Those who do not understand national income accounting our condemned to be heckled by those who would rather be doing anything else. By way of Memeorandum we encounter Matt Yglesias writing on the "No stimulus" economy. Matt draws inspiration from the "Worthwhile Canadian Initiative", which has this to say about the current US fiscal position:
There has been much talk of the size of the US federal stimulus, and
much debate about whether or not it has been an effective
counter-cyclical policy instrument.
But it's important to remember
that the proper measure for fiscal stimulus is not spending by the federal
government; it is spending by all levels of
government. And when you look at the contributions to US GDP growth (Table 1.1.2 at the BEA site), total government
spending has been a drag on growth over the past two quarters. The
increases at the federal level have not been enough to compensate for
the spending cuts at the local and state levels.
Well, well. I will accept that total, rather than Federal government spending is the relevant measure. However, the BEA has a specific concept of government spending in mind in performing their GDP calculations (see below, or here, p. 10), and it does not include transfer payments or tax reductions.
Consequently, one wonders about the statement that "it's important to remember
that the proper measure for fiscal stimulus is... spending by all levels of
government". Since a lot of the government stimulus (such as unemployment payments, income tax cuts, cash for clunkers, and the housing tax credit) won't appear in the "Government expenditures" line, one might infer that this BEA measure of government spending is not the be-all and end-all measure of government-inspired fiscal stimulus.
And one might wonder whether Matt is fully reality-based with comments like this:
...all the Obama administration’s efforts plus the automatic stabilizers
have done is mitigate the contractionary impact of state and local
policy:
or this:
Looked at comprehensively, what the country has been implementing is a
mild version of the conservative policy prescription for boosting
growth—fire bureaucrats and trim spending. And it’s not working very
well.
Conservatives would have welcomed more tax cuts; that said, a lot of the transfer payments favored by libs and adopted by Obama didn't show up in the government expenditures line on which Matt is focusing. These BEA numbers just don't provide a basis for sweeping statements about whether the net government fiscal impact has been stimulative or not, since they do not include the automatic stabilizers or the tax stimuli.
A parting thought - if the Democrats had cut income and payroll taxes in half but held government spending (as characterized by the BEA) constant, would that have been widely considered to be fiscally expansionary? If so, how would that be squared with the assertion that "the proper measure for fiscal stimulus is... spending by all
levels of
government"?
THE BEA AND GOVERNMENT EXPENDITURES: From their guide on national income accounting:
The value of government production, that is, government’s gross output, is measured by the cost of inputs: Compensation of employees, CFC (a partial measure of the services of government capital), and intermediate goods and services purchased.20 Therefore, government consumption expenditures is measured as the sum of these costs of production less sales by government of goods and services to other sectors (which are classified as PCE, if purchased by individuals, or as intermediate inputs, if purchased by businesses) and the value of software and construction that are produced by government for its own use (that is, own-account investment, which is classified as part of gross government investment).
Gross investment consists of purchases of new structures and of equipment and software by both general government and government enterprises, net purchases of used structures and equipment, and own-account production of structures and of software. Government consumption expenditures and gross investment does not include current transactions of government enterprises, current transfer payments, interest payments, subsidies, or transactions in financial assets and in nonproduced assets such as land.
AND A LITTLE CHILD SHALL LEAD THEM: Ezra Klein joins in with the same uncritical spin [and adds an unlinked correction]. From Ezra:
As everyone knows, the federal government is still spending a $700
billion stimulus package passed at the beginning of 2009. As most people
know, state and local governments have had to sharply cut spending
because the recession has decimated their tax revenues. But as fairly
few people know, these two forces are canceling each other out.
Hmmph. From Obama's Recovery.gov, we see this summary of the stimulus bill:
The Recovery Act intends to achieve those goals by:
Providing $288 billion in tax cuts and benefits for millions of
working families and businesses
Increasing federal funds for education and health care as well as
entitlement programs (such as extending unemployment benefits) by $224
billion
Making $275 billion available for federal contracts, grants and
loans
The $288 billion of tax cuts won't be in the BEA figures as presented above. Increased funding for education would be if it represents teacher's salaries, but not if it is taken up by student scholarships and grants; unemployment benefits won't be in the BEA figures, since they are a transfer payment.
I would guess that the $275 billion for " federal contracts, grants and
loans" would mostly be included in the BEA analysis as a government expenditure, but I won't make any promises.
So unless Ezra has some other $700 billion of Federal stimulus in mind, his comment about federal expansion being offset by state and local contraction is not supported by the evidence on offer.
EZRA'S UNLINKED CONNECTION: Ezra does not update his original post but seekers will find this new one:
A friend writes in to complicate my post
yesterday that used data from the national income and product
account data to look at total governmental spending, and thus total
governmental stimulus:
As per your post
yesterday on how state/local policies are cancelling out federal
policies, beware that the BEA's National Income and Product Account
tables (the source for the graph) doesn't take into account transfer
payments, such as UI or TANF. Those instead show up as boosting
spending in the consumer expenditure category. Also, NIPA tables don't
measure the extent that federal tax cuts have expanded fiscal policy or
tax and fee increases from state and local governments have cancelled
out federal expansionary policy because it's just looking at the
spending side.
Uhh, does that "complicate" Ezra's post,or obliterate it?
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