Debt & Deficits Under Obama

I have seen a number of attempts to show that President Obama has been more fiscally responsible than his Republican predecessors because deficits and debt have grown more slowly under his watch than theirs. If I follow these arguments, they are not without a point but they are also blatant attempts at denying the obvious.

The argument seems to go like this: between 1982 and 1989 (the years for which Reagan produced budgets) the public debt increased by 252%. From 2010 to 2013 (estimated, obviously), the Federal debt will increase by 130%. See! Obama increased the debt by a lot less than Reagan.

To see the problem with this argument, consider two businesses. One begins a four year planning period $100 dollars in debt and ends $150 in the hole. The other begins with a debt of $100 million and ends with a debt of $125 million. Since the former saw an increase in debt of 50% and the latter an increase of only 25%, the former must be doing twice as badly, no? Of course not. The former debt can be wiped out with a successful carwash. The latter will require a lot of carwashes to erase.

In fact, you can tell little or nothing about the financial condition of these two firms by the information given. You would have to know a lot more about their assets and revenues and whether the former are growing faster than their debt. A teenager mowing lawns might be crushed by $150 in debt whereas a large firm might find $25 million in an old coat pocket, metaphorically speaking.

There is a point to the comparison, however. The best way to measure federal debt is by the percentage of the GDP it represents. Federal debt declined from a high of 122% of GDP in 1946 (there was a war on) to a low of 33% in 1981. That's a little misleading, since in the sixties and seventies government financed unfunded spending by printing money, which led of course to inflation. Reagan, to his credit, broke the inflation cycle; however and not to his credit, under his watch the debt to deficit ratio began to grow. President Clinton, to his credit, managed to bring the ratio down from the high sixties to a low of 54% in 2001 (Bush 43's first year in office). It has climbed steadily since, from 59% in 2002 to 70% in 2008.

Now we can evaluate the Obama years. In 2009, as a result of Bush 43 efforts to combat the recession, the debt to GDP ratio jumped to 85%. In 2010, Obama's first year of budgeting, it jumped almost 10%. In 2014, the first year of the next presidential term, the OMB estimates the deficit at 108% of the GDP. We are already at WWII levels of federal debt with no comparable war on.

Of course Obama is not to blame for being in a much more difficult financial position than Reagan, or the Bushes, or Clinton. Likewise, he gets no credit for sophistic statistical comparisons. A 250% increase over a $1.1 trillion debt is a lot less severe than a 130% increase over a $14 trillion debt.

In constant dollars, Obama has piled on more debt in four years than Bush 43 did in eight. As a percentage of GDP, his deficits total more two to one over those of any president from Reagan on. The federal debt to GDP ratio is twice what it was during any Reagan year. In every budget or plan that the President has submitted to scoring by the CBO, the deficits will climb dramatically upward only a few years from now. To suggest that President Obama has been in any conceivable way fiscally responsible is to be in deep denial about our situation.

Comments

[Donald Pay]

Why don't you find out how much of Obama's deficit is the result of policies enacted during the Bush years and how much of it resulted from counteracting the Bush Recession?

Obama inherited the mess Republicans left him, including unpaid tax cuts, unpaid Medicare Part D, unpaid and off budget wars, and the price of fixing Bush's Recession. Even Romney has suggested it would be foolish to try to balance the budget right now and that to do so would risk another recession. I think you agree with me that the Bush policies were fiscal insanity. Most economists think cutting the deficit before the risk of recession is over is worse fiscal insanity.

The issue isn't whether we have to get our fiscal problems in order. The issue is when and how. The Republican prescription leads to worse deficits.

[A.I.]

The Recovery Act was pretty much the sole deficit spending initiated by the Obama administration. That was $700-plus billion. The rest of the over $5-plus trillion in added debt was a carry over of Bush, unfunded spending noted by Donald above coupled with recession-induced revenue shortfalls.

[Ken Blanchard]

Donald: your position is that Bush's policies were fiscal insanity and that reversing them would be fiscal insanity. Okay. I must once again remind you that Obama has been President for four years. At what point does he have to take responsibility?

A.I.: Obama is president. All the deficit spending since he took office is his responsibility. The question is what he has done about it and what he intends to do about it if he gets another four years. The answer is in the budgets he has submitted to Congress: nothing.

[UK Payday Loan]

I hope that everything goes well and also this might be a good plan for the future.

[Donald Pay]

So are you admitting the Republican/Bush's policies were wrong, and that Obama should have reversed them immediately upon coming into office> I don't recall that as ever being your position. In fact you have consistently argued in this blog against such changes when Obama wanted to make them. You constantly agitate for continuing the failed Republican economic prescriptions. Do you support doing away with Medicare Part D, or reforming it to allow cost savings? Would you support a tax to pay down the debt caused by Republican mismanagement during Bush's terms in office? It's pretty easy to sit their in your easy chair and have it both ways, isn't it? You want no change and then when Obama doesn't change anything, you pout and stamp your feet.

And, yes, when the economy is struggling you use federal spending to get it going. Bush did exactly the wrong things fiscally, and you blame Obama. Incredible.

[A.I.]

For the record, Obama has offered a plan to lower the deficit, a sort of Simpson/Bowles lite. That is for the long term. The immediate concern should not be debt reduction through spending cuts, it should be job creation and economy building. Obama submitted a jobs bill over a year ago. The House ignored it focusing instead on abortion and repealing Obamacare--33 times.

[SeriousLee]

A.I. I ask this question knowing that you won't bother to answer it directly. What did the Democrat-controlled Senate do with the only budget Obama has bothered to submit during his term?

[Bill Fleming]

SeriousLee, I'll answer it. They passed the Budget Control Act instead, along with the Republicans.

[Ken Blanchard]

Donald: I have not defended Bush 43 economic policy. Obama doubled down on those policies. Has he ever moved for a repeal of all the Bush tax cuts? I would point out that had Bush 43 offered serious fiscal reform, you and all other Democrats would have torn him a new exit strategy. That's no excuse, it's just a fact. I think that we have to raise taxes and cut spending. I am waiting for a plan from someone.

A.I.: no, he hasn't. What he has offered are his budgets. When scored by the CBO, they portend disaster. It might be that the only hope for fiscal responsibility would be for Obama to be reelected along with Republican majorities in both houses. Then Obama pulls a Clinton. He actually works with Congress. Unfortunately, Obama is no Clinton. If reelected, we will get for more years of trillion dollar deficits and no long term fiscal reform.

[Allan MacLellan]

Good commentary everyone. The problem is spending.To put it in perspective; to offset a single year Obama deficit of $1.3 trillion, we could take every dime from every billioaire in America,from Oprah to Warren Buffet,and you still come up a few billion short! One year deficit, every billionare broke.

We cannot tax our way out. Spending cuts will happen. It is just a question of how much and when. Ken Blanchard stated the solution that worked before,but,it will take a decade to balance a budget now where it was a couple years during Clinton"s era.It takes a conservative Congress and a liberal President. The media sells the public on the spending cuts and/or tax cuts to support the President and the economy responds, deficits decline. The media and special interests drive the only 2 buses in this country. Clinton actually retired with a surplus! It can happen!