When's the Last Time the Feds Spent Just 18% of GDP? Hint: You Don't Have to Go Back to 1966

In pooh-poohing the idea of "Cut, Cap, and Balance," - a GOP plan to reduce spending, freeze it in place as a percentage of GDP or economic activity, and eventually bring revenue and spending into concordance, the Washington Post's Ezra Klein writes,

The Republicans' cut-cap-and-balance plan — perhaps better know to readers of this blog as The Worst Idea in Washington — will get a vote this week. The proposal would, among other things, cap federal spending at 18 percent of the previous year's gross domestic product. The last time we were anywhere near there wasn't during George W. Bush or Ronald Reagan. It was in 1966.

Klein helpfully includes a Center for American graphic comparing '66 and today across various measures. But the main point of Klein and CAP is wrong in at least two ways.

First, as Peter Suderman pointed out here yesterday, the craptacular cut, cap, and balance bill currently being debated would exempt interest on the debt, Medicare, Social Security, War on Terror spending, veteran's health care benefits, and virtually everything else in the budget. And even on the stuff that's actually still affected, "spending would be limited to 21.7 percent of GDP in 2013 and ratcheted down to 19.9 percent of total economic output by 2019."

So Klein and CAP are barking up the wrong tree when they talk about the calamity that would befall the country if we were to squeeze down government spending from around its current 25 percent of GDP to 18 percent (a different proposal put forth by actual fiscal hawks, and the balanced budget amendment pushed by Sens. Mike Lee of Utah and Rand Paul of Kentucky, talk a real 18 percent cap, but that's not what's in play).

Second, and even more annoying given that CAP is headed by John Podesta, who served in Bill Clinton's administration, is the oversight that Bill Clinton's final budget spent just 18.2 percent of GDP. So it's not a question of "going back to the '60s." If you want to hit 18 percent - which just happens to be the average amount of revenue raised as a percentage of GDP since 1950 - you've got to go all the way back to 2000 and 2001 (see table 1.2, page 25). Jeezus H. Christ, that's not really hard to find, is it? And by the way, over Clinton's last five budgets, outlays averaged a measly 18.5 percent of GDP. If you don't think 18.5 percent counts as "anywhere near" 18 percent, certainly 18.2 percent qualifies. 

And suck on this: During the absolutely great end of the last century, during the best five-year pull the federal government has seen, total revenue averaged 19.8 percent of GDP. To call that the best-case scenario is a realistic appraisal of the government's ability to squeeze coin out of its vassals. You'll note that that average is a hair lower than what the GOP's weakling cut, cap, and balance bill offers.

How's that shitty old Stealer's Wheel song go? You know, the one about "clowns to the left of me" and "jokers to the right"? Screw the turtles. When it comes to budget debates, it's delusions all the way down.

If folks are interested in balancing the budget or even slowing the rate of growth of spending or debt, the starting point of the conversation should be easily agreed-upon statistics (some of which are related above). Another addition to this is the simple fact that it has proven enormously difficult for the feds to move revenue upwards as a percentage of GDP. Many have tried - and many have tried to lessen it, too - and most have failed to budge it from the 18 percent average, especially over any amount of time. Any budget plan that assumes 20 percent or more of GDP as a revenue stream is a crock. Yet President Obama's proposed 2011 budget expects to be spending far more than that in every year over the next decade. And even Paul Ryan's GOP plan spends an average of 20.5 percent annually over the next decade. Good luck reducing the debt, fellas.

That's not to say that total revenues can't be increased over the historical average can't be done, but the onus is on the increasers both to show how they are going to do so for more than a couple of years and, as important, that increasing revenues won't simply lead to more spending. The one thing we can control in the here and now is spending, which was increased massively during the Bush and Obama years.

Between 2001 and 2010, real spending increased by 71 percent (defense), 75 percent (Medicare, Medicaid), 56 percent (non-defense discretionary), and 38 percent (Social Security). That's after inflation has been factored in. That's sort of increase is way ahead of revenue and even demonstrated need in every category. That sort of across-the-board increase is why the feds are borrowing somewhere north of 40 cents of every dollar it's currently spending. There's no way we can hope to pay for it, period.