Monday, May 28, 2012

Presidents & Budgets

Recently President Obama drew attention to Presidents and their budgets with the following comments:
"I'm running to pay down our debt in a way that's balanced and responsible.  After inheriting a $1 trillion deficit, I signed $2 trillion of spending cuts into law," he told a crowd of donors at the Hyatt Regency. . . . "I just point out it always goes up least under Democratic presidents.  This other side, I don't know how they've been bamboozling folks into thinking that they are the responsible, fiscally-disciplined party. They run up these wild debts and then when we take over, we've got to clean it up."
The President was apparently relying on an analysis by Rex Nutting to support his comments.

I decided to take a look at the US budget for myself.  I suggest we can get a reasonably good idea about the President's assertions without all the detailed assumptions and calculations of Mr. Nutting.  I think the charts presented above and below are most useful in this regard.

Let me start by noting that the President only proposes a budget.  Congress is not required to pass the President's budget.  Congress could create and pass it's own budget.  However, Congress has not passed a budget at all since, I believe, fiscal year 2008.

President Obama's budget proposal for the 2013 fiscal year was made public on February 13, 2012.  The 2013 fiscal year begins in October 2012, and Congress is statutorily required to pass a budget by April 15 prior to the start of the new fiscal year.  Of course, budget or not, Congress and the President still spend money.

Since the President proposes and Congress chooses, subject of course to the President's veto pen, I think it is interesting to compare the President's annual proposal for spending with the amount actually spent.  I am interested in making comparisons between proposed and actual spending across as many Presidents as I can by using data available online.  Unfortunately, the information I was able to find online only went back as far as President Clinton's last six budgets.  What I found is presented in the charts above and below. Click on either chart to get a larger version to look at.  The information in these charts comes from Table 1-3 in the Historical Tables for each budget year.  Note that the number for actual FY 2012 spending is still an estimate in the Historical Tables.

Notice that the President's proposed outlays are never the same as the actual outlays, and that for most years proposed and actual do not seem very far apart.  It also seems that actual outlays were roughly flat for the first four years of the Clinton presidency presented in this chart, and that for the last two years of Clinton's presidency, and certainly by the Bush presidency, Congress and the President were choosing to spend at a quicker pace over time.

Notice also that for FY 2009 the actual outlays are significantly greater than the spending proposed in February 2008 by President Bush.  In addition, note that President Obama's first two budget spending proposals were significantly greater than the actual spending in FY 2010 and FY 2011.  Perhaps President Obama has signed $2 trillion of budget cuts into law, but given the size of his proposed budgets for FY 2010 and FY 2011 it seems to me likely that these budget cuts were chosen by Congress and not by the President.

FY 2009 seems unique among the fiscal year comparisons in the chart.  For FY 2009 there was a significant increase in spending beyond the amount requested by President Bush.  I think it is important to recognize that President Bush made his request for FY 2009 in February of 2008.  President Obama was elected in November of 2008, one month after FY 2009 began.  President Obama took office in January 2009, three months after the beginning of the fiscal year.  Although President Obama did not present his first budget, which was for FY 2010, until February 26, 2009 the President asked Congress to spend quite a bit of money for FY 2009.  For example, President Obama's first "stimulus package" was signed by him in February 2009, and this would have been part of the actual spending number for FY 2009, and not part of President Bush's budget request.  Perhaps President Obama did "inherit," so to speak, a $1 trillion deficit for FY 2009, but it seems fair to say that a significant part of this deficit resulted from proposals made to Congress by President Obama himself.

Consider the chart presented below which shows each President's proposed budget deficit versus the actual budget deficit.  The first thing I notice is that there are four years of actual deficits that are above the zero line which means there are four years of actual budget surplus shown in the chart.  Each of these budget surpluses happened during the Clinton Presidency.

Of course the most obvious aspect of the proposed versus actual deficits chart is that from FY 2009 on the size of the government's deficit has been very large compared with any of the earlier years.  President Obama asserted: "They run up these wild debts and then when we take over, we've got to clean it up."  There are some "wild" deficits shown in the chart, but they are found within the Obama years, and it seems to me that as late as February of this year, there has been no budget proposal that fits with the idea of cleaning any of it up.

Saturday, May 19, 2012

Mill On Liberty

Here are a couple of quotes from J.S. Mill on the meaning of liberty:

The object of this Essay is to assert one very simple principles, as entitled to govern absolutely the dealings of society with the individual in the way of compulsion and control, whether the means used be physical force in the form of legal penalties, or the moral coercion of public opinion.  The principle is, that the sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection.  That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.
The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it. 

Thursday, May 10, 2012

Appreciating Hayek

I think the most important insight of Hayek was to understand that knowledge in any large society is decentralized. The most important function of social institutions is to mobilize this knowledge in such a way that it can been used by individuals in making their decisions. Thus: the impossibility of rational calculation under socialism (a conclusion Mises came to in a somewhat different way), the importance of the rule of law, the importance of cultural-social rules, and so forth. Compare that with, in my view, the misguided trivality of Paul Samuelson’s behaviorist theory of revealed preference or Richard Kahn’s mechanical multiplier or Maynard Keynes’s contributions to economic policy guided by his elite hand. I could go on. In just about every class I teach I tell students about the meaning and the significance of Hayek’s idea of the decentralization of knowledge in society. This idea alone has the power to change minds dramatically. One student told me it changed her life. I do not care if students remember the Weak or Strong Axiom of Revealed Preference or the necessary conditions for perfect competition if they remember Hayek’s ”The Use of Knowlege in Society.”

Friday, May 04, 2012

North or South, What's The Difference?

I took this image from Google Earth.  I think it is interesting because of the contrast between the "north" half of the picture and the "south" half of the picture.  The upper portion of the picture seems to me to depict a standard of living that is much greater than the standard of living in the lower portion of the picture.

Can you guess where this is?  Can you guess what explains the difference between the upper and the lower portions of the picture?

I hope you won't cheat and check out the following links before trying to answer these questions.  Daron Acemoglu and James Robinson can help you understand the difference.  So can Mancur Olson.

Or (shameless plug), if you live close to Colorado Springs you can take my course next Fall Semester to learn the answer.