There is a false dichotomy present in the presidential race. Before the arena lights finally went out at the Democrat National Convention last week, pundits were already bloviating on the clear choice between President Obama's and Gov. Romney's vision for the country. However, at least when it comes to growth of federal spending, the GOP and the party of FDR are closer together than many surmise. As we look ahead to the presidential debates in October, there are some clear data points the moderators could use to get the candidates talking about how they would actually slow down the growth rate of the federal budget--because right now neither has a plan to.
Historically, government spending has increased dramatically under every president since the 1950s, regardless of which political party is in office, as shown the graph below. President Obama and Gov. Romney's budget guru running mate Rep. Paul Ryan have both proposed budgets that they claim will restructure the economy, create economic growth, and reduce the deficit. While both sides have lobbed rhetorical bombs claiming the other's budget is "social Darwinism" or "unserious and irresponsible," the graph shows that when comparing the projected federal outlays in each of their plans, both parties trend in roughly the same direction.
This graph is not particularly new and the information has been available for months now. However, the theme coming out of the conventions was that the Republicans are the "we can do better" party of individualism and the Democrats are the "we'll take care of each other" party of communitarianism. The projected federal outlays from 2012 to 2022 in the chart above suggest there isn't much difference between the two on net federal spending though.
Yes, under the Ryan plan federal outlays are lower than those proposed by President Obama, and perhaps the lesser of the two evils. But consider that in the Ryan budget, only once over the next 10 years would federal outlays actually decrease year over year (just in the first year from 2012 to 2013). It is clear that federal outlays continue to increase under either proposed budget.
When rhetoric is set aside, both parties fail to recognize that large amounts of government spending paired with massive public debt will only further hinder the chance of a recovery.
Were a moderator to bring up this information at one of the presidential debates, critics may push back and suggest that while the rate of growth in federal spending has picked up dramatically in recent decades, population and inflation considerations make this upward trend in federal outlays understandable. Even if you accept this argument, and instead look at federal outlays as a percentage of GDP, the projections of both the Obama and Ryan budgets remain disappointing. The main difference is that the Obama budget levels are around 23 percent of GDP by 2022 while the Ryan budget is at 20 percent of GDP by 2022.
As shown in the graph above the Ryan budget's government outlays dip just under the 20 percent of GDP line for a few years and then creeps back over the threshold by 2022. Federal outlays under the Ryan budget are only 3 percentage points lower out of total GDP than under President Obama's plan.
This is close to the historical norm of the past 40 years, and some might see it as an acceptable target. However, these projections are difficult to rely on as an uncertain future of the global economy does not lend itself well to predicting real GDP growth. If real GDP growth falls behind its projected path, it is unlikely that government spending will be reduced to keep a consistent ratio of spending to GDP growth. In fact the opposite was true in recent years under both the Bush and Obama administration in that as real GDP growth decreased, federal spending increased. That will mean government spending as a percentage of GDP stands about as good a chance of sticking to 20 percent as Gov. Romney does in a career as a rapping stand up comic. So while the rhetoric varies, when if comes to federal spending neither party is actually the party of smaller government.
The first in a series of presidential debates leading up to the November election takes place on October 3. How each presidential candidate plans on resurrecting the United States economy and ensuring our nation's solvency should be a central concern in these debates. The key to avoiding a debt crisis of international proportions (ahem, Europe) is simple - cut government spending. However, convincing the American public that we can get there in a politically expedient way is a significant challenge that both candidates will face.
This is adapted from the Ahead of the Curve newsletter published September 13, 2012. Click here to sign up for future newsletter issues.