Posts tagged Government spending
A few weeks ago, I published “George Washington Shrugged”, in which I compared the tax/spend ratio of each state to its Cook Partisan Voting Index (PVI). But the comparison covered only two individual years, and did so against the states’ current PVI scores. In the analysis, there was a strong correlation in 2005, but not in 2010, between the states’ PVI scores and the tax/spend ratio.
It was pointed out that the Tax Foundation data covered the years 1981 to 2005, which would permit a more granular and thorough examination of the results. What would happen if we looked at the full spectrum of years from 1981 to 2005? (more…)
There have been a handful of articles published about the relationships among states between the taxes paid to the federal government and the money flowing back to the states from the federal government. In particular, the typical generalization is that blue states pay more than they receive, while red states pay less than they receive.
How true is this? The answer depends on the details of the question. First of all, only two studies have been widely disseminated on the subject. The first, published in 2007 by the Tax Foundation, was based on 2005 data. The second was published by Talking Points Memo in 2012, and looked at 2010 data. Let’s look at both of them, and examine their relative significance.
I’ll start with the later study, since it’s based on more recent data. (more…)
Last week, the Bureau of Economic Analysis published a report indicating that the gross domestic product decreased by an annualized 0.1 percent in the fourth quarter of 2012. Everyone (at least in politics) reacted as if the GDP drop was a bad thing. Democrats blamed Congressional Republicans. Most Republicans blamed Congressional Democrats (though some blamed President Obama). But was the report really that bad?
As with so many economic questions, the answer depends on one’s perspective.
Part of the problem here is that we typically point to changes in GDP as the indicator of the economy. It’s not that GDP is a bad metric, but, like all economic metrics, it needs to be viewed in context. The private sector grew in the fourth quarter. Again. And this happened despite drawdowns in private sector inventory. (more…)
On August 5th, The Wall Street Journal ran an editorial titled “Arthur Laffer: The Real ‘Stimulus’ Record”. The author, Arthur Laffer, is an American economist best known for the Laffer Curve. The editorial begins as follows:
Policy makers in Washington and other capitals around the world are debating whether to implement another round of stimulus spending to combat high unemployment and sputtering growth rates. But before they leap, they should take a good hard look at how that worked the first time around.
It worked miserably, as indicated by the table nearby, which shows increases in government spending from 2007 to 2009 and subsequent changes in GDP growth rates. Of the 34 Organization for Economic Coöperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus.
Regarding this nearby table, monetary economist David Glasner says the following in a critique of the Laffer editorial:
So how did Laffer perform his calculation? He doesn’t say. All he does is cite the IMF as the source for his table. Thanks a lot, Art; that was really helpful, but unfortunately, not helpful enough to figure out what you are talking about.
Glasner is referring to the fact that the table gives the source of the data simply as “International Monetary Fund”. It does seem that many discussions in the political arena are hamstrung (perhaps purposely) by the failure of the author to give a usable source, much less to explain his calculations. I’ve therefore taken the time to do what Laffer arguably should have done to begin with. (more…)
I listened for a while yesterday to a recording of Congressional testimony on the expected effects of the upcoming sequestration of defense funds. Testifying before the House Armed Services Committee last Tuesday were the CEOs from Lockheed Martin, European Aerospace Defense Systems (EADS), Pratt and Whitney, and a small aerospace business, Williams-Pyro.
I was struck primarily by the immensity of Republican hypocrisy.
What happened, if you remember, is that last summer, Congressional Tea Party members thought they could extort budget cuts by refusing to raise the debt ceiling (which allows the federal government to pay the bills Congress has already approved). An agreement finally was reached that the ceiling would be raised — but the cost was the Congress would appoint a special supercommittee (the United States Congress Joint Select Committee on Deficit Reduction, or NAMBLA) whose job it was to find around $2 trillion in deficit reduction. Keep in mind, this was only after Republicans rejected President Obama’s proposal of $4 trillion in deficit reduction.
As incentive to actually find $2 trillion in deficit reduction, the deal required that around $1 trillion in cuts, half to military and half to domestic programs, would be automatically triggered beginning the first of next year if an agreement could not be reached. As it turned out, the supercommittee superfailed, because Republicans absolutely positively unflinchingly refused to compromise. They wanted only to dictate their own terms, and to give up nothing.
Republicans now want to avoid the impending automatic cuts — to military spending. They don’t care about the domestic cuts (in fact, if the military cuts don’t happen, the whole $1 trillion will fall on — and virtually gut — domestic spending). So the Republican leadership in the House is holding hearings on how awful and rotten it would be if the military cuts actually went into effect as scheduled.
They want to renege on the deal.
They want their intransigence to have no consequences they don’t like. (more…)
Every so often, I like to pull a generally accepted economic truism off the shelf and test it. As you may recall, I looked a couple of times at the relationship between tax rates and economic growth.
With all of this talk of austerity I figured that this time I’d look at the other side of the government equation, namely the relationship between government spending and GDP. In particular, I wanted to see if increased government spending reduces GDP. It has often been suggested that it does, due to government crowding out private industry.