The myth of rising domestic spending strikes again!

I happen to love Kevin Drum’s blog, so I hope he takes this as a helpful correction. In a post yesterday, he echoed the very important point from the Center on Budget and Policy Priorities that there hasn’t been an “explosion of government’s size,” but rather that over the last few decades, health costs and demographics have driven primary (i.e., non-interest) spending trends. But then he went on and veered toward an issue very near and dear to my heart: domestic spending. Quote:

“Assuming I did my sums properly, federal spending on ‘everything else’ — that is, everything except Social Security, Medicare, and interest on the debt — has indeed gone down from 15.2% of GDP in 1962 to a projected 11.3% of GDP in 2017. (That’s from Table 3.1 here.) However, the national defense piece of that has declined from 9.2% to 2.9%, while the nondefense piece has increased from 6.0% to 8.4%. There are some arguments to be had about whether the defense piece of the budget is calculated correctly (it doesn’t include veterans benefits, for example), and it’s worth noting that healthcare costs are part of the nondefense picture too (mostly due to rising Medicaid expenditures). Still, the basic shape of the river doesn’t change much. Most of the downward slope in spending is due to lower defense spending. Domestic nondefense spending hasn’t gone up a lot, but it has gone up.

Actually, the shape of the river changes pretty significantly if you take Medicaid, veterans benefits, and other security spending (i.e., homeland security, international affairs, and nuclear weapons security, which oddly enough is embedded in the Department of Energy) out of the domestic spending category. Throw Medicaid in with Medicare and Social Security (all part of the “health care costs and demographics” thesis) and include veterans benefits and other security spending in with the defense budget, and you get a very different picture. Yes, defense/security fell from nearly 11 percent of GDP in 1962 to 5.7 percent in 1979, but guess where it’s at now? About 6 percent of GDP. Domestic spending climbed from a little more than 4 percent in 1962 to about 7.7 percent in the late ’70s, but over the last few decades it’s actually fallen: Before the recession, domestic spending had actually declined to under 5 percent. It’s risen a bit because of the recession (e.g., more people qualifying for food stamps and unemployment insurance) and the Recovery Act, but by 2017 it is projected to fall to a near 40-year low.

In other words, there was a story to tell of defense/security spending falling and domestic spending rising, but all that happened before 1980.  Since then, defense/security went up a bit during President Reagan’s Cold War build-up, down in the aftermath of the Soviet Union’s dissolution, and up again post-9/11 (wars aren’t cheap).  As for domestic spending?  It’s been pretty flat.