Was there an Obama Spending Binge?

First of all let me premise this post by saying that I am going to focus on accounting and performance measurement, an area of my expertise, and not about politics (an area where I don’t have much expertise). 

Rex Nutting of marketwatch.com asks whether the Obama Spending Binge actually happened.

Nutting presents the follow chart, which clearly shows that Obama has, so far, at least, the lowest annualized growth of federal spending of any President since Reagan.

The chart shows that the highest increases in spending happened under Republican presidents (Reagan, Bush I, and Bush II), and the lowest increases in spending under Democratic presidents (Clinton and Obama), the exact opposite of what I think most people would expect.

Nutting presents another chart showing the absolute value of spending:

He gives Bush all the credit for 2009 spending (shown in red), because the 2009 budget was set by Bush and his Congress in 2008.  Compared to Bush’s budgets, Obama’s spending (shown in blue) appears to be downright flat.

What gives?  Where are the spend-happy Democrats and the miserly Republicans?  These charts seems to show the opposite.

James Pethoukakous of American Enterprise Institute argues that this graph is misleading.  He presents a different story, showing spending as a percentage of GDP.:

While Bush spends an average of 20.5% of GDP, Obama spends 23% or 24%.  While Obama may be increasing spending at a lower rate than Bush, Obama’s economy is growing at an even lower rate than Bush’s, and hence, Obama’s spending share of GDP is higher than Bush’s.

Perhaps the story goes like this:

  1. As the economy slowed down under Obama, President Obama maintained existing levels of spending, so that his spending share of GDP significantly increased.
  2. The Iraq and Afghanistan wars demanded a massive increase in resources during the Bush years.  As Obama winds down these wars, so too, should spending decrease.
  3. Obama’s healthcare plan doesn’t appear on current years’ budgets.  Most of this will be built into future healthcare premiums to be paid for by patients/employers/taxpayers.

This would resolve the confusion about Nutting’s numbers.  Nutting’s graphs don’t reflect what Bush and Obama have said about their own core beliefs.  In his campaigns, Bush spoke about decreasing government spending.  However, two wars, increased social programs (such as the prescription drug program), and TARP had the opposite effect, as shown in Nutting’s charts.

Obama has spoken about increasing role that government should play in daily life, stimulating the economy, and improving the social safety net.  While he speaks of spending government money more effectively, he has never proposed cutting spending (except perhaps on the Iraq and Afghanistan wars.)  His principles are consistent with increased government spending (as shown in Pethoukakous’s chart above).

There is much more to discuss here, especially in the spending mix – guns versus butter.  Bush preferred the guns, while Obama chose more butter.

What do you think?


About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

One comment

  1. With respect to #1 above, it is important note is that President Bush and the Democrat Congress were responsible for the initial stimulus back in 08/09 which became part of the federal budget. Once President Obama was elected, he and the Congress could not pass a budget. When a budget is not passed, something called a Continuing Resolution (CR) is passed in its place. Continuing Resolutions typically say to Federal agencies, we don’t have a budget, but you are going to get what you got last year, plus X%.

    So, when you have stimulus, which was intended to be a temporary surge of spending, that is kept alive year after year through continuing resolutions, it gives the impression that President Obama is not spending much more than Bush. But that comparison is based on Bush’s last year when he had what was supposed to be a temporary spike in spending.

    Point number 3 will be interesting to see as well. The President promised it would be revenue neutral. Then he promised it would be under $900 billion over ten years. Initially, the CBO agreed. Now the CBO is estimating a cost of close to two trillion dollars over ten years.

    Discretionary spending of all types probably should be cut. But ultimately, there will have to be entitlement reforms. Check out pages 4 and 5 from the most recent GAO fiscal outlook report. http://www.gao.gov/assets/660/650466.pdf Scary stuff.

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