Sunday, February 10, 2013

Fiscal expansion, what fiscal expansion?

The data on Federal spending since 2000 can be a little surprising. The graph below shows real federal government spending since 2000 (blue line). Note that the expansion from 2000 to 2008, from the last year of Clinton to the last of Bush, was of around 35%. The increase from the last year in the Bush administration up to last year, the last in Obama's first mandate, of slightly less than 20%, most of it in 2009.
The problem is that State and Local spending has decreased (red and green), so overall the increase since the recession (2007-8) has not been particularly large. The type of spending is also relevant to understand the effects on the economy as a whole. In the Bush years the biggest expansion was on defense, while in the Obama administration welfare spending has increased the most as a result of the crisis. Mind you, spending on welfare has decreased since the beginning of the recovery, while military spending slowed down, but has still continued to increase.

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