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Thursday, April 7, 2011

The Simple Budget Choice: Remove or Lock-In the Spending Binge


  • Much has been written on how the House Budget Resolution for 2012 presented on Tuesday by Paul Ryan compares with the Administration’s Budget for 2012. From a macroeconomic perspective, perhaps the biggest difference is that the House Budget brings outlays as a share of GDP back close to 2007 levels as a share of GDP, thereby removing the large spending increase of the years 2008-2009-2010, while the Administration budget effectively locks in that increase. This is shown clearly in the following graph of outlays as a share of GDP under the two budgets.

  • Thus a simple way to look at the budget debate which the country faces in the months ahead (once the budget for 2011 is settled) is whether to remove or lock-in that binge.

  • The chart also shows that the removal of the binge under the House budget occurs at about the same pace as the increase, which is somewhat faster than the pace of removal in the example Gary Becker, George Shultz and I showed in our Wall Street Journal article of last Monday.