StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Disagreeing With Greg Mankiw

21 Apr 2009
Posted by Stan Collender

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. 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?


Disagreeing with self

I think Jake Tapper titrated the point well:

You were talking about an appropriations bill a few weeks ago about $8 billion being minuscule -- $8 billion in earmarks. We were talking about that and you said that that $100 million is a lot but $8 billion is small?--Jake Tapper

I don't see why Mankiw is so

I don't see why Mankiw is so wrong on this. After all, Obama is selling these cuts as a part of his plan to slow down the deficit. It doesn't matter whether the deficit comes from social security or discretionary spending. Ultimately, he does have power over the entire budget--he's planning massive growth in Medicare, no cuts to Social Security, and so forth.

And yes, it is still a very, very small number. Why the cabinet is spending time on this while there is still no coherent banking plan, after three months now in office, I can't imagine.

$500 billion is still too large a denominator

I'll certainly agree with folks who say the White House was foolish with the way it announced this cabinet initiative. But part of the problem is the press, which hasn't reported what Obama said when he explained what they are doing.

First, it's not really a "deficit reduction" ploy -- Obama presented it as a "good government" gesture. We're going to have to spend a ton of money, and taxpayers need to know that the government is taking steps to make sure that what is spent is spent wisely. He acknowledged that in deficit terms it's a drop in the bucket - but he said it's important to "change the tone" of departmental spending priorities, so It's a bang-for-the-buck argument. The same one that's being made with respect to the Recovery Act spending. And for that matter, with Gates' Pentagon budget -- reprioritize the spending and cut stuff that's unnecessary.

What Obama did do -- when asked by someone from the press -- was agree that small cuts can add up, and paying attention to small things is part of what will be required to improve fiscal responsibility. But that wasn't the thrust of the initiative explanantion, just an add-on as they were winding up the press remarks. Obama should have foreseen that the press and opponents would run with the "drop in the bucket" ridicule and been much clearer on that point.

Second, it's only the departments' administrative budgets that are being combed for cost reductions -- a small fraction of the total budgets managed by the departments, even after removing defense and non-discretionary items. So it's $100 million against some much lower number than $500 billion, because most of that $500 billion is assigned to programs managed by the departments or agencies (think of the programs managed by HUD or USDA or Interior). The press operation should have had that particular point documented for reporters instead of allowing opponents to produce silly $3.5 trillion comparisons.

Obama specifically noted in his remarks to the press that they're also going to be taking a sharp pencil to program budgets -- he expects at least 100 programs to be cut in the budget that will be submitted to Congress. That's totally above and beyond the $100 million administrative cost reductions he's looking for.

I have no idea why the WH press operation did such a lousy job with the rollout of this. But the actual remarks by Obama in the cabinet room to the press were pretty sensible.

Obama looks foolish, shallow and dishonest with this stunt

The problem for Obama is that while “small cuts can add up” they don’t “add up” as fast as large increases do. I don’t think anyone is going to be fooled by a pretense of fiscal responsibility by proposing $100 million in “cuts” after first ramming through a $1.4 Trillion increase in new spending.

I agree with Mankiwfan above,

I agree with Mankiwfan above, although I don't know if Greg's mom should be fighting his battles on blogs ;)

First and foremost, Mankiw's numbers put the $100 million at 1/35,000th of the budget, and yours at 1/5000th of what you consider a relevant subset of the budget. Even granting you, arguendo, your point regarding the proper perspective, 1/5000th is still a very tiny portion.

Second, the purview of the president and the cabinet heads and their agencies does encompass the entire budget (with the arguable exception with regard to cabinet heads and Social Security). HHS administers Medicare and Medicaid, and while HHS cannot change eligibility or benefit formulas, they could be spending their time and effort working on potential solutions to the unsustainable projected growth in those programs. As for Defense, even if the president is proposing an increase in the overall Defense budget, I assume he could still request plans to cut spending in some areas of the Defense budget, leaving him (or perhaps Congress) the option of either reducing that overall budget figure or using the savings on other, more needed and/or more forward-looking Defense spending.

Sure, in itself, saving $100 million is preferable to not saving $100 million, but there are indeed costs to this initiative that could very well exceed the benefit (and forgive me if I'm stating the painfully obvious). One is the one I alluded to above: The departments spending time and effort coming up with a collective savings of 1/5000th of the budget rather than applying the Willie Sutton rule. And the second is that, insofar as such a move creates the false impression of substantial fiscal responsibility and reduces political pressure for real fiscal responsibility, we lose.

By the way, Greg, if you're reading this, how 'bout bringing back a comment section to your blog? I realize it places a demand on your time, but in addition to the benefit (to readers) of allowing discussion and whatever benefit to you is provided by feedback/reaction, in general comments can have a "keepin' 'em honest" effect (which I don't mean literally, but it can, speaking generally, improve quality of posts if a blogger knows that they will be critiqued/disputed/etc. on his site).

You're right, it's stupid...let's just spend it anyway

Any of you who have been involved in any government role, even a local one, will know that cutting budgets is absolutely anathema...the very thought that things are being done which don't need doing is not "politically correct". So, Obama comes along and says, "Find me $X million in your department, or I'll find it for you." There's nothing wrong with that approach, as long as it's followed up on and the process is continuous.

Do you expect to find hundreds of billions of useless spending? Say, on Bush's war in Iraq? Oh, sorry, that's right, our freedom party in Iraq that sends $$$ to Haliburton.

Or his prescription drug benefit?

Or his farm bill?

Or his TARP program?

Or saving the jobs of hedge fund and insurance company executives (well, those from the right yacht and golf clubs, anyway) while their employees and shareholders get screwed?

When we're done with all the Bush spending, then you can complain about Obama spending. That'll take, say, 100 years or so. About the same time we'll vote in another Bush republican...

Re: Let's spend it anyway

You used to have ammunition pointing out how much Bush "spent", but Obama took it all away. Bush was a piker compared to what Obama is proposing.

Re: Let's spend it anyway

You *used* to have some ammunition by complaining about how much Bush spent. Too bad that Obama took it all away by making Bush look like a tightwad.

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