Free Markets, Free People

Daily Archives: June 11, 2012


Federal spending a higher percentage of GDP than anytime since WWII

The indispensible e21 goes after what it calls “the government sector of the economy canard”.

The setup:

A recurring theme of commentary appearing in the New York Times and elsewhere is that the government is shrinking as a share of the economy. According to Floyd Norris, “the government sector of the American economy has shrunk during the first three years of a presidential administration” for the first time since the 1960s. This dangerous decline in government spending is thought by Norris and others to be responsible for the slow growth since the recovery officially began in July 2009.

The truth:

The most straightforward way to assess the burden of government is by comparing total government outlays to gross domestic product (GDP). By this standard, the federal government is currently larger than at any point in post-War history. Between fiscal years 2009 and 2012, federal outlays averaged 24.4% of GDP, the highest government-to-GDP ratio since 1946 and 22% (4.4 percentage points) larger than the average size of government since the military demobilization following World War II of 20.0%.

The politics of the Norris approach  is to make the canard seem to be reality in an attempt to portray the last three years as a conservative approach to our economic problems by the Obama administration:

Rather than measure actual government spending, which is at record levels, Norris instead focuses on the “government sector of the economy,” which is different conceptually from the actual size of government. Each dollar of government spending does not automatically contribute to GDP. The Bureau of Economic Analysis (BEA) only counts direct government purchases of goods and services or investments in capital equipment or infrastructure in the National Income and Product Accounts (NIPA). When the government buys an airplane from Boeing, for example, it counts the same in the GDP as if the aircraft were purchased by United Airlines. The same accounting generally works for employee salaries, as government purchases of services provided by Commerce Department employees, for example, count as government consumption spending in GDP.

[…]

The difference between government spending and the government contribution to GDP is largely attributable to transfer payments, entitlements, and subsidies. In recent years, transfer payments have exploded upwards. As of March 2012, transfer payments were running at a $2.3 trillion annualized rate, or 15.2% of GDP. Over the past four years, transfer payments have grown at a compound annualized rate of 9.1%, or about 3.5-times faster than the economy. Since passage of the Obama Administration stimulus, transfer payments have accounted for more than 18% of household income. As the composition of government spending has shifted away from capital investments and towards transfers, the “government sector” of the economy has fallen even as government spending has reached record highs.

e21 then does a further analysis of the Norris claims and says while it would be easy to dismiss the Norris critique out of hand, it does have some resonance.

Norris’ talk of the decline in the “government sector” provides insight into the changing role of government – specifically as provider of infrastructure to one of enabling transfer payments:

As e21 explained previously, the growth in state and local government has come with no corresponding increase in public goods like infrastructure to show for it.

Not all spending cuts are the same:

Spending cuts for sequestration aimed at defense, for example, will reduce GDP on a dollar-for-dollar basis. Spending cuts on transfer payments and subsidies only reduce GDP to the extent that the dollar would have been spent or not otherwise earned. A dollar devoted to unemployment insurance that lengthens the duration of unemployment, for example, may actually reduce GDP.

Finally, given those explanations, why did the stimulus bomb? 

President Obama’s stimulus was very poorly constructed. In 2009, Republicans criticized the stimulus as a “spending bill.” The President responded that increased government spending was the “whole point” of a stimulus. But based on the analysis of Norris and other commentators, the spending increase was obviously too oriented towards transfers instead of real purchases of goods and services. An effective stimulus based on government spending would have looked like the plan advocated by Martin Feldstein, which would have increased government purchases of military equipment and hardware. While left-leaning economists often lament the size of the President’s stimulus (i.e. wishing that it was even bigger), the composition or relative share of the type of spending was likely a much bigger problem.

It gives further credence to the assertion than economically, Mr. Obama is out of his element.   He and Krugman (and most of the left) talk about the size of the stimulus.  In fact, what it is spent on is more important than the size.

Meanwhile we’re headed into sequestration where precisely what would help the GDP on the government size of the ledger is on the chopping block (military equipment spending, etc.).

Couple that with "taxmageddon” and you can imagine the economic carnage possible in January.

~McQ

Twitter: @McQandO


Coal powered, er electric cars, not as efficient as EPA claims?

Why I’d be shocked, shocked I tell you if that was the case.

The tease:

The Green Machine is now exposing how the US Government can choose to create data that disobey the laws of thermodynamics so that the worthless government policy of favoring plug in vehicles over gas or diesel powered vehicles can be supported by the public. Yes the US EPA chooses to make 34.4% equal to 100%.

Hmmm … I’m hooked, let’s see why:

The EPA allows plug in vehicle makers to claim an equivalent miles per gallon (MPG) based on the electricity powering the cars motors being 100% efficient. This implies the electric power is generated at the power station with 100% efficiency, is transmitted and distributed through thousands of miles of lines without any loss, is converted from AC to DC without any loss, and the charge discharge efficiency of the batteries on the vehicle is also 100%. Of course the second law of thermodynamics tells us all of these claims are poppycock and that losses of real energy will occur in each step of the supply chain of getting power to the wheels of a vehicle powered with an electric motor.

So the 118 mpg equivalent that the EPA allows the Honda Fit is nonsense?  Tell me it ain’t so!

Well it is simple the US EPA uses a conversion factor of 33.7 kilowatt hours per gallon of gasoline to calculate the equivalent MPG of an electric vehicle.

Dr. Chu Chu of the Department of Entropy is instructing the EPA on thermodynamics in coming up with the 33.7 kwh per gallon. On a heating value of the fuel 33.7 kwh equals 114,984 BTUS which is indeed the lower heating value of gasoline. The fit needs 286 watt hours to travel a mile and the Green Machine agrees with this for the 2 cycle US EPA test with no heating, cooling or fast acceleration. Using this amount of energy per mile and the 33.7 kwh “contained” in a gallon of gas, the EPA calculates the Fit gets 118 MPG equivalent.

All of these calculations are in fact flawed as the generation of electricity, the transmission and distribution of electricity, the conversion of the AC electricity into DC electricity, and the charging and discharging of the vehicle batteries all have energy losses associated with these activities. The average efficiency of power generation is perhaps 42.5%, the transmission and distribution efficiency is perhaps 90%, the AC to DC conversion and the battery charge discharge efficiency is about 90%. Multiplying all these efficiencies one can calculate that the overall efficiency is 34.4% to get electric power from fuels at the power station into stored electrons within the plug in vehicle’s batteries.

On this basis the 118 MPG equivalent is 40.6 MPG actual for the Honda Fit which is not much of an improvement to the gasoline version of this vehicle that has an EPA rating of 35 MPG combined for city and highway driving.

Uh, that’s quite a little downgrade in performance, isn’t it?  Nothing like being 190% off, EPA.

However, I am glad to see the administration has finally taken the politics out of science and has “real” science again serving the public’s best interest.

~McQ

Twitter: @McQandO


A Primer on polling

As I’ve mentioned any number of times, you have to be careful about what polls you consider as worthy of believing and what polls are likely not particularly accurate.  Jay Cost has a great article about that with the added point that the media doesn’t understand what he tells you and so doesn’t understand the races in the various states.

He points to this from the Hill as an example:

President Obama is retaining his commanding lead over Mitt Romney in Pennsylvania, topping the Republican presidential nominee by 12 points in a poll released Wednesday by Franklin & Marshall College. Obama would win the favor of 48 percent of Keystone State voters, versus just 36 percent for Romney, according to the poll.

First:

1. The president is under 50 percent in most swing state polling averages. It’s not an ironclad rule that Obama cannot rise in the polls, but common sense suggests that it will be tough. He’s been the president for three years – if you’re not inclined to vote for him now, what will five months of a campaign do?

That’s an important point – if you’re the incumbent and polling under 50%, you’re in trouble regardless of the type voter the poll uses.  Also note that the Romney candidacy isn’t even official yet.  He would likely see a rise in preference once he is officially the GOP candidate.

Another point I’ll expand on later – favorability.  Cost says this:

It’s worth noting as well that most of these polls show the president getting roughly his job approval, which is all we should expect him to receive in the general election (maybe a little less). And his job approval rating has consistently been under 50 percent for two-and-a-half years.

Not good.  Not insurmountable, but certainly not an indicator of a strong candidate.  More on favorability later.

2. Most polls are of registered voters. This matters because the actual electorate will only be a subset of registered voters, and will probably be more inclined to vote for the GOP. So, these polls probably overstate Obama’s “lead,” such as it is.

With a state like Pennsylvania, using registered voters, you most likely get an oversampling of Democrats.  Which side is most likely to be motivated this time?  The GOP.  So the number quoted in the Hill story is probably considerably lower than claimed (remember Wisconsin?  A state carried by 14 points in 2008 is now showing 7 points).

3. There is no “blue wall.” This is a common point pundits will make – the list of states that have not voted Republican since 1988 amounts to a “blue wall” for the president. Nonsense. It’s better to say that these states have Democratic tilts, some of them pretty minimal.

We’ve seen evidence of that in landslide elections.  There’s no “red wall” either.  It’s all about tilts.  Some states tilt more than others but all states, at some point, are in play.  Think preference cascade.

Says Cost:

The states with a Republican tilt of at least 1 point total up to 253 electoral votes, based on the 2008 results. The states with a Democratic tilt of at least 1 percent total up to 257 electoral votes.

In other words, it’s a wash.

And this is key:

4. The “horse race” metaphor has its limits. Take this from the guy who used to write the Horse Race Blog: The concept of a horse race does not capture the idea of voter psychology very well at this point. Roughly 85 percent or so of the electorate is locked in – though they may not be admitting it to pollsters – while the final 15 percent has barely started the decision-making process. So, the idea that Obama has a “lead” in the polls is really a non sequitur. The gettable voters are not yet engaged, so there really is no race going on at the moment

The fight is for the 15% and they’re not even really paying attention yet.  My guess is the 15% probably have a preference, but can be swayed.  But for the most part, the majority of the electorate is already engaged (and again, this is one reason WI has national implications).

Finally, favorability.  Obama supporters like to point to his favorability rating vs. Romney.  That’s pretty much useless as Morris Fiorna explains:

Over all, in the 13 elections between 1952 and 2000, Republican candidates won four of the six in which they had higher personal ratings than the Democrats, while Democratic candidates lost four of the seven elections in which they had higher ratings than the Republicans. Not much evidence of a big likability effect here. In most elections, however, the electorate did not give a large personal edge to either candidate. In four elections they did.

So it is a very mixed bag concerning favorability or likeability.  The most pertinent recent example:

Jimmy Carter’s 1980 job approval was flirting with lows established by Harry S. Truman, Nixon and later, George W. Bush, but the electorate rated Carter’s personal qualities as the highest of the Democratic candidates between 1952 and 2000. The same electorate rated Ronald Reagan as the lowest of the Republican candidates. The Ronald Reagan of October 1980 was not the Reagan of “morning again in America” in 1984, let alone the beloved focus of national mourning in 2004. Many Americans saw the 1980 Reagan as uninformed, reckless, and given to gaffes and wild claims. But despite their misgivings about Reagan, and their view that Carter was a peach of a guy personally, voters opted against four more years of Carter.

Fiorna sums it up this way:

“Voters didn’t like my personality” is a loser’s excuse.

As the campaigns progress, we’re likely to hear how Obama’s favorability rating is higher than Romney’s and that such a rating is “significant”.  Don’t buy into that.  It is likely not that significant at all. 

In summary, if the candidate is under 50% in a state in which registered voters are polled, he’s not as strong (or weak) as the polling might indicate.  If the poll is of registered voters, take it with a grain of salt.  All states are in play and the fight is for the uncommitted 15%.

Favorability?  Disregard.  It’s about job performance. (That said, here’s POLITICO trying to make something of Obama’s favorability rating).

Hopefully this will help you navigate the worth of the umpteen polls you’ll have thrown your way in the next few months.  You should be able to quickly get their measure and then just as quickly figure out if the media has any idea of what it is talking about. 

Most likely you’ll find they don’t.  But then, that shouldn’t particularly surprise you, should it?

~McQ

Twitter: @McQandO