Saturday, August 11, 2012

Analyzing the Ryan Budget: Part I

Paul Ryan
Republican presidential candidate Mitt Romney has selected Paul Ryan, representative of Wisconsin, as his running mate in the 2012 election. Above all else, Ryan brings to the Republican ticket an emphasis on sweeping reform of the federal government, embodied by his 2013 budget proposal, the "Path to Prosperity," which received intense conservative approbation matched by liberal disfavor. (See also here for the plan with details as it was presented in the House of Representatives.)

Ryan's selection this morning as vice-presidential candidate renewed scrutiny on Ryan's budget, and in particular, on the bona fides of his redrawing of major federal programs and sharp cuts in government spending and revenue.

Out of personal interest and civic spirit, I am going to use the next few posts completing a detailed analysis of the Ryan plan, in order of the sections as presented in his "blueprint" overview.

First up is security spending.

The Ryan budget provides the Department of Defense a "base budget" -- that is, spending on wars not included -- of $554 billion for fiscal year 2013. The President's 2013 budget, to which I will be making consistent reference, requests $525 billion. The differences persist in the so-called out-years beyond 2013, when the President's budget would cut on average $31.3 billion per year more from Defense than  would Ryan. (That calculation combines the two cuts of $60 and $78 billion, plus the $487 billion sequester, over the decade and halves that amount, as Ryan's budget pledges for the out years on page 21.)

Federal government spending on national defense is, by some contexts, relatively low: it is 5 percent of GDP and 20 percent of total federal spending. (See here for a graph.) Defense spending on a real per capita basis, however, is up significantly since 2000 -- $2200 in constant 2005 dollars versus $1500 in 2000. (As a note, national defense spending includes the Departments of Defense, Homeland Security, Veterans' Affairs, and State, as well as overseas contingency operations [OCO] and some minor side items. Both budgets refer to it, less OCO, as "security" spending.) I would contend that real per capita defense spending is the only sensible comparison, so long as we are buying real arms to defend real people, rather than to defend a government or an economy. It follows that real per capita defense spending ought to gradually return to the peacetime levels of the mid-70s or the late 90s.

The President's budget would increase national defense spending less OCO by 1.94 percent annually over the next decade on a nominal basis. Considering the $82.3 billion cut in annual spending on OCO in the President's budget, total defense spending will rise a net nominal 9 percent from 2012 to 2022. All told, this amounts to a net 26 percent cut on a real per capita basis over the same period, bringing us to roughly $1650 in real per capita defense expenditures by 2022. (I assume an annual rate of population growth of 1 percent and 2 percent inflation.) That rate and depth of cuts would be in tune with the 5 percent real per capita reductions in defense spending seen during the 70s and 90s.

When it comes to the course of defense spending over the next decade, I support the President's plan. Ryan's pledge to keep "the defense budget grow[ing] in real terms each year" will not come close to achieving the net cut of 36 percent in real per capita terms required to rein in security spending to a reasonable peacetime level.

Let's dig deeper within the categories of security non-defense spending.

First, the Ryan plan makes a 6.4 percent nominal cut in international affairs -- funds for foreign aid, the State Department, etc. -- on net from 2012 to 2022. That amounts to a net 28 percent cut on a real per capita basis over the same period. The President's budget, by comparison, increases such spending on a net nominal basis by 33 percent over the next decade, or a 5 percent real per capita increase.

Historically speaking, the State Department has seen tremendous increases in funding over the last 15 years, using the Clinton administration's 1998 budget as a goal and point of reference.

The 1998 budget came as the culmination of many years of tough budget negotiations and was the final year of full stabilization of federal expenditures on a real per capita basis. In 1998, State Department spent $5.38 billion, and total international affairs spending was $13.11 billion. Given inflation and population increase since 1998, the levels which would have held real per capita spending constant would have been $20.1 billion for international affairs, of which $8.3 billion would go to State.

We are very far from those levels today: the President's 2013 budget requests $48 billion for international affairs. That is too much, even if you think -- as I do -- that real per capita international affairs needs have probably risen since 1998. Over the next decade, the net real per capita cut in the Ryan plan to international affairs nearly equals the President's cut to defense. I would do both.

Second, for Veterans' Affairs, the Ryan budget is slightly more generous than the President's, budgeting  over the next decade $697 billion as compared to $678 billion. 1998 cannot obviously be the relevant point of comparison, given the large increase in the percent of Americans who are veterans by 2022. In fact, since the difference is relatively small -- 3 percent of total expenditure -- and I know next to nothing about veterans, this is not a meaningful point of disagreement between Obama and Ryan.

Third, the Department of Homeland Security, which includes your and my favorite government agency, the Transportation Security Administration. The President's budget includes a net nominal increase of 18 percent for Homeland Security spending between 2012 and 2022; that's a 12 percent cut in real per capita terms. The Ryan plan divides Homeland Security's functions up into several categories, precluding comparison.

The other security spending items are relatively small. The National Nuclear Security Administration spent $11 billion in 2012; their expenditures are scheduled to fall on a real per capita basis, probably in line with nuclear power as a percent of total American energy consumption. There is also budgeted an "Intelligence Community Management Account" and an "allowance for security agencies," and spending here is effectively stable on a nominal basis at a combined $18.9 billion over 10 years.

Photo by Gage Skidmore.

4 comments:

  1. Regarding your final comment about the National Nuclear Security Administration, the NNSA actually has no particular role with nuclear power. It is a semi-autonomous agency of the Department of Energy, and while the Department has power-related functions, they're separate from the NNSA's work, both programmatically and budgetarily: different Congressional committees authorize that work. The NNSA develops the nuclear propulsion systems used by the Navy; maintains the nuclear weapons stockpile both physically and via a network of supercomputers used for simulations, thereby avoiding nuclear testing; contains the bulks of the response teams used in case of a nuclear or radioactive incident (around the world, not just in the U.S.; they helped a lot post Fukushima, for example); and spearheads the international nonproliferation efforts of the U.S. Government. But I don't know of anything it does that directly relates to nuclear power, except maybe for part of the mission of the incident response teams, so I doubt it's budget will correlate much to nuclear power statistics.

    (I work in the nonproliferation section, if you're wondering how I know/why I care).

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    1. I learn something new every day. Thank you.

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  2. As a conceptual matter: national defense is a classic public good, so I would expect real per capita spending to trend *downward* over time, after controlling for exogenous security shocks.

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  3. Regarding your choice of real per capita spending, I must disagree, assuming you are using the US population as your heads. Security spending is related to everything but the number of people in the US. Perhaps it would be more appropriate to use number of people in countries with a US military presence? If the concern is Ryan's, namely total spending, percentage of the budget or GDP might be more appropriate.

    Either way though, no denying that Ryan's plan keeps military spending high

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