A Look at Government Spending Beyond the Numbers

We wrote the other day about the power of memes — ideas, styles or patterns of behaviour that spread through cultures and societies. In the digital age, memes can replicate with virtually infinite fecundity, near perfect fidelity and enjoy a potential longevity far beyond that of a gene.

Like their biological cousins, however, memes can be both productive — contributing to generally increased knowledge and truth discovery — and harmful — dragging the minds they encounter further away from the reality of a situation.

Consider the following graph, for example, which began replicating and spreading across the social media waves last month. It appeared in a column titled, “Who Is The Smallest Government Spender Since Eisenhower? Would You Believe It’s Barack Obama?”

Here it is:

Middle East

At first glance, the data would appear to support the headline’s somewhat counter-intuitive claim.

“Hey, isn’t Obama’s 1.4 less than G.W. Bush’s 8.1…and Reagan’s 8.7? Wow…this guy sure is turning the conservatives’ narrative on its head!”

There is probably plenty of fiddling with the data, as would be expected when building a series out of dot.gov website statistics. But even taking the numbers at face value, a closer examination of the way the graph was constructed betrays the author’s rather ill- concealed intention; that of painting Mr. Obama as a (relatively) thrifty steward of the wider economy.

Notice, however, that while the graph (and headline) leads the casual observer to surmise one thing, it actually reveals exactly the opposite. Government spending has grown under ALL the listed presidents. That is not disputed. So how, you might be wondering, can eight consecutive increases in government spending lead to the claim that the final spender is also the “smallest spender”?

In short, it can’t. And it doesn’t.

Imagine lining up members of a basketball team in order of height. The first guy, the point guard, stands at 6 ft. The next fellow, the shooting guard, is 8.7% taller: 6’5″. Then come the forwards. The power forward is, say, 5% taller than the shooting guard. He’s 6’8″. Our fictional small forward is 3% taller, hitting the 7ft mark. And let’s say our center is 1.4% taller still. Our team’s big man towers in at 7 feet 1 inch.

Pop quiz: Who is the shortest member on the team? And the tallest?

A slowing in the rate of growth is not the same as shrinking. Likewise, increasing government spending “less quickly” is not the same as saving. What the graph above actually shows is that Mr. Obama is spending as much as president Reagan’s record…PLUS the obscene growth under Messrs Bush I and II…PLUS the growth under Clinton…PLUS his own increase.

On the government’s economic Dream Team, Obama is the Shaq of government spending.

Of course, there are many ways to measure “relative” spending. One might adjust for inflation, for example…but that only leads us into murkier statistical waters with a heavier reliance on the government’s own tortured figures.

What then about spending per capita? The population has grown by some 70 million people since Reagan first took office. Shouldn’t each successive government then spend more to stop members of this mushrooming population from “falling through the cracks”?

Even if one buys this claptrap, it must be obvious that not everybody contributes/detracts the same amount to/from the overall market. Some people build companies that satisfy real world demands.

They employ thousands of people and bring new products to market, enriching their own lives and the lives of those around them. Other people work for the state, where they spend their years standing in the way of real, honest progress, all the while patting themselves on the back for having “done something” with their nosey little lives.

No two people are alike, in other words. Neither is the value of the work they do. And without productive workers, the government has less confiscated wealth to smooth over the cracks it created in the first place.

Remember, in the Soviet Union, everyone had a job…

“They pretend to pay us…and we pretend to work” was a common political joke at the time. The planners were in charge of everything…until they planned it all into the ground. More people contributing value to a marketplace — ceteris paribus — should mean more ideas, more competition, more division of labor, more goods, more services and generally, more wealth.

Less “need” for government, in other words, not more. Of course, that’s rarely ever the case…and “more government” is almost always the reason why. Perhaps, then, government spending as a percentage of GDP is a fairer method? Some models show that, under these parameters, President Clinton had the lowest relative government spending of the above mentioned presidents.

During Clinton’s last year in office, US GDP was about $10 trillion. Expenditures that year, in 2000, were estimated to be a tad over $3.2 trillion: a 32.6% spending-to-GDP ratio. Using the same method, in 2010 US GDP was measured at roughly $14.5 trillion.

Expenditures, under Obama, came in at just over 40% of GDP…the highest level for all the presidents mentioned in the graph, and only the second time it surpassed 40% since WWII (the other year being 2009).

In any case, these levels are a far cry from the single-digit percentages that were commonplace up until 1918 (when the spending-to-GDP ratio jumped from 9.5% to over 22%.)

But again, it’s all junk science. GDP is so obviously a fraudulent metric, it’s embarrassing to think anyone (outside the government) uses it at all. Take, for instance, the expenditure method for calculation, which looks like this:

GDP = private consumption + gross investment + government spending + (exports – imports).

As you can see, government spending is actually counted as a net positive when calculating the size of the economy. If the government were to simply pay all the economists in the nation to shave one another’s beards, the expenditure method would register an enormous increase in GDP…even though the overall economy might be no better off at all.

Think misallocation of resources (perhaps debatable in this example), widespread malinvestment, vast diminishing of the dollar’s purchasing power, academics pinheads wielding straight blade razors…etc., etc., etc…

That the government can create value is, to continue our metaphor, the baldest-faced Keynesian lie of them all. At best it can redistribute it…all the while watching it atrophy, whittling away in their bureaucratic distribution pipelines and misguided, make-work programs.

To be clear, the above list of presidents houses no heroes for this editor. Just crooks, shysters and politicking pony paraders varying only in degrees of waste, market distortion and outright theft. A graphic portrayal of marauding pirates “dividing the loot.”

After a quick meme search of our own, we found the following cartoon which, we feel, more accurately depicts the situation in Washington, DC. Swap the candidates around if it makes you feel better…the result is still the same.

Middle East


Joel Bowman
for Markets and Money

From the Archives…

The Biggest Load of China Bull
13-07-2012 – Greg Canavan

Using Gold as Wealth Preservation, for Self Preservation
12-07-2012 – Greg Canavan

The Grapefruit Currency Hindering China’s Economic Growth
11-07-2012 – Dan Denning

The LIBOR Alarm – When Governments and Banks Disable An Early Warning System
10-07-2012 – Dan Denning

Australia’s Economic Boom in Reverse
09-07-2012 – Dan Denning

Joel Bowman
Joel Bowman is managing editor of Markets and Money. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

Leave a Reply

Be the First to Comment!

Notify of
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au