Spending

95 Days of Trump Spending & Cutting

Zachary BartschLeave a comment

Generally, decisions to spend federal funds come is the authority of congress. But the Trump administration has very publicly made clear that it will try to cut the things that are within its authority (or that it thinks should be within that authority). Truly, the fiscal year with the new Republican unified government won’t begin until October of 2025. So, the last quarter is when we’ll see what the Republicans actually want – for better or for worse. In the meantime, we can look past the hyperbole and see what the accounting records say. The most recent data includes 95 days after inauguration.  First, for context, total spending is up $134 billion or 5.8% from this time last year to $2.45 trillion.

The Trump administration has been making news about their desire and success in cutting. Which programs have been cut the most? As a proportion of their budgets, below is a graph of were the five biggest cuts have happened by percent. The Cuts to the FCC and CPB reflect long partisan stances by Republicans. The cuts to the Federal Financing Bank reflect fewer loans administered by the US government and reflect the current bouts to cut spending. Cuts in the RRB- Misc refer to some types of railroad payments to employees. In the spirit of whiplash, the cuts to the US International Development Finance Corporation reverse the course set by the first Trump administration. This government corporation exists to facilitate US investment in strategically important foreign countries.

But some programs have *increased* spending since 2024. The five largest increases include the USDA, the US contributions to multilateral assistance, claims and judgments against the US, the federal railroad administration, and the international monetary fund. Funding for farmers and railroads reflect the old agricultural and new union Republican constituencies. The multilateral assistance and IMF spending reflects greater international involvement of the administration, despite its autarkic lip service.

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Government Purchases and How Markets Avoid Messes

Zachary BartschLeave a comment

The government is unique among economic institutions insofar as it can use coercion legally. But not all activities are coercive. Clearly, taxation is overwhelmingly coercive. Some people say that they are happy to pay taxes, but the voluntary gifts to the US Treasury are itsy-bitsy (just over $1m for FY 2023). Most regulations also include the threat of fines or jail time for non-compliance.

But once the government has the money in their coffers, there is plenty that they can do consensually. Once they have the resources, they are often just another potential transactor in the markets for goods and services. While the government can transact as well as anyone else, there is a fundamental theoretical difference for how we should interpret those transactions. Specifically, there is a principal-agent problem such that we can’t quite identify the welfare that is enjoyed by consumers when the government makes purchases. We really have very little idea.

Garett Jones uses the analogy of the government confiscating potatoes. The worst use would be for the government to throw the valuable resources into the river. Those resources help no one. Improved welfare would be yielded if the government just transferred those potatoes back to people. Sure, there’s the transaction cost of administration, but people get their potatoes back. Finally, the great hope is that the government takes the potatoes and makes tasty potato fritas such that they return to the public something more valuable than they took. These might be things that fall into the public goods category or solving collective action problems generally.

The above examples illustrates that how the government spends matters a lot for the welfare implications of the newly purchased government resources. But, we need to recall that there is an entire private segment of the market that is affected by the government transactions.

Short-Run Analysis

In a competitive market, firms face increasing marginal costs and make decisions about their levels of output. When the government makes purchases, it’s simply acting as another demander. How does the entry of a larger demander affect everyone else in the market? See the below GIF.

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Growth of the Transfer State

Zachary Bartsch1 Comment

I’ve written about government spending before. But not all spending is the same. Building a bridge, buying a stapler, and taking from Peter to pay Paul are all different types of spending. I want to illustrate that last category. Anytime that the government gives money to someone without purchasing a good or service or making an interest payment, it’s called a ‘transfer’. People get excited about transfers. Social security is a transfer and so is unemployment insurance benefits. Those nice covid checks? Also transfers.

Here I’ll focus on Federal transfers, though the data on all transfers is very similar if you include states in the analysis. Let’s start with the raw numbers. Below is data on GDP, Federal spending, and federal transfers. Suffice it to say that they are bigger than they used to be. They’ve all been growing geometrically and they all exhibit bumps near recessions.

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Clarity on the Federal Debt

Zachary Bartsch2 Comments

I have a list of economics topics that I like to teach about because they conflict with the biases of my average student. The list includes fiat currency, inflation, deficits, net exports, and immigration. The list also includes the importance – or lack thereof – of the federal government’s debt. This post walks through a few graphs to do a gut-check of what we think is true and how it compares to reality. For example, do you have a sense of when the debt grew historically and when it was constant? Do you have a sense for when it shrank?

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