2011 is the New 2008 in Federal Budget Debate

If history is any guide, we are about to hear scores of scare stories about the harm caused by the spending reductions in the 2011 budget resolution (H.R.1) passed by the House early this morning. Maybe you’ve already heard how the budget threatens the “daily operations of National Weather Service.” In assessing these claims, it is very important to recognize and to emphasize that in 2009-10 we had an unprecedented binge of federal spending. The simplest way to understand the proposed budget is that it largely (not completely) undoes this two-year binge and brings spending back to about what agencies had to spend in 2008. If the government budget was enough for federal agencies—such as the Weather Service—to operate in 2008, then how can one claim that they cannot operate with roughly the same budget now?

The two charts help illustrate this. They focus on the non-defense non-security discretionary part of the budget, which has been the focus of the 2011 budget debate so far. Of course the other parts of the budget must be addressed starting with the 2012 budget, but if we cannot have a fact-based principles-based discussion of the 2011 budget, it will be virtually impossible to resolve the longer term issues.

The first chart compares the 2011 House budget appropriations (passed the House this morning) with appropriated spending in the 2008 budget enacted in December 2007. Note how the proposed 2011 levels are close to but slightly higher than the enacted 2008 levels. In fact they are about 5 percent higher which is more than enough to keep up with inflation during this period. The chart also illustrates the recent spending binge with the 2011 levels proposed in the Administration’s fiscal year 2011 budget. Clearly the House budget proposal represents cuts from the binge but not relative to right before the binge.

The second chart divides the appropriated spending into nine budget categories (other than defense, homeland security, and military construction). The chart shows how close the 2011 proposal is to 2008 for each category, with some higher and others lower. Of course there will be understandable disagreement between Republicans and Democrats about the composition of spending between and within these budget categories, and this will be a reasonable subject for debate with the Senate and the President. But I think these data show that a reasonable compromise would be to keep the overall totals as in the House proposal and thus take a first important step toward restoring fiscal sanity.

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

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