Real Federal Expenditures

I confess to being a bit lazy with this post yesterday (plus I had internet problems) as I should have taken that series on nominal Federal expenditures (seasonally adjusted) and expressed it in real terms (2005$), which is what our graph does covering the period from the 1st quarter of 2005 to the 4th quarter of 2012. Yesterday, I was having a little fun at the expense of John Nolte when he wrote:

There was no decrease in government spending during the fourth quarter of last year. In fact, the government spent more money between October and December of 2012 than it did during the previous two quarters. So federal spending actually increased during the 4th quarter.

Nolte was complaining about how some claimed there was a fall in government spending reported in the latest GDP accounts. Of course, people should distinguish between government purchases (which did fall in real terms last quarter) and government spending which includes transfer payments as Barkley noted. But let’s make two other distinctions. My post yesterday linked to Federal expenditures on a seasonally adjusted basis which did show a sizeable decline even in nominal terms between the 2nd and 3rd quarter and a nominal increase that was less than inflation in the 4th quarter. So in real terms, seasonally adjusted real Federal expenditures have fallen during the second half of 2012. In fact, they have been falling since their peak at the end of 2010. Perhaps part of the decline is attributable to the fact that the economy has slowly recovered but part of it is due to austerity, which of course, is terrible policy for an economy that still has a 6% GDP gap. And some in Congress want to cut government spending even more?