In a recent blog, the Committee for a Responsible Federal Budget decried that “Government Spending Just Keeps on Growing.” However, there is important context obscured by CRFB’s hawkish flair.
The entire critique is centered on spending being the “largest it’s ever been outside of a crisis.” But sometimes spending outside of a crisis can still be beneficial or even necessary. If we had something like the Inflation Reduction Act in the 1990s, we might be much better equipped to deal with climate change. Similarly, it’s a good thing that we don’t still wait until rivers are catching fire to fund the EPA to monitor water quality. Every individual policy comes down to a matter of priorities; groaning about spending generally belies this. The government exists to serve the public. It shouldn’t be required to wait until they’re teetering on the brink to do something about it.
But, even under CRFB’s framing, there’s a pretty good case to be made that we are in the midst of plenty of crises.
- We are just starting to pay the deadly toll of human-driven climate change (with corporations, especially fossil fuel companies, still fighting to prevent us from facing it), as more homes flood, more forests burn, and more people die of extreme heat.
- We are still in a pandemic, according to the World Health Organization, even if it is no longer front of mind for most.
- A great power war seems more likely than at any time since the end of the Soviet Union, with Russia being increasingly aggressive on NATO’s eastern edge and China potentially eying up Taiwan.
- And none of this is even getting into the more mundane cost of living crisis that Americans are experiencing day to day.
In fact, CRFB even specifically discusses spending due to the Signature and Silicon Valley Bank collapses. Only they don’t view the financial panic as a crisis for some reason. The entire framing of the piece is wrong, much of the spending they complain about is necessitated specifically by ongoing crises that they simply don’t acknowledge. But beyond their ho-hum framing there are also several specific points they make that are misleading.
For a start, CRFB obfuscates the role of revenue. They are correct that spending is increasing, but a key part of why that translates to higher deficits and debt levels is that those increases are not being offset by revenue. They even admit this, but not until the very last paragraph. And not once do they mention the Trump tax cuts and all of the foregone revenue that resulted from that (aside from saying that extending “expiring tax cuts” would be very costly).
They also imply that much of the increased spending was enacted carelessly, saying that current spending is “2.4 percent of GDP higher than projected in CBO’s January 2020 baseline, suggesting this increase was largely unanticipated.” Duh. In January of 2020 no one had any idea about how pernicious the pandemic was about to become. There was no way for that projection to be able to account for either the major hit to GDP growth or the necessity of major fiscal stimulus that was just around the corner. Of course it was unanticipated. Why point that out? Because by saying just that and omitting the context, it makes it sound like the government went on an irresponsible spending spree, rather than that circumstances changed and we had to shift gears in a highly uncertain environment.
There’s also this passage:
The bulk of the remaining spending increase – 1.1 percent of GDP – comes from non-health and non-Social Security “other mandatory” spending, which totaled 2.7 percent of GDP in 2019, peaked at 10.5 percent of GDP in 2021 as a result of pandemic-related spending, and is now projected to reach 3.7 percent in 2024.
A small portion of the increase between 2019 and 2024 is due to lingering COVID relief – mainly the Education Stabilization Fund. But most is the result of higher spending on student loans (especially due to recent executive actions), spending for deposit insurance under the Federal Deposit Insurance Corporation (FDIC) following last year’s troubles in the banking sector, and increased spending on veterans and the Supplemental Nutrition Assistance Program (SNAP) (partially due to legislation and executive actions).
See how one of the biggest bank collapses in American history is “the troubles in the banking sector,” rather than a crisis?
But also, while CRFB’s accounting is technically correct about those costs, it is also misleading. Student loan forgiveness does add to the deficit, however its impact is generally overblown because the cost is presented as a lump sum, rather than as reduced revenue over the entire 10-year budget window. For instance, CRFB says that the latest Biden administration plan for debt relief could cost up to $750 billion, rather than $75 billion per year. (As an aside, this seems like an unrealistic overestimate, given that President Biden’s original plan for blanket forgiveness was only scored at roughly $400 billion.)
As far as the FDIC point, CRFB is referring to a recent report from the CBO that showed a major expense for deposit insurance. Basically, the FDIC sold off collapsed banks’ assets and have collected those revenues at a slower pace than the CBO projected last year. In two (see footnote 9) instances (see footnote 15), the FDIC basically sold notes receivable for treasury bonds of the same value, in the amounts of $50 billion and $43 billion. But that isn’t really an unfunded spending increase, it’s just an accounting maneuver that shores up the FDIC’s liquidity. The main government account has two negative balance entries totaling $93 billion, but those are balanced out by future repayments on the notes from the FDIC. According to the CBO, the increase in spending is “almost entirely offset by deficit reductions in future years as those payments are recovered.” Lamenting this as ever more spending shows either obliviousness to the CBO’s accounting or dishonesty about the real cost.
CRFB also includes this little figure:
Take a close look at the arrows. Note that for a stable cost (Medicare), the arrow goes midpoint (2019) to midpoint (2024). However, for increasing costs, the arrows go minimum (2019) to maximum (2024) and for decreasing costs (only defense) they go maximum (2019) to minimum (2024). This subtle difference exaggerates the slope of the arrows and makes them appear to indicate bigger shifts when viewed at a glance. It may be minor, but a lot of people won’t actually stop to take a close look and won’t notice that, so they could easily come away thinking the changes are greater than they are. It’s an easy fix: just draw all the arrows midpoint to midpoint.
Also, it is interesting that CRFB doesn’t celebrate the slight decrease in defense costs. Since they are all about lowering spending, a -0.2% change in defense as a share of GDP should be great news!
There is also one major problem that has been driving increased spending that CRFB totally ignores: Jerome Powell. Powell has been keeping interest rates high, despite them having little impact on inflation, for far longer than necessary. Not only does this drastically increase the interest costs on federal debt, it also undermines the effectiveness of subsidies to help transition to a green economy. As a result, it’s likely that even more spending will be necessary to finance that transition.
CRFB did say “Nearly half of the increase in spending from FY 2019 to 2024… is a product of both the large buildup in federal debt and the significant rise in interest rates,” but they neglect to mention why there’s such a significant rise in interest rates or mention that it is a choice being made a lifelong financier and Republican apparatchik. Given how eager they are to pin the blame on programs like SNAP and student loan forgiveness, it’s notable that on this point they don’t see any reason to wag a finger at Jay Powell.
Finally, let’s end where CRFB did, with their entreaty that “Policymakers should act soon to reduce the gap between spending and revenue, tackling the drivers of our national debt in order to put it on a sustainable downward path.”
If that’s what they really want, it’s difficult to see why they criticized President Biden’s budget, which would cut the deficit by $3 trillion. It’s almost as if they hate spending money on social programs more than they hate the debt itself.
Image Credit: “Maya MacGuineas” by New America is licensed under CC BY 2.0.