The “Which President’s Debt” Question Again!
From Twitter, I found this article by Cato senior fellow and Johns Hopkins econ professor Steve Hanke. Hanke conlcudes that since 1980, Bill Clinton has been the president who cut spending the most. Now, this is fairly familiar territory for me, and the piece caught my eye because of this chart:
Naturally, the dramatic jump at the beginning of Obama’s presidency leaped out at me, since I’ve been to battle with those trying to assign all spending growth since Bear Stearns to Obama. To sum up, about a year and a half ago this whole thing about assigning spending and debts to presidents came up when Nancy Pelosi put out a bad chart, The Washington Post’s Gless Kessler did an analysis of it that I disagreed with, and we went back and forth on it a bit.
While that discussion was about deficits and Hanke’s deals with spending, the principles still apply. A big problem in this kind of analysis is one of baselines, which are problematic for two reasons. First, determining which spending should be assigned to which president is not as easy as it may seem. More fundamentally, because presidents take office at different point in the business cycle, it’s usually impossible to make an apples-to-apples comparison between presidencies, especially when doing a simple comparison such as spending/GDP.
I went to Hanke’s source (OMB) and reverse-engineered his data. In the chart above, Hanke set the fiscal year prior to a president’s election as his baseline, which is the same bad logic used by Obama’s opponents (and Kessler, initially) in these discussions two years ago. As I wrote then:
The obvious problem is that the FY ends on September 30, not December 31. A president can’t possibly be held responsible for changes in the debt that occur between September 30 and his inauguration on January 20. For example, Obama entered office close to 4 months after FY 2008 ended. Certainly it makes no sense to assign to Obama the $500 billion of debt accumulated between September 30, 2008 and January 20, 2009. And because GDP dropped dramatically in the 4th quarter of 2008, debt/GDP increased by close to five percentage points between the end of FY 2008 and Obama’s inauguration.
It’s also usually not fair to assign deficit spending to an incoming administration when they had no input. When George W. Bush entered office in January 2001, he was administering Clinton’s FY01 budget. Except for those provisions signed into law by Bush (such as the 2001 tax cuts), FY01 should be both the final year of Clinton and the baseline for Bush.
Sometimes these kind of tweaks can make a big difference. For example, much of the FY 2009 crisis-related emergency spending was passed into law before Obama’s inauguration. Obviously, assigning this spending to Obama rather than Bush makes no sense. In fact, the only meaningful part of FY 2009 that should be assigned to Obama is the stimulus spending that occurred before 9/30/09; CBO put this at $114 billion.
But this isn’t the end of the story. Because the TARP was largely spent in 2009, it will have a significant impact on any use of FY09 as a spending baseline. Since this money was emergency spending that’s been repaid in subsequent years, including it skews the record for no good reason.
Okay! Adjusting Hanke’s first graph by one year and subtracting $400 billion from 2009 spending to account for TARP and moving $114 billion from 2009 to 2010 to account for ARRA, here’s what the chart looks like:
Similar adjustments for transition years prior to 2009 are not included by will be tiny compared to the Bush-Obama transition. The take-away from this chart when compared to Hanke’s first two is that Obama’s spending record does not compare nearly as badly against George W. Bush as Hanke’s charts indicate.
And so the obvious flaw with this kind of analysis; Obama entered office in the midst of a HUGE recession, and if spending as a percentage of GDP is the data series, using the period at the bottom of the recession yields very different results than using one period earlier.
One more chart:
This is the change in discretionary spending as a share of GDP, with baseline the FY when each entered office (and 2009 adjusted down by $114 billion of ARRA spending). So the central premise of Hanke’s article is supported — spending did fall significantly under Clinton. It also fell by more under Nixon/Ford because of falling military spending after Vietnam, and grew substantially under George W. Bush. Also note how dramatically discretionary spending has been falling under Obama – first as ARRA spending ended, now as the sequester and other budget-cutting kick in.
This kind of analysis it tricky business. I don’t claim to have a handle on all the nuances of setting baselines, and like I said the business cycle makes straight comparisons hard. But using as a baseline the FY that ended 4 months before the president took office? Ridiculous.