“Today, government at all levels consumes 37 percent of the total economy or GDP. If Obamacare is allowed to stand, government will reach half of the American economy.”
— Mitt Romney, economic speech, June 7, 2012
This is a startling assertion by the presumptive GOP candidate, which he has made in several forms in recent weeks.
David Corn of Mother Jones first spotted it when Romney made a victory speech in New Hampshire, arguing, “With Obamacare fully installed, government will come to control half the economy, and we will have effectively ceased to be a free enterprise society.” Corn quoted a number of economic experts finding fault with Romney’s reasoning, such as former Ronald Reagan adviser Bruce Bartlett saying “this analysis is so stupid it is hard to know where to begin.”
FactCheck.org then weighed in when Romney had tweaked the language somewhat, but also found it wanting, saying it was “a pure partisan fantasy” and “patently false and misleading.”
With such harsh reviews, one would think that Romney might drop the assertion from his speeches. But now a new iteration has appeared, so we will examine it.
The Romney campaign says this line is based on three separate claims. First, that in 2011, government expenditures amounted to 37.34 percent of the gross domestic product. Second, that with the president’s health plan in place in 2020, government expenditures are projected to climb to 39.18 percent. Finally, private health-care expenditures are projected to be 10.03 percent of GDP in 2020, so adding that altogether gets you to 49.21 percent.
Hmm. Someone certainly spent a lot of time stitching those statistics together. But does it really add up to anything insightful?
First, note how Romney spoke of government “at all levels” — that is code for the fact that he is not only counting federal spending but also adding in state and local government spending. “Our point is that government at all levels plays too large a role in the economy, so the correct measure to look at is how much government consumes,” said Romney senior adviser Eric Fehrnstrom.
Experts, however, disagree on whether one can use the statistics cited by the Romney campaign to speak of “government consumption,” because it includes transfer payments such as Social Security. “Collecting taxes from one private party and transferring the revenue to another private party is not government ‘consuming,’” said Henry J. Aaron of the Brookings Institution.
He also noted that, even if one accepted the figure, it is several points above normal “because GDP is below our potential or full-employment output, and spending is inflated by such recession-related spending as unemployment insurance. Normally, the spending share would be below 35 percent of GDP.” So this would affect the second part of Romney’s claim, in which he added a future prediction of health-care spending to the 2011 figure.
Richard Kogan, a budget expert at the Center for Budget and Policy Priorities, said that while federal outlays in 2011 amounted to 24.1 percent of GDP, transfer payments were 15.7 percent and interest payments were 1.5 percent of GDP, leaving just 6.9 percent of GDP “that can reasonably be thought of as federal consumption (purchases of goods and services) in 2011.”
However, Daniel J. Mitchell of the Cato Institute said that government-expenditure figure is a “fairly conventional number” to use to indicate the total burden of government spending. He noted that data from the Organization for Economic Cooperation and Development (table 25) used similar figures when comparing “total government outlays” of different OECD members. (The United States, it should be noted, had the eighth lowest level out of 36 members.)
But Romney goes way too far when he adds private health-care expenditures to this total and claims that it shows the “reach” of government. Mitchell — no fan of the health-care law — politely called the concept “novel.” As he put it, “I agree that private health-care outlays are heavily influenced by government policy, but that was already the case before Obamacare. Yes, Obamacare will make it worse, but I don’t think it is justifiable to count that 10.03 pct of GDP as private before Obamacare and government after Obamacare.”
“What Governor Romney said is that government will reach half the economy,” Fehrnstrom said. “Obamacare requires everyone in the country to have insurance coverage that will pay for their health care, allows Washington to define what that coverage must consist of and how it will be priced, creates a new board to preference some treatments over others, and even levies new taxes to pay for it all.”
Using the word “reach” appears to be a stretch. Under Romney’s definition, a wide variety of industries, such as banking or housing, should also be counted as part of this government-controlled economy.
The Pinocchio Test
In essence, Romney has taken a debatable assertion — that government “consumes” 37 percent of the economy — and then hyped it with a nonsensical non sequitur — that the health-care law extends the “reach” of government to 50 percent of the economy.
Clearly, the Romney campaign does not want to abandon this claim, despite the poor reviews it has received from various experts. But it makes little sense and is frankly a bit foolish — especially for a candidate whose signature legislative achievement as Massachusetts governor was to enact a health-care law that at the state level included insurance exchanges, Medicaid expansion, an individual mandate and other provisions that he now claims extend the “reach” of government.
Romney should drop this line from his speeches. No amount of tweaking will get it right.
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