American Austerity: Where Has It Hit Hardest?

December 28th, 2013
in econ_news, syndication

Econintersect:  A blog post today (27 December 2013) has dissected the U.S. Federal budget expenditures over the last fifty years, with particular emphasis on the category of nondefense investment spending.  The blog post discussion draws on the CBO (Congressional Budget Office) December 2013 report Federal Investment.  As seen in the graph below this discussion is about 9% of federal expenditures.


Follow up:

The summary and interpretation of the analysis in the CBO report was posted by Timothy Taylor, managing editor of the Journal of Economic Perspectives, on his personal blog (Conversable Economist).

(Note: Taylor has contributed to Global Economic Intersection, most recently here and here.)

Econintersect is particularly struck by the recent volatility in investment in two particular areas:  (1) Health Research and Development and (2) Elementary, Seconday and Vocational Education.

The 50-year history for Health R&D is seen in the following graph (from the CBO report and reproduced by Taylor):


The decline on the extreme right for Health R&D is for the fiscal year 2012 which started October 2011 and is the first year of fiscal austerity introduced with the Republican return to control of the U.S. House of Representatives.  The two years prior saw a steep rise (fiscal 2009, which started 01 October 2008) and a lesser rise in fiscal 2010.

Note: The rate of increase in fiscal 2009 was a return to rates seen for fiscal years 1998 through 2004.

The decline in 2012 was one of the four largest in the past 50 years, comparable on a percentage basis to the reductions in fiscal 1964 and 1995 but smaller than the approximately 30% drop in fiscal 1976.

The second area that has attracted our attention is education.


Both Higher Education and Elementary, Secondary and Vocational Education experienced historic increases in expenditures in fiscal 2008 and 2009, at least in part driven by stimulus spending.  But the remarkable decline of the elementary, secondary and vocational investment in fiscal 2010, 2011 and 2012 has returned that category to a level that can be inferred to be what would have been had there been no economic and employment crisis.  Curiously, there has not been a comparable collapse of investment in Higher Education.

Econintersect suggests that investment in health R&D and education are two outsized victims of U.S. austerity.  Defense spending cuts have gotten a lot of headlines but, on a percentage basis, these two nondefense investment areas have been been hit much harder.

There may have been other hard hits from austerity but these two investment areas are offered as leading candidates for hardest hit.

Taylor concludes that the U.S. has become more and more involved in providing for "benefits" for the present and less about investing for the future.  Here are his critically motivated conclusions:

Budgets are an expression of priorities. The priority of the federal government is clearly about paying benefits, not about investing in the future. As far as I know, no one disagrees on the need for investing in the future of the U.S. economy. But when push comes to shove, federal investment spending is just hanging on, not expanding. Of course, each individual investment should be evaluated on a cold cost-benefit basis. But is it really the case that there is no cost-benefit argument for higher research and development spending on science and technology and on energy? No cost-benefit argument for higher federal spending on training and employment programs at a time when unemployment has been high and wages for low-skilled workers have been lagging? No cost benefit argument for more spending on transportation  infrastructure at a time when so many roads, bridges, airports, and seaports are overcrowded and physically wearing out? My sense is that in many of these areas, the federal government has for decades been pulled toward paying benefits in the present, rather than seeking out ways to invest in future growth.

Read all of Timothy Taylor's analysis and discussion with several additional graphs at the Conversable Economist.


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