Monday, June 6, 2016

The Twenty Percent Factoid

One thing you can count on with an election around the corner is that  Republican politicians will trot out a bunch of numbers that supposedly demonstrate that growth of government is “out of control.” And the other thing you can count on when you hear those numbers bandied about is that they will be a bunch of hooey. Consider, if you will, the Twenty Percent Factoid.

Back in March, Tom Burnett, a Bozeman legislator whose antipathy to government is always on display, produced a calculation in a letter to the Bozeman Chronicle that purported to show that total state spending had increased by 20.6% between this biennium and the last. Now that number is big and scary (but not at all consistent with the facts, which I’ll get to in a moment), and it appeared to go viral among other Republicans, particularly those on the right. Soon enough, Greg Gianforte was claiming that “We have had massive growth in state spending; up over 20 percent in the past three years.” Gianforte assured us that, as part of a bizarre budget plan based on the fact that our area code happens to be 406, he was going to bring that growth down to zero. And hard on the heels of that announcement, the Beaverhead County Republican Central Committee censured Reps. Jeff Welborn and Ray Shaw, on the grounds that they had voted for bills that “increased state spending over 20 percent for the biennium,” thereby flunking the Central Committee’s test of Republican purity. And so the Factoid took on a life of its own.

Unfortunately, because it should have died a quiet death months ago.

Since the numbers are not in yet for the current, 2016, fiscal year, it really isn’t possible to compare this biennium to the last one. But we do know that in fiscal year 2015, the first year of this biennium, total state spending – including Federal dollars appropriated by the state for programs such as Medicaid – was $5.521 billion, and that back in 2013 it was $5.182 billion.* So over the two year period it increased by 6.5%. Not 20% or anything like it. And in fiscal year 2012 total spending was $5.092, so over the three year period between 2012 and 2015, which seems to be what Gianforte’s talking about, spending rose by 8.4%; again, not even close to 20%.

Okay, so 20% is a monumental error, but still: Are we looking at excessive growth of government? Is a 6.5% increase in spending from one biennium to the next a lot or a little? Compared to what? Should we be worried? Well, enter Art Wittich. Wittich, in a letter to the Belgrade News, doubled down on the Twenty Percent Factoid by claiming that “During the last three legislative sessions, the state budget increased three times faster than inflation, population, or the private economy.” Now that sounds pretty bad, but again, it’s not true.

It’s not completely clear what time period Wittich is talking about here, but let’s go back to fiscal year 2010, the last year before the 2011 Legislature’s budget went into effect. From 2010 to 2015, the price level rose 9.7%, population rose 4.2%, the state budget (including, again, the Federal component) rose 9.1% and total state personal income, which is as good a measure of the size of the private economy as we have, rose 26.3%. So over this period, the state budget did not expand “three times faster” than anything; in fact, it did not even keep up with the growth of prices or personal income.

The point Wittich is trying to make but badly mangling here is that the growth of government spending should be considered in relation to the prices of the things that government buys, the number of people it serves, and the amount of income those people earn. The right way to do that is to compare the growth of real (inflation adjusted) per capita spending to real (inflation adjusted) per capita personal income. When you do that, here’s the picture you get:

Over the long haul since 2002, the economy has grown faster than state spending, rather than the other way around. There's no "massive" growth going on here. Nothing is out of control. There was a time, during the Great Recession, when state spending grew rapidly while the economy was contracting. That was because the state spent a bunch of federal Recovery Act dollars. And that was not a problem: On the contrary, without that infusion of Federal money, the recession would have been a lot worse.

* The issue of expenditure growth is a perennial favorite, and it produces lots of arguments among legislators, and Amy Carlson, the Legislative Fiscal Analyst, published a report in 2014 intended to sort the whole mess out. You can access that report here. The numbers I cite in this post were used in the preparation of that report, and I thank Ms. Carlson and her staff for providing them, updated to 2015, to me.