Obama’s reckless spending spree

Economics and Politics by Paul Krugman – The Conscience of a Liberal – NYTimes.com:

Conservatives were, of course, having none of it — Obama was permanently enlarging the government to European size. So, how’s it going?

In the figure below the blue line shows government spending at all levels as a share of GDP; the red line shows the share of potential GDP — what we’d be producing at normal employment — as estimated by the Congressional Budget Office; it’s lower than the first line because the economy is still operating well below capacity.

No, that huge surge isn’t Obama instituting socialism in the United States. There are two related factors contributing to it: 

  1. People were losing their jobs, businesses were closing down. This means that the chunk of the economy that wasn’t government spending got smaller, making the government look bigger.
  2. When people are unemployed, they require more government services – food stamps, unemployment benefits, Medicaid, and for older workers, Medicare and Social Security. This isn’t a permanent increase. As the graph shows, the government’s share of the economy has been falling consistently since late 2009, when stimulus spending had run its course.
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