06/13/2012 06:20 pm ET Updated Jun 14, 2012

What Is Government 'As We Know It'? Think Tank 'Cage Match' Raises Question

WASHINGTON - Washington think tank debates are, as a rule, excruciatingly boring. And a "cage match" Monday night between two scholars at the American Enterprise Institute didn't show any sign of breaking that trend.

Long-time resident scholar Norman Ornstein argued the Republican Party has become "too extreme." Steven Hayward, also a fellow at the Republican think tank known for its establishment ties, said it has not. It was about as exciting as it sounds.

But one moment during the hour-long affair got to the core of the fundamental, urgent issue at the heart of not only this year's election but also the do-or-die congressional debate that will follow it: How much government do we really have, how much do we want and how much can we afford?

Ornstein, in the course of pushing back against the idea that Democrats have been unwilling to compromise on spending, made a claim that requires some unpacking.

"If you look at, for example, the trajectory of discretionary domestic spending, which is most of government as we know it, it has been both leveled off and declined significantly," he said.

The problem with this statement is that discretionary spending is closer to a third of government rather than the bulk of federal expenditures.

In the 2011 fiscal year, discretionary spending was $1.347 trillion in a federal budget of $3.6 trillion (page 145 of the White House budget office's historical tables). Mandatory spending on programs like Medicare, Medicaid, Social Security, federal government employee pensions, food stamps and other entitlement programs was $2.255 trillion.

Discretionary spending in 2011 was 37 percent of the budget, hardly "most of government as we know it."

Ornstein explained his statement in an e-mail by honing in on the phrase "as we know it."

"I would not argue that discretionary is most of government spending, just most of government as we know it and experience it, from education to medical research to food safety to air traffic control to all the safety net programs, NASA, you name it," he wrote. "Entitlements are larger in size, but involve mostly checks going out to people, not government that affects our daily lives in so many ways."

At the very least, "government as we know it" is a highly subjective phrase that could mean anything a shrewd debater like Ornstein wants it to mean. But leaving aside the argument over what "affects our daily lives" more -- government services and programs or checks that come to citizens directly -- Ornstein's comment was in the context of government spending, not what people consider to be government and what they don't consider to be government. And so, intentionally or not, his comment risked misleading listeners who could have heard only that government spending has gone down and thought he was talking about "most of government," full stop.

Ornstein's comment tracks closely with an argument that President Obama and Democrats have been making to stress their fiscal credentials. Obama has focused on the discretionary portion of the budget in order to claim that he has reduced spending in historic fashion.

"Spending under my administration has grown more slowly than under any president in 60 years," Obama said Tuesday afternoon at a fundraiser in Baltimore.

The rate of growth of federal spending has slowed, though the exact percentage by which it has slowed is debatable. The Associated Press and Washington Post have dismissed the president's claim to have set a six-decade record, a talking point spun out of a May 22 MarketWatch column that sparked the AP and Washington Post fact-checks. A Republican-controlled House has also played a role by demanding cuts to discretionary spending.

But, using a key measurement, the federal government is still spending money (much of it borrowed) at a rate that is higher than any time since World War II. The budget in fiscal year 2011 made up 24.1 percent of the entire U.S. economy as measured by the gross domestic product, according to the White House budget office.

Hayward, in the AEI debate, said spending has been between 21 and 23 percent of GDP since World War II.

But that's wrong too. Spending as a percentage of GDP was mostly between 18 and 22 percent between the end of World War II and 2008. It only hit 23 percent twice, in 1982 and 1983 (under Republican President Ronald Reagan during a recession), and it was down to 18.2 percent in 2000, when President Bill Clinton handed the White House over to President George W. Bush. In 2008, it ended up at 20.8 percent (page 24-25 of the historical tables).

In the 2009 fiscal year, which began in October 2008 -- just before the fiscal crisis -- spending as a percentage of GDP spiked up dramatically to 25.2 percent, in large part because of the $700 billion TARP bailout presided over by President Bush and the $831 billion stimulus package pushed through Congress by Obama.

Instead of a one-time bump up in 2009, however, the budget has stayed almost the same size, clocking in at 24.1 percent in the 2010 and 2011 fiscal years. The White House projects the budget to come down to 22 percent by 2014, but budget predictions are notoriously slippery, and the government faces a number of tough decisions in the coming years that will impact that number.

"That's the real debate," senior Romney economic adviser Glenn Hubbard said in a recent interview.

"The real fight this year isn't over whether you want to have Romney's version of tax reform or Obama's tax increases. It's over the size of government," Hubbard told HuffPost. "Because once you set the size of government, eventually you will have to raise the taxes to pay for it. It's again just math."