The Obama Administration has seized upon a recent article in MarketWatch by Rex Nutting (here) that purports to show that federal spending growth under President Obama is the lowest of any Administration since Dwight D. Eisenhower. Press Secretary Carney and the President have glommed onto this story with abandon, arguing that the President is, by comparison with Bush or Reagan, a fiscal conservative. Some on the political left have seized upon this analysis to claim that, just as they had been arguing, the President has not been sufficiently aggressive in expanding federal spending.
The political right is in an uproar over the Nutting story. They point out that Nutting achieves his low growth rate result by assuming that the fiscal 2009 government spending, which included the stimulus and TARP, was really Bush spending, inasmuch as the 2009 fiscal year begins October 1, 2008 when Bush was still president. In the Nutting calculus, only spending after fiscal year 2009 is due to President Obama. And, sure enough, the growth in federal spending since 2009 has been modest. Naturally, the Republicans argue that a great deal of the 2009 spending was driven by the Democratic Congress and the Obama Administration, and so it is not reasonable to assign it entirely to President Bush.
The best measure of federal spending is the ratio of federal budget outlays to GDP. Over the past 36 years (since Jimmy Carter became president), the average share of federal spending to GDP (the “spending share”) has been 21.5%. During the Bush Administration the spending share rose from 19.1% in Q1 2001 to 22.8% in Q4 2008. Although there is a clearly rising trend, the average spending share during the 32 quarters of the Bush Administration was just 20.2%. This average share is the smallest for any president since Eisenhower (granted, Bush benefited by inheriting a low 19% share from President Clinton). During the Obama Administration, the spending share of GDP rose from 23.2% in Q1 2009 to a peak of 25.6% in Q3 2010, and has since moderated to 24.0%.
So, while it is correct to say that the rate of growth in government spending has slowed in recent quarters, the level of federal spending is still enormous relative to any period since WWII. The remarkable thing to me is that federal spending has remained so high. In the midst of the financial crisis in 2008-2009, the spending share spiked due to the stimulus and the TARP. But both of these were one-time expenditures. The spending share should have moved back toward 20% by now, or so it seems. Somehow, the Administration and Congress have colluded to keep the federal spending share at or above 24% of GDP. This means that federal spending is about $600 billion higher than what it “should be.” It appears that that we have had the equivalent of a $600 billion stimulus/TARP each year since 2009. This surely is an enormous increase in the level of federal spending.
So, who is to be blamed? Is it a) the Bush Administration 2001-2008, b) the Republican Congress 2001-2006, c) the Democratic Congress 2007-2010, or d) the Obama Administration 2009-2012? I think that the correct answer is “all of the above.” While the spike in spending occurred during the financial crisis, President Bush and the Republican Congress were content to allow the spending share to rise during a period of relatively strong economic activity in 2002-2006; this is when spending should have been contained.