Do presidential candidates deliver on what they promise during a campaign once they are elected? This is a question that many people this year, when we are in the middle of another campaign, are probably skeptically answering with a resounding no. There is indeed a high likelihood that most people dismiss the promises made by candidates, although there could be a general expectation that at some fundamental level the candidate may deliver on the underlying spirit of his or her promises.
Although I do not attempt to explore this question here, I will deal with a related issue. That is examine the presidential priorities as revealed in the patterns of spending the Federal budget. I will focus my analysis on the volume of Federal government expenditures under each U.S. president going back to the beginning of the Second World War in 1940.
Federal Spending Always Increases...No Surprise
Let's start with total spending by the Federal government, illustrated by the blue line in the chart to the right. The vertical lines reflect each successive president whose name is identified at the top. In a couple of cases I have combined two presidents and treat them as one, Kennedy/Johnson and Nixon/Ford, since the second president of the pair came to office by accident and more or less followed the policies of the rightfully elected preceding president (although Johnson won a rightful term on his own and may have gone much farther than Kennedy ever intended or even thought of going). Also, the breaks denoted by the vertical lines are placed one year after each individual takes office- I did this because for all practical purposes Federal spending during the first few months of a new president's term, perhaps up to a year, has been determined to a great extent by the budget adopted by the previous president. Finally, the numbers in the chart underneath each president's name reflect the difference in spending between the first and the last year of each president's term in office.
A quick inspection of the chart clearly reveals that spending by the Federal government increases steadily year after year, regardless of who is in office. The only periods where we spot a decline are those following a period of excessive spending resulting from a war (WWII in the 1940s, Korean war in the 1950s, and the Afghanistan/Irak wars in the early 2000s.) Thus, one thing we can be sure of is that Federal spending will continue to increase. Moreover, the increase in spending incurred by each successive president is higher than that of the previous office holder. In only two instances we can see a smaller increase; one is during Bush I (Bush Papa) when the $238 billion increase in spending at the end of his term was smaller than the previous president's (Reagan)- but Bush I was in office only four years, compared to Reagan's eight years. The second one is under Obama, whose increase in the rate of spending is less than his predecessor's because Bush II courageously or foolishly, take your pick, engaged in two wars, in Afghanistan and Irak. Although, as we will see below, defense spending under Obama is still double what it was at the beginning of the Bush II term.
The Change in Spending Always Increases Too
An alternative way of viewing this trend in Federal spending is to look at the change in spending relative to total Federal spending, that is, as a percentage of total Federal spending for the final year. For instance, Reagan's change in spending is almost 75% higher than his predecessor's, that is Carter; but in relative terms we can see that both are very close as percentages of total spending\- 69% for Reagan versus 66% for Carter. Similarly, we can see that Bush II's increase of nearly $1.7 trillion dwarfs the spending of all other presidents. However, this huge increase becomes in relative terms second to the spending committed by Nixon/Ford- 89% for Bush II against 125% for the Nixon/Ford duo. Note that by insisting on a relative comparison I am not suggesting that we should accept those large increases laying down.
Does Spending Reveal the Priorities of Presidents?
Aside from the overall increase in spending, that every president achieves regardless of party or political tendencies, we can get a clearer view of the presidents tendencies and preferences by analyzing the way they allocate funds among the various departments or functions.
The chart to the right ranks the changes in spending on the major government functions; again we are comparing changes in spending from beginning to end of each president's term. For ease of visual interpretation we have color-coded the principal functions. Note that some of the cells at the bottom have a red arrow- the arrows denote areas where spending actually drops under the corresponding president- Nixon/Ford take the prize for downplaying science.
We can see how increases in Defense spending loom large for many presidents; Truman and the Korean war, JFK/LBJ for the Vietnam war, Carter flip-flopping on defense (he started cutting defense spending but towards the end of his term he actually increased it.) Also Reagan and the successful military build-up that drove the Soviet Union out of business, although in some quarters there is nostalgia for that system (Bernie Sanders?), and Bush II for the misguided wars. We can also can see how Social Security spending increases are top, or near the top, for most periods. And, as we will see below, they will continue to demand more and more increases in Federal spending as the baby boomers retire in droves.
Medicare is another function that is requiring greater spending every year, unless congress opts for modifying the law, something that is not politically palatable.
Changes in Priorities Over Time
The priorities and plans of an incoming president are normally altered by practical circumstances or unforeseen geopolitical world events. Although in the end Presidents may be able to attain and meet their plans. The bars on each of the nine graphs in the chart at the right, representing the spending shares for every president since FDR, provide a visual image of these shifting priorities. The bar with a percentage number simply identifies the period when that particular function peaked as a share of total federal spending. But we must be careful not to be fooled by these charts and conclude, for instance, that defense spending has declined. Its share of total spending has fallen but, as shown below spending for national defense (some think of it as spending for intrusion into other countries affairs) has increased sharply. One thing is clear though, spending for
Social Security,
Medicare and
Health (that includes Medicaid) has been increasing, and will continue to do so, because of legal committments. The first two primarily to aging population that will increase rapidly over the next few years as the baby boomers retire.
The Relentless Increase in Defense Spending
The chart to the right displays defense spending back to 1940. We can see that in only three presidential terms spending for defense fell, but only temporarily: under Truman, Clinton and Obama. But even in these cases, we can see that spending began to increase towards the end of their presidential term. In the case of Truman the rise was driven by the military reaction to North Korea's invasion of the South Korea. Clinton, who began requesting smaller defense budgets, but reversed course in the middle of his term responding to a number of trouble spots around the world (Somalia, Bosnia, etc.), with his defense spending at the end of his term virtually identical to where he started. Finally, Obama reduced defense spending by removing all forces from Irak and lessening our involvement in Afghanistan, but has increased the budget in the last two years in response to Russia's and Isis' threats (an argument can be said that the first is the result of the famous "reset" with Russia at the beginning of his term, and the second caused by the abandoning Irak without support.)
Mandatory and Discretionary Spending
But something has been happening over the years. As Congress approves more and more laws and regulations that guarantee benefits to segments of the U.S. population, a greater portion of the budget falls into the so-called "mandatory" spending. That is, spending that the Federal government is committed unless Congress specifically obviates it by law- and this hardly every happens. So we see that a really big chunk of the budget, slightly over 70% today, is out of the discretion of the President, he has to spend the funds by the force of law. The chart clearly shows the rise in mandatory spending over the last 50 years or so. The only way that Congress can increase discretionary spending is by changing existing laws, raising taxes further or simply incurring additional debt. The latter is the normally preferred method since it shifts the burden to future taxpayer generations who can't complain about the burden.
What Do We Make of This?
First of all, this analysis confirms and provides factual evidence to what we already knew, that no matter what the political leanings or beliefs of the candidate, spending during his term will increase. Spending rose even under Reagan, the 'government is the problem' president. Yes, you will say, but it was for a good purpose, to bring the Soviet Union to its knees. And indeed that was a good motive; the problem is that there is always a good motive to justify more spending.
Secondly, the larger mandatory spending as a share of total spending increases the likelihood that Congress and the President will simply resort to more debt to fund additional programs. Raising taxes, the more correct alternative because current beneficiaries should carry the burden, is harder to implement because of the re-election consequences for congressmen.
The chart to the right displays the average participation rate, by decade, since the 1950s. This is the data that we commonly see, although usually not grouped by decade as I've done here.
The four lines at the top of the chart, representing the rates for the four age groups in the 25 to 54 years old bracket, show that the participation rate generally peaked in the late 80s or early 90s. Since that time the rates for the four age groups, within the 25-54 bracket, have been falling. The decline has been gradual for those aged 25-34, 35-44 and 45-54 years, but more rapidly for the younger 20-24 year olds.
Our investigations show that over the last 30 years, that is since 1986, working age population has increased by 72.8 million and the labor force by a smaller 31.5 million. The difference, 27.4 million, represent the additional number of people who were not in the labor force by 2016.
Let's start with total spending by the Federal government, illustrated by the blue line in the chart to the right. The vertical lines reflect each successive president whose name is identified at the top. In a couple of cases I have combined two presidents and treat them as one, Kennedy/Johnson and Nixon/Ford, since the second president of the pair came to office by accident and more or less followed the policies of the rightfully elected preceding president (although Johnson won a rightful term on his own and may have gone much farther than Kennedy ever intended or even thought of going). Also, the breaks denoted by the vertical lines are placed one year after each individual takes office- I did this because for all practical purposes Federal spending during the first few months of a new president's term, perhaps up to a year, has been determined to a great extent by the budget adopted by the previous president. Finally, the numbers in the chart underneath each president's name reflect the difference in spending between the first and the last year of each president's term in office.
An alternative way of viewing this trend in Federal spending is to look at the change in spending relative to total Federal spending, that is, as a percentage of total Federal spending for the final year. For instance, Reagan's change in spending is almost 75% higher than his predecessor's, that is Carter; but in relative terms we can see that both are very close as percentages of total spending\- 69% for Reagan versus 66% for Carter. Similarly, we can see that Bush II's increase of nearly $1.7 trillion dwarfs the spending of all other presidents. However, this huge increase becomes in relative terms second to the spending committed by Nixon/Ford- 89% for Bush II against 125% for the Nixon/Ford duo. Note that by insisting on a relative comparison I am not suggesting that we should accept those large increases laying down.
The priorities and plans of an incoming president are normally altered by practical circumstances or unforeseen geopolitical world events. Although in the end Presidents may be able to attain and meet their plans. The bars on each of the nine graphs in the chart at the right, representing the spending shares for every president since FDR, provide a visual image of these shifting priorities. The bar with a percentage number simply identifies the period when that particular function peaked as a share of total federal spending. But we must be careful not to be fooled by these charts and conclude, for instance, that defense spending has declined. Its share of total spending has fallen but, as shown below spending for national defense (some think of it as spending for intrusion into other countries affairs) has increased sharply. One thing is clear though, spending for Social Security, Medicare and Health (that includes Medicaid) has been increasing, and will continue to do so, because of legal committments. The first two primarily to aging population that will increase rapidly over the next few years as the baby boomers retire.
The chart to the right displays defense spending back to 1940. We can see that in only three presidential terms spending for defense fell, but only temporarily: under Truman, Clinton and Obama. But even in these cases, we can see that spending began to increase towards the end of their presidential term. In the case of Truman the rise was driven by the military reaction to North Korea's invasion of the South Korea. Clinton, who began requesting smaller defense budgets, but reversed course in the middle of his term responding to a number of trouble spots around the world (Somalia, Bosnia, etc.), with his defense spending at the end of his term virtually identical to where he started. Finally, Obama reduced defense spending by removing all forces from Irak and lessening our involvement in Afghanistan, but has increased the budget in the last two years in response to Russia's and Isis' threats (an argument can be said that the first is the result of the famous "reset" with Russia at the beginning of his term, and the second caused by the abandoning Irak without support.)
But something has been happening over the years. As Congress approves more and more laws and regulations that guarantee benefits to segments of the U.S. population, a greater portion of the budget falls into the so-called "mandatory" spending. That is, spending that the Federal government is committed unless Congress specifically obviates it by law- and this hardly every happens. So we see that a really big chunk of the budget, slightly over 70% today, is out of the discretion of the President, he has to spend the funds by the force of law. The chart clearly shows the rise in mandatory spending over the last 50 years or so. The only way that Congress can increase discretionary spending is by changing existing laws, raising taxes further or simply incurring additional debt. The latter is the normally preferred method since it shifts the burden to future taxpayer generations who can't complain about the burden.
Much has been written lately about the 93 million working-age people in the U.S. who are today neither working nor looking for a job. These millions of people translate into the lowest rate of labor participation since the mid-70s, and even though it had risen to a peak of 67.6% in 1997 the rate has been declining since that year, as can be appreciated in the chart.
The primary reason is the change in age structure of the population; that is, the fact that the U.S. population is getting older provides a partial explanation. The chart to the right displays today's population mix by age group (the red bars) compared to what it was 25 years ago in 1990 (the blue bars.) Each bar stands for the percentage of the year's population accounted by each age group. We can see the aging of the population in that the red bars are higher than the blue ones for the older three groups, that is people 45 years and older. This group represents today 52% of the working age population, up from 40% in 1990. Conversely, the under 45 years population fell from 60% in 1990 to today's 48%. Also note that the percentage drops for every bracket under 45 years.
The pie chart conveys a more clear view of the change in mix by age group since 1990. Over the last 25 years, the working-age population rose by 61.7 million persons, to this year's 251 million. Each slice in the pie represents the percent of the total change between 1990 and 2015 for each of the seven age groups. Thus, we can see that the largest change occurred among the 55 to 64 years group with 32% of the total change, or just under 20 million persons. Second in line are the two groups that bracket the 55-64 years one, each with 28% of the total.
Alternatively, we can examine this phenomenon by simply looking at the participation rates, shown in the chart. Statically, there is a significant drop in participation when a person moves from the 45-54 yrs to the next age bracket- the rate differential is 15.7 percentage points (from 79.3% to 63.6%). This means that the number of people in the labor force will drop by 15.7% over the next decade simply by the number of people in the 45-54 group who fall now in the 55-64 group. And the drop is more dramatic for the 65 yrs and older, the change in rte is nearly 45 percentage points. Again, this means that simply due to aging, in a year nearly half of the persons who move to the next higher age bracket will fall out of the labor force. There is virtually nothing that can be done about this trend- it's a demographic factor.
In contrast, we find that older people are bucking this trend, they are in general becoming more active in the labor force. One reason for this phenomenon is the fact that people are healthier today, live longer and have more productive years, and are capable to work when they are older- very likely they enjoy work. A second reason is economic necessity; there is a large number of people at retirement or near retirement age who do not have sufficient funds and thus are forced to work. Many of them may have lost their homes or savings in the financial crisis.
As I pointed out in an earlier post in this blog, manufacturing shipments have been relatively robust. Overall they have followed a positive trend, of course allowing for declines associated with economic recessions. Since 1992 shipments have doubled, translating into a 4.4% annual growth rate.
The chart to the right compares 21 broad manufacturing sectors in 1992 and 2015, where we use shipments data through September for each of the years. The charts allow us to see two types of changes. One is in the percentage of manufacturing accounted by each sector, such as the 1.4 percentage points gained by Transportation Equipment (that includes autos, trucks, aircrafts, etc.) or by the Food sector.
Compared to other industries within the U.S. economy we find that manufacturing is not keeping up in general with overall growth in the economy. In terms of total output, manufacturing accounted for over one quarter of the output of all private industries in 1997 (the earliest year for which we have data). By last year, the share of manufacturing had fallen to just over a fifth of gross output.
A review of these data, graphed on the right, shows that there is not a consistent pattern for these metropolitan areas. In fact, the opposite seems to be true, there is great variation both within and between metro areas. Following any single line, for instance looking at the top line that is Los Angeles, we can see that the ratio ranges from 5 to 11- a huge difference. Also looking at the values for a given year, say 2011, we can see large differences between metro areas. The ratio can range from a low of around 3 for Atlanta to nearly 10 for New York. Thus there is not an accurate rule of thumb that we can use given there is not a stable value that can be used for any of these metro areas.