Tuesday, April 12, 2011

"The largest annual spending cut" -- compared to what?

I am getting tired of reading about "the largest annual spending cut in our history", which has now become an obligatory tagline in stories about the just-concluded and soon-to-come budget battles.  The alleged $39 billion   cut represents about 1.1% of the Federal government's 2010 outlays.  Is that really the biggest cut ever? By what measure? It must be in absolute terms only.

I realize this may be an imprecise comparison, but according to OMB historical tables the by-now-infamous spending cuts of 1937, which threw the recovering economy back into a sharp recession, took spending down from $7.58 billion in 1937 to $6.84 billion in 1938.  While I await correction by someone with more than sixth grade math skills or better historical knowledge, that looks to me like a cut of 9.8%, about nine times the magnitude of the 2012 cut just negotiated.

That, incidentally, is kind of reassuring.  The spending cut is not only about one tenth the dollar value of the new tax cuts enacted at the end of 2010, but one ninth the scale of the disastrous spending cut enacted in 1937.  The cuts will doubtless inflict needless social costs and environmental costs. But perhaps their impact on the economy (as on the deficit) will be relatively minor.

Am I comparing apples and oranges?  Economists and historians, let me know.

UPDATE: at least one summary of the budget deal's emerging details -- Politico's -- suggests that there may be less to the cuts than meets the eye (a hope I've indulged more than once):
But down to the end, the giant labor, health and education chapter of the bill best defined ground zero — and the relentless give-and-take over dollars.

Coming into this year, discretionary spending in this portion of the budget was running at about $169.4 billion, and the House voted in February to cut this to under $144 billion, a 15 percent reduction that decimated many programs. The new bill allows spending closer to $159 billion, about $15 billion higher. And even then to fill the gap, $6.2 billion in alternative savings from mandatory spending programs are available to offset new appropriations.

Within this framework, the White House locked in about $1.5 billion in increases that the president wants—like “Race to the Top.” But even after making room for these additions, the real appropriations cuts from existing programs will be about a quarter of what the House proposed...

Pell Grants for low-income college students are protected against a shortfall. Title X family planning programs will survive, albeit at 2008 levels. New money to administer health care reform will flow to the Centers for Medicare & Medicaid Services, but through a round-about route that requires the dollars to go first to a different health administration account and then be transferred to CMS.

In the field of transportation and housing, the same pattern is repeated, though in less dramatic fashion.


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