I have been listening to the current debate about the size of the federal budget and the deficit with some confusion. Republicans say that spending is too high. Democrats say that taxes are too low. I have vague recollections of budget deficits under President Reagan and both President Bushes and a surplus under President Clinton. Those facts made me a little skeptical about claims that deficits are out of control under President Obama. Since I had a little free time on this Fourth of July, I decided to do some reading. The Government Publishing Office put out a volume titled Historical Tables: Budget of the U.S. Government. You can find it here. It contains a great history of the federal budget and it confirms that current deficits have hit record levels.
Raw numbers don't tell you much over time due to the effects of inflation and the fact that the effect of the federal budget on the economy depends on the size of the economy. That is why I found table 1.3 at page 26 very instructive. It shows government receipts, government spending and the deficit in both constant FY 2005 dollars and as a percentage of Gross Domestic Product (GDP).
According to the Report, we have historically run deficits in times of war and depression until the 1970s when we ran continuous deficits with the exception of a few years. Deficit years from 1940 forward were 1940-46(World War II), 1950 and 1952-55 (Korean War), 1958-59, 1961-68 and 1970-73 (Vietnam War) and 1974-97 and 2002-11 (Afghanistan and Iraq). The only non-wartime years that we ran deficits since 1940 were 1958-59 under President Eisenhower and 1974-97 under Presidents Ford, Carter, Reagan, George H.W. Bush and Clinton. Presidents Clinton and George W. Bush were the most recent presidents to preside over a surplus during 1998-2001.
While deficits have been common, the size of the deficit shows striking differences. During the war years of 1943-45, we had deficits equal to 30.3%, 22.7% and 21.5% of GDP. In constant dollars, those deficits were in the $500 billion range. The first postwar year of 1946 showed a fiscal hangover with a deficit equal to 7.2% of GDP and $175.6 billion in constant dollars.
In terms of percentage of GDP, we would not see a deficit equaling 1946 until the Obama administration when the deficit was 9.9% in 2009 and 10.6% of GDP in 2010. In other words, as a percentage of the economy, the deficits under President Obama consume a greater portion of the economy than at any time since World War II. (The Tables only go back to 1940, so I can't speak to the pre-World War II era. In constant dollars, we did not exceed the $175 billion level of 1946 until 1975-76 under President Ford, 1982-88 under President Reagan, 1989-92 under President H.W. Bush, 1993-95, 1996-97 under President Clinton, 2003-2008 under President George W. Bush and 2009-2010 under President Obama. However, while these deficits were greater than 1946, none reached the $500 billion level until 2009. Under President Obama, the deficit was $1.279 trillion in 2009 and 1.386 trillion in 2010. (Since the Table was using constant 2005 dollars, the actual deficits were higher at $1.4 and $1.5 trillion respectively).
Raw numbers don't tell you much over time due to the effects of inflation and the fact that the effect of the federal budget on the economy depends on the size of the economy. That is why I found table 1.3 at page 26 very instructive. It shows government receipts, government spending and the deficit in both constant FY 2005 dollars and as a percentage of Gross Domestic Product (GDP).
According to the Report, we have historically run deficits in times of war and depression until the 1970s when we ran continuous deficits with the exception of a few years. Deficit years from 1940 forward were 1940-46(World War II), 1950 and 1952-55 (Korean War), 1958-59, 1961-68 and 1970-73 (Vietnam War) and 1974-97 and 2002-11 (Afghanistan and Iraq). The only non-wartime years that we ran deficits since 1940 were 1958-59 under President Eisenhower and 1974-97 under Presidents Ford, Carter, Reagan, George H.W. Bush and Clinton. Presidents Clinton and George W. Bush were the most recent presidents to preside over a surplus during 1998-2001.
While deficits have been common, the size of the deficit shows striking differences. During the war years of 1943-45, we had deficits equal to 30.3%, 22.7% and 21.5% of GDP. In constant dollars, those deficits were in the $500 billion range. The first postwar year of 1946 showed a fiscal hangover with a deficit equal to 7.2% of GDP and $175.6 billion in constant dollars.
In terms of percentage of GDP, we would not see a deficit equaling 1946 until the Obama administration when the deficit was 9.9% in 2009 and 10.6% of GDP in 2010. In other words, as a percentage of the economy, the deficits under President Obama consume a greater portion of the economy than at any time since World War II. (The Tables only go back to 1940, so I can't speak to the pre-World War II era. In constant dollars, we did not exceed the $175 billion level of 1946 until 1975-76 under President Ford, 1982-88 under President Reagan, 1989-92 under President H.W. Bush, 1993-95, 1996-97 under President Clinton, 2003-2008 under President George W. Bush and 2009-2010 under President Obama. However, while these deficits were greater than 1946, none reached the $500 billion level until 2009. Under President Obama, the deficit was $1.279 trillion in 2009 and 1.386 trillion in 2010. (Since the Table was using constant 2005 dollars, the actual deficits were higher at $1.4 and $1.5 trillion respectively).
Thus, it appears that President Obama's deficits really are unprecedented. In terms of GDP, they are the most since 1945. In constant dollars, they are over double the largest in history, more than double the World War II era deficits. This doesn't tell us WHY the deficits are so large. That would take a lot more digging than I have time to do on a holiday afternoon. President Obama has several strikes against him with interest piling up on the borrowing from his predecessors, wars in Afghanistan and Iraq and a population of aging Baby Boomers. However, it is a verifiable fact that they make President Reagan and both President Bushes' deficits look mild in comparison and make President Clinton's record look positively sterling.
No comments:
Post a Comment