Misusing Budget Data

March 20, 2014

How can analysts using the same set of budget figures come to dramatically different conclusions about the course of federal government spending? The answer lies in the way the budget is presented and the baseline chosen by the analyst, says David Primo, a senior scholar at the Mercatus Center.

The type of budget presentation used can be misleading:

  • Absolute dollar figures: Without adjusting for inflation, government spending or growth will appear much higher than it actually is. The use of absolute dollar figures will yield massive increases in spending, but by adjusting for inflation, an analyst can actually see whether those increases are due to government growth or only a changing dollar value.
  • Spending per person: Dividing total spending by population yields a per capita spending figure. However, if the population grows faster than spending, government spending will appear to decrease, even if the spending has in fact seen an inflation-adjusted increase. When populations grow quickly, policymakers have "free money" to work with because data will not show a spending increase.
  • Percentage of gross domestic product (GDP): Measuring spending against the size of the economy will yield the same results whether you use inflation-adjusted figures or not. It allows analysts to point to the weight of government spending on the private sector. But like per capita spending, if the economy grows faster than spending increases, spending will appear to be declining over time.

Primo uses the 2014 Obama budget as an example: spending increases under analyses that employ absolute dollars, inflation-adjusted dollars and inflation-and-population-adjusted dollars, but it decreases slightly using a percentage of GDP analysis.  None of these analyses are technically wrong, but analysts should make clear the assumptions that they are making.

Moreover, the Obama budget is only a 10-year spending forecast, thus it does not show the long-term implications and consequences of laws that are enacted. A 10-year budget projection is not an appropriate way to assess spending and it invites manipulation. Lawmakers, for example, can pass a law that includes benefits that do not take effect until 11 years after enactment.

The ability to take one set of data and produce two completely different conclusions creates the opportunity for mischief. Americans need to understand how the measures chosen to analyze data can yield wildly different results.

Source: David M. Primo, "The Uses and Misuses of Budget Data," Mercatus Center, March 11, 2014.

 

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