Home > Main > Can you find the runaway spending during the crisis? How about the Surplus of the late 1990’s?

Can you find the runaway spending during the crisis? How about the Surplus of the late 1990’s?

February 16, 2011

A good way to highlight recessions is to make the area of the recession Gray.

This graph has been mentioned a few different places.  The idea is that government spending didn’t really accelerate during the crisis – in fact, you can barely tell any difference at all in the total amount of spending.  But I don’t like this graph for a few reasons.  First, it has a 10 year time line, which is too short to tell if the trend is really solid.  Then, it has called attention to your eye by using the recession bars.  Also, it uses raw numbers, and not log numbers.  Log numbers are appropriate for dealing with things that grown exponentially, like economies.

Clearly, this chart could be improved with a few simple changes. It would show what actually happened better, and in a way that makes it totally clear that the government hasn’t been out of control in its spending for the last few years. I made a chart of the same data that:

  • Covers 20 years instead of 10
  • Takes out the recession bars so your eye does not know where to look for more or less spending
  • Uses logarithmic scaling to account for exponential growth

Can you spot the runaway spending during the Crisis? I cannot

I think this updated chart shows pretty well that the entire deficit we’re facing today was due to a falloff in tax collections prompted by a huge drop in economic activity, not runaway spending by the U.S. government.  I think this chart more accurately shows the real change in government spending due to the crisis: nearly nothing.  State governments cut back as much as the federal government expanded spending, so the net effect was as though there was no extra spending at all.

Once we take into account that nearly all of the extra federal spending went directly to prop up the banks, then this graph becomes even worse.  If we correct for this, government spending probably actually fell for normal people.

Of course, I’ve played a trick with the data. I included the 1990’s in this graph. Remember the Surpluses of the late 1990s?  I do.  Can you spot the surpluses we had in the late 1990s? No?  Me neither.  Seems likely the surpluses were due to economic growth and not any spending constraints.

Our government deficit – or surplus – is determined almost entirely by the amount of taxes collected due to economic conditions and not due to dramatic changes in spending.

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