Obama Has Overseen the Slowest Federal Spending Increase Since Eisenhower in the 1950's

JoshuaKennon.com ^ | 05/23/2012 | Joshua Kennon

[Ultra Sonic 007]

I have to applaud Rex Nutting over at The Wall Street Journal‘s MarketWatch site. He wrote a piece that explains the budget figures of the Federal government in the United States and, specifically, how those budget figures are influenced by various Presidential administrations. It’s the sort of thing that you take for granted everyone knows then you realize, often with horror, that almost no one knows it. That explains a lot of the terrible thinking you see in the broader population.

Nutting examines Federal spending under various Presidential administrations and discusses a fact that is well known to anyone who understands economics but sounds shocking to the typical neophyte; namely, that President Obama has overseen the slowest increase in government spending since Eisenhower was in office in the 1950′s.

In fact, in the four years the encompass his first (possibly only) term in office, President Obama has increased Federal spending by only 0.4% per annum, or 40 basis points. Strip out inflation, and real government spending is actually falling. There has been no massive increase in spending. It has to do with how various government budgets are approved and implemented, but it’s phenomenal that the average person doesn’t know this. They see a, say, 12.5% increase in the national debt in a given year and apparently don’t even consider that it could have been due to a law from two years ago just now hitting the nation’s balance sheet. Charlie Munger was right. Humanity invented charts as a way of coping with the unfortunate reality that most people can’t process numbers.

How Can You Explain the Money Supply to Someone Who Doesn’t Even Understand the Banking System?

I’ve actually sat through dinners where others at the table talk about the current administration’s out-of-control spending and I just shake my head. The typical non-economically literate person actually believes that President Obama spends money like a drunken sailor. My frustration has nothing to do with politics or individual candidates, as I am a pragmatic independent who tends to be fiscally conservative and socially libertarian. I believe in specific policies and will vote for whomever most closely adheres to those policies based on who is on the ticket in a given election year, be they Republican or Democrat.

It isn’t exactly easy to explain to someone who – how do I say this politely – can’t even read at grade level, tell the difference between “they’re, their, and there”, or explain what the Supreme Court does – that what is really happening (I’m oversimplifying) is that the money supply in the United States reached artificially high levels due to easy lending and low interest rates during the real estate bubble and that, once the collapse of Lehman Brothers shook confidence from the system and the credit that had been created disappeared overnight, the central bank was forced to flood the markets with liquidity to avoid a deflationary death spiral that would have made the 1870′s look like a picnic. One way to do this was a massive increase in the national debt, using the Federal Reserve’s own metaphorical printing of dollars (really, electronic debits and credits these days) to buy bonds issued by Congress to fund huge stimulus programs, offsetting the implosion of one portion of the money supply by creating debt that could then be monetized.

How can someone grasp that if they can’t even explain the M1 or M3 money supply is? Unless they are a policy wonk, or truly interested in understanding economics, they will lose interest three minutes into the conversation.

Even If We Had Elected a Turnip, the National Debt Would Look the Same

It also isn’t easy to explain how the budgetary cycles work in Washington, D.C. We could have put a large turnip in the Oval Office, dressed it in a custom made tuxedo, and referred to it as “Mr. President” and the national debt would have still risen exactly as it has because most of the causes are structural and were put in place in 2008 and 2009, long before the current administration walked in the door. Even if John McCain had been elected President, the national debt figures would look almost exactly as they do now.

Federal Debt Held By Public as a Percentage of GDP

That is why I get frustrated. For these people, it’s just easier to point to a chart and say, “See! The national debt is going higher!” instead of understanding that most of the debt accumulated in the past few years was the result of budgets approved before Obama was sworn into office. Furthermore, most of the debt is really being created to offset the collapse of the private credit markets, which were a much larger portion of the money supply five to seven years ago. They scream for massive budgetary cuts, not realizing that if they go to far and decelerate the velocity of money, they could throw us into another Great Depression, causing tax receipts to dive off a cliff and creating a self-feeding vortex of financial pain.

The Only People With Legitimate Complaints Are Strong Anti-Keynesians

Yet, the people screaming for President Obama’s head on fiscal matters actually think they are right. And worse, they feel the righteous indignation of someone who is convinced they have the moral high ground. It makes me sad.

There are a few exceptions. If you are an acolyte of an adamantly anti-Keynesian school of economic thought, you would be outraged at the current government monetary policies and such anger would be consistent with your world view given that you are convinced the cure is, in fact, the cause of the trouble. It would only be rational for you to be enraged the current fiscal beliefs that pervade the Federal Reserve, Congress, and The White House. If you can’t tell, I am not one of these people because I think, in particular, the Austrian school doesn’t adequately address the underlying deflation problem, especially in a world where gold reserves cannot rise in the same proportion as population growth now that humanity has reached seven billion people. That is an entirely different discussion.

Yes, there is a danger in taking Keynesian economics too far; I believe more in a form of the Ordoliberalism economic school of societal structure. Likewise, the price will be inflation, which is really not so much prices increasing, but rather the value of the dollar decreasing. That is also part of the plan as it provides an opportunity for domestic manufacturers and other businesses to increase exports as goods denominated in United States currency cost less. It also relieves the burden of debt holders who are in over there heads by transferring, for all intents and purposes, purchasing power away from savers who have their money in the bank and to the person or institution in debt.

In other words, if you have $100 in a savings account paying you $0, and inflation is running 4%, what is really happening is that $4 in purchasing power is being taken out of your pocket each year and transferred to someone who is in debt. Does it hurt you? Yes. Is it good for the nation as a whole? In this particular situation, I’d say, yes. The only thing you can do is adjust your asset and liability structure to take advantage of the circumstances.

I am not for national debt. I was outright indignent when President George W. Bush tripled the national debt, using most of the money for a prescription drug package for the pharmaceutical industry and two wars. Now that we are facing the aftermath of a credit collapse, we have no choice. The money supply had to be stabilized and it had to be put on the nation’s credit card. That’s how this works. This is economics 101. If President Bush were still in office, I’d be saying the same thing.

This Has Nothing to Do With Politics

I don’t care if you are a Republican. I don’t care if you are a Democrat. I don’t care if you are an Independent, like I am. Your job is to think, analyze, and examine facts to come to the most rational conclusion. Pull the government budget figures, read Nutting’s excellent article, and draw your own conclusions. It will be hard not to roll your eyes the next time you hear someone start talking about Obama’s “out of control spending”. At the current rate his administration is going, real purchasing power spending per American will fall from $11,450 per person when he took over in 2009 to $10,900 in 2013 when he leaves office or is serving another term.

The whole thing reminds me of the William Dudley flap at the Federal Reserve a few years ago. Ignorant people who don’t understand economics threaten the entire system because they suffer from the Dunning-Kruger Effect.

[ltc8k6]

http://www.powerlineblog.com/archives/2012/05/barack-obama-skinflint.php

[treetopsandroofs]

Six months ago, he had only created 2 million jobs.

Now he’s up to 4 million.

There’s still a relatively small crowd here who wants to believe the lies.

[DuncanWaring]

Limbaugh and a caller on the Nutting piece referenced at the top:

http://www.freerepublic.com/focus/f-news/2887613/posts

[Jeff Chandler]

[Uncle Ike]

” This Has Nothing to Do With Politics “

I don’t know if I’d admit that, if I were this author —

If this inane drivel isn’t ‘Political’, then it’s the product of profound stupidity...

[MrB]

Amazing, isn’t it?

Straight out of 1984.

Truth is lies. War is Peace. Freedom is Slavery.

[Jacquerie]

[muir_redwoods]

To a committed Keynesian like this Kennon fellow, there is never any question that we use QE 1,2,3 to deal with the deflationary threat manufactured by Dodd and Frank when they tactically pulled the rug out from under Freddie and Fanni to throw the 2008 election to the Kenyan.

Kennon doesn’t care at all that this undermines the whole economy and devalues every dollar every one of us has.

[Ingtar]

The most amazing part is there is not a single relevant fact in the article.

[DuncanWaring]

Not unlike when they claimed the federal gov’t took in more money than it spent in April ‘12.

But, in the same month, according to the Bureau of the Public Debt, the national debt increased by $110 billion.

How’s that? They took in more than they spent, but borrowed another 110 gigabucks just to pad their rainy-day fund?

[hinckley buzzard]

Joshua Kennon: Classic self-annointed Internet instant "expert." Evasive about his background and apparent lack of credentials. Not worth taking seriously, especially given his aggressive polemical rant (note the absence of any hard information to back up his arrogance.) Con artist. Waste of time.

[muir_redwoods]

To a committed Keynesian like this Kennon fellow, there is never any question that we use QE 1,2,3 to deal with the deflationary threat manufactured by Dodd and Frank when they tactically pulled the rug out from under Freddie and Fanni to throw the 2008 election to the Kenyan.

Kennon doesn’t care at all that this undermines the whole economy and devalues every dollar every one of us has.

[LibLieSlayer]

He added 1 TRILLION dollars to Bush's 2009 budget and then refuses to add his increase into the mix. obamao is the largest spending deficit creator in the HISTORY of the republic. He has increased our deficit more than ALL OTHER PRESIDENTS COMBINED. FUbo and your white, communist slut mother.

LLS

[Yardstick]

This is like a midget standing on a stool trying to convince you he’s six feet tall.

[Arrowhead1952]

The most amazing part is there is not a single relevant fact in the article.

Who cares about facts when a dim lies? Rush tore this report apart like wet toilet paper.

[ctdonath2]

Ya. I read it and scratch my head wondering where the actual content is amid the verbiage insulting the reader, insulting the reader’s friends, oversimplified explanations of non-sequiturs, rationalizing increases as stability misrepresented by scaling values, pointing blame at prior legislatures, and declarations that any POTUS would do the same. Amounts to “well, if you subtract baseline increases, inflation, obligatory crisis-control spending, legislated spending, and just about anything else, you can only blame him for 0.4% of the increase.” I’d say I’m unconvinced, but I can’t make out what I’m supposed to be [un]convinced of.

[Grampa Dave]

The other side of the reality without the pages of bs!

[Ingtar]

The first point the rips it to shreds is that the baseline from 2008 included HIS $1 trillion porkulus. Once that is figured in, as it is funded each year solely by borrowing, it is easy to see why the value of the dollar is eroding and place the blame squarely on the Democrats.

[ctdonath2]

Here's the article without the irrelevant rhetoric & insults (and I'm being generous): --- President Obama has overseen the slowest increase in government spending since Eisenhower was in office in the 1950′s. President Obama has increased Federal spending by only 0.4% per annum, or 40 basis points. Strip out inflation, and real government spending is actually falling. most of the debt is really being created to offset the collapse of the private credit markets In other words, if you have $100 in a savings account paying you $0, and inflation is running 4%, what is really happening is that $4 in purchasing power is being taken out of your pocket each year and transferred to someone who is in debt. The money supply had to be stabilized and it had to be put on the nation’s credit card. At the current rate his administration is going, real purchasing power spending per American will fall from $11,450 per person when he took over in 2009 to $10,900 in 2013 when he leaves office or is serving another term. --- An assertion, with nigh unto no actual analysis. Upshot is: "we had to increase national debt" and somehow that's not "spending". Kinda thin for someone who spent several times that verbiage ranting about how shallow other people are.