose an actual, biological capacity to actually thiink, never mind process information?

    Exactly when as the current incarnation of the Conservative movement displayed either capacity in the last say 20 years?

  • golack on January 18, 2013 1:24 PM:

    NOt to mention posts a while ago showing taxes, as percent of GDP, just a few percentage points higher to get us on the road to a balanced budget. Basically the deficit is a lack of income, not exploding government.

  • bcinaz on January 18, 2013 1:43 PM:

    Nate Silver attempting to explain real world economics to Tea Party Republicans - I would pay a lot to see that.

  • Jack Lew on January 18, 2013 2:19 PM:

    Other than letting people get killed in Chicago, getting guns to narcos in Mexico and killing a US citizen with drones, I'm not sure what. But then again, Jamie Dimon is happy and I am as well.

  • M-Pete on January 18, 2013 2:46 PM:

    "of all the contributors to 'runaway federal spending,' the item that can't be blamed at the moment is interest on the national debt, which as Nate points out represent less than half the level of 1991 as a percentage of GDP."

    Well, "at the moment" is the important phrase here. Right now we're paying something like $220 billion of interest in a $15 trillion dollar economy, or under 1.5%. Not so bad, right?

    Okay, but what happens in seven years? The economy is expected to grow to about $20 trillion, and interest payments are expected to grow to $1 trillion. So 5% of the total economy will be consumed by interest.

    That 3.5% difference might seems small, but it matters. Historically, in the best of times, federal revenues have topped out at 20% of GDP. That means that in order to get the books to balance, we'll need the federal government to spend only 16.5% of GDP. That will require enormous cuts - cuts that as Silver and Kilgore note, cannot simply come out of discretionary spending.

    (Links here: http://en.wikipedia.org/wiki/List_of_countries_by_future_GDP_%28based_on_ECI%29_estimates http://www.usnews.com/news/articles/2012/11/19/how-the-nations-interest-spending-stacks-up)

  • Chris Conover on January 18, 2013 3:02 PM:

    Health spending is the central driver of growth in government, both for the past 50 years and for the next 75. http://www.forbes.com/sites/chrisconover/2013/01/17/nate-silver-gets-it-health-care-drives-increase-in-government-spending/

    As you say, the two parties have diametrically opposed views on how to address this. Resolving that impasse requires leadership. Sadly, the current Oval Office occupant appears to have an "I won" attitude, so it's hard to be optimistic about forward progress on this issue before he leaves office.

  • steverino on January 18, 2013 3:31 PM:

    Krugman calls the US Government an insurance company with an army.

  • Ray on January 18, 2013 4:20 PM:

    We need to scrap the tax codes in both the Fedreal level and the State level. Full account of the cost to run governtment to deliver the services we expect. Like Socilist governments have been doing in Europe for years. All citizens pay the taxes. If the cost is 80% of earnings so be it. Then you truely have decided to embrace the cost. We have the ignorance factor from both the right, left and others in our populace. We are kept from knowing the cost and given boogey men for every issueas to distractfrom reality. Reality is we are all be played for elites to hold power. Constitution is the only document that gave every person that power. All should look to it now before we are to late.

  • John on January 18, 2013 6:31 PM:

    Mr. Kilgore writes: "The third often-forgotten fact is that although defense spending is much lower as a percentage of GDP than it was at the height of the Cold War, it’s still a lot of money for a nation in relatively peaceful times..."

    It is remarkable that Kilgore believes we are a nation in "relatively peaceful times."

    Al Qaeda and other Islamist groups are currently filling the power vacuum left by the crumbling edifice of dictatorships throughout the Middle East, many citizens of the nuclear-armed Pakistan demonstrate outright hostility toward the U.S., Iran continues a public campaign of anti-Americanism while pursuing nuclear arms, South Korea has test-fired nuclear arms on more than one occasion during the past four years, China is growing its military power and simultaneously using its Navy to aggressively patrol strategic shipping lanes and chokepoints in the Pacific, meanwhile our European allies are wracked by violent and frequent street protests regarding persistently low economic growth and opportunity.

    How is this a "relatively peaceful time"?

  • john werneken on January 19, 2013 2:46 AM:

    NO. What Government really does is propose to steal in order to defend and to promote. It's a reasonable idea when done right: what is taken is somewhat a matter of what is agreed to be given; the sheep might be fleeced but they are not skinned; those (other than the Government) threatening violence and/or intimidation are restrained whether foreign or domestic; numerous conveniences difficult to obtain by other means are provided.

    Those include a system of laws, a currency, sometimes infrastructure, research, education, and exploration; often those with the lesser resources otherwise would receive income through the government from those with greater resources; the whole idea being the that the security, prosperity, freedom, and happiness of the community as a whole is promoted, with all members except those excluded by some ‘due process of law' included in all of this at least to some extent.

    Concentrate the power to decide, target the taxes and the benefits, make currency law and everything else impossible to rely upon, allow public functions to be performed so poorly that only those being paid to be part of the performance benefit, decrease security in the face of threats both foreign and domestic, and above all operate as if the general opinion ought to allow force to be used to force all individuals to conform to it, or the basic functions to be subverted, and the Government becomes no different than any other armed gang, and worthy of exactly the same response.

    Please note I claim what I say to be fact and do not care if the entire population of the country vigorously disagrees, or vigorously disagrees, or feel otherwise. If my claim is true, the options of others and the useless numbers from Nate matter absolutely not at all.(I could tell just by waking up in the morning six months ago who would be President: disaster had receded a bit and though looming, was unlikely, all vested interested being united in attempting to postpone it. Given the justifiable fears Bush towards the end and Obama toward the beginning had to deal with both did well in my opinion), that means the incumbent wins. Which he did.)

  • karl on January 19, 2013 4:13 AM:

    When Nate Silver correctly predicts a Republican victory I will take him seriously. I suspect that he will keep predicting the democrat until he loses, and just like 2000 and the Keys to the White House, it will somehow "not count".

  • rangerrebew on January 19, 2013 7:11 AM:

    The real question is how much of the spending is actually Constitutional? I'm not saying legal, I'm saying Constitutional. The two major components of spending are "the general welfare" and the military. Are bridges to nowhere general welfare? Are college studies of the sex lives of gnats general welfare? Is foreign aid general welfare? How much money could be saved and how powerful could the economy be if the Constitution were faithfully followed instead of manipulated for party political gain?

  • Henry Miller on January 19, 2013 7:47 AM:

    "...the growth of “entitlement spending” in recent years has very much been the product of a health care cost spiral that has equally affected public and private spending."

    Then Mr Silver would be doing us all a favour by figuring out the driving factors of the "health care cost spiral."