No Huge Government Expenditure by Obama!

By paul krugman

The New York Times

Published Oct 12, 2010 12:00AM

Here’s the narrative you hear everywhere: President Barack Obama has presided over a huge expansion of government, but unemployment has remained high. And this proves that government spending can’t create jobs.

Here’s what you need to know: The whole story is a myth. There never was a big expansion of government spending. In fact, that has been the key problem with economic policy in the Obama years. We never had the kind of fiscal expansion that might have created the millions of jobs we need.

Ask yourself: What major new federal programs have started up since Obama took office? Health care reform, for the most part, hasn’t kicked in yet, so that can’t be it. So are there giant infrastructure projects under way? No. Are there huge new benefits for low-income workers or the poor? No. Where’s all that spending we keep hearing about? It never happened.

To be fair, spending on safety-net programs, mainly unemployment insurance and Medicaid, has risen — because, in case you haven’t noticed, there has been a surge in the number of Americans without jobs and badly in need of help. And there were also substantial outlays to rescue troubled financial institutions, although it appears that the government will get most of its money back. But when people denounce big government, they usually have in mind the creation of big bureaucracies and major new programs. And that just hasn’t taken place.

Consider, in particular, one fact that might surprise you: The total number of government workers in America has been falling, not rising, under Obama. A small rise in federal employment was swamped by sharp declines at the state and local level — most notably, by layoffs of schoolteachers. Total government payrolls have fallen by more than 350,000 since January 2009.

Now, direct employment isn’t a perfect measure of the government’s size, since the government also employs workers indirectly when it buys goods and services from the private sector. And government purchases of goods and services have gone up. But adjusted for inflation, they rose only 3 percent over the last two years — a pace slower than that of the previous two years, and slower than the economy’s normal rate of growth.

So as I said, the big government expansion everyone talks about never happened. This fact, however, raises two questions. Congress enacted a stimulus bill in early 2009; why didn’t that translate into a big rise in government spending? Second, if the expansion never happened, why does everyone think it did?

Part of the answer to the first question is that the stimulus wasn’t actually all that big compared with the size of the economy. Furthermore, it wasn’t mainly focused on increasing government spending. Of the roughly $600 billion cost of the Recovery Act in 2009 and 2010, more than 40 percent came from tax cuts, while another large chunk consisted of aid to state and local governments. Only the remainder involved direct federal spending

MY THOUGHTS:

The truth is that George W Bush had the largest government expansion since FDR's New Deal. He created a whole new department (ministry) called Home Land Security. GWB had the largest federal expenditures since the Great Depression, and that is part of the cause for the Great Recession, along with deregulation of the financial, banking and insurance industries and the tax cuts for the wealthy and paying for two wars. To pin this all on President Obama is lunacy.

Politically the projected 1.3 trillion dollar deficit looks like Pres. Obama wildly spending. But what people don't realize that with so many people out of work, tax revenues are falling to some of the lowest levels since the 1930s. This is exactly what the conservative republicans wanted under their "starve the beast" economic policy. With such a high deficit, to them the only way to reduce it is to start to eliminate government social programs and then closing departments like education, EPA, SEC, and many more. That is why they are so intent on winning back both houses of congress and in 2012 the White House, if they can't impeach Obama and Binden before then.

The best way to reduce the deficit is to increase employment with good paying wages, thus paying taxes and cutting some unnecessary government expenditures. Some taxes may have to be increased to expedite the reduction of the deficit so the up coming generations are not saddled with such a large debt to pay. With that said, my generation took on the debt of the Great Depression recovery and WWII of our parents and grandparents, which was 30 trillion in today's dollars.