4 Interesting Charts From the President's Economic Report

The president's economic aides put together a massive report on the economy every year. It's a 400-plus-page tome outlining where we've been, where we are, and where we might be heading next. 

Does the president look at more than the executive summary? I doubt it. Does anyone read the whole thing? No way.

But one thing I love about the report is that it's filled with graphs. Flip through it, and you'll find some interesting ones.

Take this one, showing projections of health-care spending growth compared with what we've actually experienced over the past few years:

If you're worried about long-term federal budget deficits, this should be the most important chart you've ever seen. The budget forecasts that promise trillion-dollar deficits for decades to come overwhelmingly rely on the assumption that health-care costs will spiral higher, just as they did over the past few decades. But lately, per-beneficiary cost growth for Medicare has actually been below the rate of overall economic growth. I've written more extensively about this here, but the bottom line is that we're really bad at forecasting, so the discrepancy between forecasts and reality shouldn't be surprising. And if the trend of recent years holds up, it's a true game-changer: A majority of projected budget deficits will disappear without lifting a finger.

Next, check out this chart, showing the difference between the sticker price of college tuition at public institutions, and the net price people actually pay after scholarships and tax deductions:

Tuition has become the equivalent of marginal tax rates in the 1960s: Few people actually pay the advertised rates, especially if you're of lower means. Evan Soltas of Bloomberg writes:

For much of the middle class, the real net cost of college has not changed significantly [over the past two decades]. ... Data from the College Board show effectively no change in real net tuition and fees for dependent students at four-year public or private universities whose families are in the lower-two income quartiles.

Take Harvard. It's often used as a shocking example of how expensive higher education has become -- $54,000 a year! But Harvard's website notes, "More than 60 percent of Harvard College students receive scholarship aid, and the average grant this year is $40,000." It goes on: 

During the 2012-2013 academic year, students from families with incomes below $65,000, and with assets typical for that income level, will generally pay nothing toward the cost of attending Harvard College. Families with incomes between $65,000 and $150,000 will contribute from 0 to 10 percent of income, depending on individual circumstances. Significant financial aid also is available for families above those income ranges.

This is an extreme example of a school with an endowment fund the size of a small nation's GDP. But it underscore's the point made by the White House's graph: What's grown almost as fast as tuition over the past decade? Scholarships.

Next, here's a chart showing the difference between how many new homes we should be building based on demographic trends compared with how many we actually built:

Not only are we currently building too few homes to keep up with demographics, but the skew is almost as large today as it was during last decade's housing bubble -- just in the other direction.

The importance of that can't be overstated enough, which is why I've written about it a lot. People look back at the housing bubble with a sense of amazement. The market was out of control! It was so crazy! Everything was out of balance! But it's virtually the same today. Except this time, rather than a bust, the end game is likely to be a surge in construction. Remember Stein's Law: If something can't go on forever, it won't. That applies to both booms and busts.

Last, here's a chart of state and local spending during economic recessions and recoveries:

This graph is important because it offsets one of the most contentious debates of the past five years: the rise in federal government spending. Yes, real federal government spending has risen sharply since 2008. But real state and local spending declined sharply during that period. Not only is that unheard of in modern recoveries, but it offset part of the rise in government spending. With the recent federal spending sequestration, total state, local, and federal government spending as a share of GDP will probably be the same in 2013 as it was in 2007, before the recession (36%).

The impact the state and local cuts have on jobs is also impressive. According to a study by two Yale economists, if state and local governments responded to the last recession as they had in the two previous ones, they would have added at least 1.4 million jobs since 2007. Instead, they cut more than 700,000.

What do you think? 


Read/Post Comments (12) | Recommend This Article (42)

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  • Report this Comment On March 18, 2013, at 6:56 PM, akutach wrote:

    Morgan,

    To be clear on the home building chart. Each progression of the chart includes the over/under building of years before? I know in your other writings you've stated that we have some years of catching up to do, but since it's an odd way to present data I wanted to be sure that it's saying we need to build not just at current demand, but above current demand over time for the current time value to move back to 0.

    The alternative is that it is the over/under build in each year. In such case it says we have lot of bulldozing and household creation left to get back to normal. Thanks for reading the whole thing!

    Alan

  • Report this Comment On March 18, 2013, at 7:00 PM, DividendsBoom wrote:

    "students from families with incomes below $65,000, and with assets typical for that income level, will generally pay nothing toward the cost of attending Harvard College"

    so with assets typical for that income level,f 0 then, is that what is typical?

  • Report this Comment On March 18, 2013, at 10:42 PM, Darwood11 wrote:

    On housing "But it's virtually the same today. Except this time, rather than a bust, the end game is likely to be a surge in construction. "

    Yes, that's true. But will that construction be for apartments or for homes? I'm betting that for the near term it will be for apartments. And I'm not a gambler. Making money is serious business!

    Young people have college loans, credit card debt and want a new car on graduating. The current stigma on home ownership will take some time to reverse: "Own a home and become a serf to the banks."

    On local spending: "if state and local governments responded to the last recession as they had in the two previous ones, they would have added at least 1.4 million jobs since 2007. Instead, they cut more than 700,000." Yes, but back in 2000 according to statistics I've seen, States did not have the hangover from spending binges and underfunding pension obligations.

    It's similar for personal finances. During recent recessions, people weren't up to their eyeballs in debt. After the debt binge of the previous decade, we find ourselves with a lot more debt, no emergency fund and inadequate retirement savings. Our government, ever mindful of the need to assist us in keeping ourselves in avoidable debt, provided us in that darkest hour with the "cash for clunkers" program, so we could go deeper into debt.

  • Report this Comment On March 19, 2013, at 8:28 AM, TMFGortok wrote:

    I think putting government spending as a share of GDP masks some problems with it, especially since government spending is calculated as part of GDP (which really doesn't make any sense, but that's a whole 'nother story).

    Another issue is that GDP is calculated in dollars; those very little things that the Federal Reserve prints out of thin air (and part of the very same equation when we talk about the debt limit and spending). Sure, we have a higher GDP when the government spends more money, but government spending can only come from one of three places: 1) taxing (taking money out of the private economy) 2) printing it (debasing the currency and causing inflation which may result in price inflation, but either way hurts those on fixed incomes -- the poor) or 3) Borrowing it -- at some point it must be paid back (see #1 and #2).

    Government spending should be looked at not compared to GDP, but compared to itself. Does that number rise?

    If it does, you have to ask: Who is going to pay for that increase? Are we paying for it by borrowing, taxing, or inflation? What does that do to our currency both in the short term and in the long term? What financial obligations are we setting our Children up for?

    If you take away the credit expansion by the Federal Reserve, would we be in a recovery right now? It's hard to say.

    Without the bailout by the government and the subsequent bailouts by the Federal Reserve (to include QE infinity), there's a very good chance the debt would have been liquidated very quickly, and the morally bankrupt institutions would have failed, and competitors would have taken their places (there are a lot of 'would haves' there, but it is what history has shown us to be the case)

    As it stands, we're papering over the problem. The 'recovery' in the housing market may actually have something to do with the fact that the Federal Reserve is buying 40 billion a month in Mortgage backed securities.

    Another piece of trivia: What are those MBS actually worth? *No one knows* because there's not an actual market for them.

  • Report this Comment On March 19, 2013, at 12:32 PM, SkepikI wrote:

    Morgan: I am not at all convinced that the graph showing state and local govt spending vs federal shows what you conclude it shows. Lumping state and local spending amongst all states fuzzes the data just enough to open up the garden path to the conclusion you wish? to draw. Most states and locals are forced to balance their budgets (mine included) but a few notable exceptions chose not to (CA came to mind). A very few got real lean and efficient (not mine included) creating surpluses (WY)

    Like many businesses FORCED to remove the waste, unnecessary and get efficient, some governments improved without much real consequence to citizens who weren't govt employees. The FEDERAL government, not forced to economize sort of went the other way scattering money to crazy places and generally wasting a good deal of effort.

    This DOES NOT result in any kind of an offset, it merely shifts who funds the crooks and wastrels. If you want to look at equivalency of $ as some kind of offset, I guess that "data" translates to an isolated fact that has little correlation to anything useful. Sort of like saying I used to burn my dollar bills in the stove, but while the recession was on I merely flushed them down the toilet... it used water and didn't heat the house, but they offset, so I wasn't much worse off.

    I also question the validity of the basic statistical data gathering because of the source, but that's another story. Then there is the whole transfer payment issue... some of the Federal $ are direct transfers managed by the States...not at all sure this is captured in the graph correctly.

  • Report this Comment On March 19, 2013, at 2:56 PM, slpmn wrote:

    Skepikl, Sometimes when the data doesn't agree with your preconceived notions about what it should show, it means your notions are wrong.

  • Report this Comment On March 19, 2013, at 3:55 PM, GrimRebuke2 wrote:

    Gortok - I actually have some of the same issues you are expressing and went and created my own spreadsheet of GDP without Federal spending. Looking at that, growth was bad for most of this century. Last year, the private sector grew by over 5.5%, the third-largest gain since the 90's. You would not know that from GDP growth because government spending is down.

    I also look at GDP growth with inflation and population factored in. From 1999 to 2009 we actually saw a CONTRACTION in the private sector when you add those factors. We have never before had a period where GDP without government spending was lower on a per capita, inflation-adjusted basis than it was 10 years earlier except from 1999 - 2009. If not for government spending and borrowing, we would have had no growth during the Bush administration at all, and that's not even factoring in the fact that every dollar the government spends on something has a part of it spent again in the economy later.

  • Report this Comment On March 19, 2013, at 7:25 PM, hifive55 wrote:

    "...students from families with incomes below $65,000, and with assets typical for that income level, will generally pay nothing toward the cost of attending Harvard College"

    I guess my three should have gone to Harvard, then. State universities racked up more than 30,000 in Student Loan debt for each of them, before they were able to finish a degree. They dropped to part-time or dropped out because when they worked, they lost grants and their other funding was cut.

    I believe these kinds of skewed statistics are what's wrong with the American economic picture. Skew and screw is still the name of the game as far as the Fed gov't is concerned.

  • Report this Comment On March 19, 2013, at 7:35 PM, xetn wrote:

    I am sure those charts are as accurate as the Fed's 2007 assurance that there was no housing bubble.

  • Report this Comment On March 22, 2013, at 11:22 PM, craigwprice wrote:

    xetn--

    Oooooh, that's good!

  • Report this Comment On March 28, 2013, at 12:29 AM, ChrisBern wrote:

    All due respect to the author's article, which was interesting...but TMFGortok's response really hit the nail on the head.

    Ask yourself what the economy would look like right now without QE, without artificially created zero-interest rates, without implicit and explicit bailouts, and without large deficits...not to mention extended unemployment, etc.

    Everything's just being papered over right now. Remove all of those items and we'd be in a depression...

  • Report this Comment On April 12, 2013, at 5:51 AM, thidmark wrote:

    "Remove all of those items and we'd be in a depression..."

    That is why they are doing those things.

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