Blue is NGDP, red is nominal government expenditures. Scales are different.
I do not understand how people can actually treat what is effectively a permanent cut in spending (same pound of flesh every year for the next ten years) as fiscal responsibility in this environment.
Budget baselines are very frustrating things to deal with, but one thing should be clear: some kind of baseline is important to have. People like Paul Gregory (HT - Russ Roberts) are remarking on the fact that discretionary spending is still projected to increase $110 billion over the next decade despite the approximately trillion dollar cuts.
If someone told you NGDP was going to increase by over a trillion but in fact it's only going to increase by $110 billion would you say "no big deal - it's still growing!". No - you'd call that a depression.
For my younger readers I'm sure you're expecting real earnings growth throughout your career. You're not going to be earning your current salary forever. Think of your anticipated salary growth ten years from now. Now if you actually got only 10 percent of that growth, would you consider that a good thing? How would your plans change?
NGDP is badly off trend but it is growing (although last quarter was ominous). Government expenditure is effectively flat-lined.
If any other component of output did this people would recognize it for the problem that it is. If this were your salary you would recognize it for what it is. But when it's "other people's money", stupidity reigns.
Note that government expenditures don't have the persistent trend line that NGDP does. We can fiddle with it - I'm not saying that's off the table. Ironically the spending protected from the sequester (entitlements and direct war spending) is exactly where we have our spending problems that ought to be addressed. But the idea that now is the time to do it or this is the way to do it is ridiculous.
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