Disagreeing With Greg Mankiw
Over at his blog yesterday, Greg Mankiw complained that President Obama's instruction to his cabinet to cut $100 million in spending wasn't worth much. The problem is that Mankiw didn't use the right numbers.
Mankiw said that $100 million out of a $3.5 trillion budget is insignificant. That's true, but the cuts aren't coming from the whole budget; they're coming from the much smaller part of "discretionary spending," that is, the parts of the budget that the members of the cabinet actually control. This excludes interest on the debt, Social Security, and things like contracts from prior years that, if cancelled, would actually cost the government money.
In fact, about two-thirds of the budget should be excluded from Mankiw's calculation for this reason.
Okay...you say that $100 million is still a virtually insignificant part of the $1.2 trillion or so of what's left. True, but a little more than half of that is military spending which, inspite of what you may have heard, the president has proposed to increase next year by 4.1 percent. That means that the cuts the president ordered have to come from about $500 billion rather than the $3.5 trillion Mankiw uses to make his point.
$100 million is still a relatively small percentage of $500 billion. But it's not even close to being as unimpressive as Mankiw wants us to believe.
Besides...Is Mankiw really thumbing his nose at $100 million in spending reductions?