How Big is a Budget Number?

By Megan McArdle

Greg Mankiw was unimpressed by Obama's command to cut $100 million from discretionary spending.  Stan Collender says wait a minute:

Mankiw said that $100 million out of a $3.5 trillion budget is insignificant.  That's true, but the cuts aren't coming from the whole budget; they're coming from the much smaller part of "discretionary spending," that is, the parts of the budget that the members of the cabinet actually control.  This excludes interest on the debt, Social Security, and things like contracts from prior years that, if cancelled, would actually cost the government money.

In fact, about two-thirds of the budget should be excluded from Mankiw's calculation for this reason.

Okay...you say that $100 million is still a virtually insignificant part of the $1.2 trillion or so of what's left.  True, but a little more than half of that is military spending which, inspite of what you may have heard, the president has proposed to increase next year by 4.1 percent.  That means that the cuts the president ordered have to come from about $500 billion rather than the $3.5 trillion Mankiw uses to make his point.

$100 million is still a relatively small percentage of $500 billion.  But it's not even close to being as unimpressive as Mankiw wants us to believe.

Items:

  • $100 million is .02% of the smallest figure Collender can come up with.  Imagine you are an average American household pulling in about $60,000 a year.  0.02% of your income is $12.  It's like trying to solve your budget problems by cutting out 3 lattes a year, or skipping a single Date Night at the local McDonalds.
  • $100 million is approximately 30 cents for every man woman and child in America.  It is a rounding error on the taxes of even the poorest families.
  • We could have achieved this same massive cost savings by asking every Federal Civilian Employee (Excluding Post Office) to take a pay cut of $1 a week.

I take the broader point that the president doesn't have that much discretion over spending.  On the other hand, since the president is proposing to increase spending, both mandatory and discretionary, by quite a lot, my sympathy to this argument is limited.  And just looking at the numbers he does control, I'd say this is very, very close to being as unimpressive as Mankiw wants us to believe.

This article available online at:

http://www.theatlantic.com/business/archive/2009/04/how-big-is-a-budget-number/16452/