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Apportioning Blame for the Deficit
David Leonhardt's column breaking down the "causes" of the budget deficit has been widely reported and the bottom line repeated many times:
President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying.
Posted by Alex Tabarrok on June 11, 2009 at 07:35 AM in Current Affairs, Data Source, Economics | Permalink
Comments
I would add at least two points. First, the Democrats wanted a larger Medicare prescription drug benefit and also they claimed credit for the idea when Bush implemented it. Should that count on the Bush ledger alone? That is just one example of many.
Second, Obama and co. have the option of repealing many of the expensive, deficit-increasing programs which preceded them. If they don't do so, you could say they get "credit" for them all over again. Overall, the shares of the pie add up to more than one.
Posted by: Tyler Cowen at Jun 11, 2009 7:48:36 AM
10 years after Mao's death, Deng Xiaoping announced that Mao was officially 70% good and 30% bad. Perhaps we can aim for something like that for Bush? With a pie chart?
Posted by: Zamfir at Jun 11, 2009 8:07:34 AM
I think the Republicans' recent narrative about "Obama's deficit" hasn't really been about doing that kind of repeal, Tyler. They've positioning themselves for future elections, the budget be damned.
They should get back on track, because if they aren't going to be the party who seriously promotes cost cutting, and not finger pointing, who will?
Posted by: odograph at Jun 11, 2009 8:08:34 AM
BTW, is there a Republican drive to defeat "Cash for Clunkers?"
Posted by: odograph at Jun 11, 2009 8:10:59 AM
If Bush had tried to raise taxes at the end of his term, he would deserve some credit, wouldn't he? Isn't one reason he is held in low esteem in many quarters his unwillingness to pay for spending he approved of?
I don't think that is much of an argument.
Posted by: matt wilbert at Jun 11, 2009 8:12:31 AM
Two questions. How much does increasing taxes and regulations reduce potential GNP? Which is the greater threat to future generations, the debt burden or the creation of vast new government controls over the economy.
For example, the cap and trade system working through congress will impose huge taxes (direct and indirect) on the economy and a windfall of tax revenues. Perhaps that will shrink the deficit but will the drop in potential GNP make that increased revenue like chump change when compared to lost GNP? How much of the cost remain hidden?
Or look at the Obama goal of reducing costs in health care. Perhaps you can reduce expenditures (by the government) on health care by reducing payments to health care providers and rationing care, which may reduce future government expenditures, but how can a simple deficit chart account for the reduced access to health care.
The key questions are what are our expenditures, do they make sense, how do we finance these expenditures? Then we must ask the same question about regulations and government control.
If we continue on our march to socialism (dictating salaries in the auto, banking and health care sectors, while dictating what autos will be produced, how banks will compete, and how care will be delivered is socialism) does it matter if the budget is balanced but GNP drops 25%?
Posted by: DanC at Jun 11, 2009 8:14:30 AM
It's also misleading in that the red, orange, green, and gray ALL need to be hacked, and they helped cause the blue.
And, deficits don't matter, except for sustainability of the government. If your grocery store was running at a deficit, you'd be ecstatic, for a while. What matters to the economy is government spending. But, they don't believe this, only see things in partisan shades, so no hope in seeing that analysis.
Posted by: Andrew at Jun 11, 2009 8:24:46 AM
Additionally, it is reasonable to use debt to pay for something that accrues value over time. Wars are definitely expensive up front and the payback (presumably) occurs over many, many years, so debt is a reasonable way to fund them. Now, I DO NOT believe that wars ARE a good investment, and these wars are a particularly negative investment, but most people did agree with them at the outset, so deficit spending for those type expenditures is more logical than taking on debt for ongoing expenses. And, if Obama believes he's in a war against recession, then why aren't all his programs front-loaded and sunsetted? But, we all know what they won't say, don't we, the crisis is just the pretext for the programs.
Posted by: Andrew at Jun 11, 2009 8:30:21 AM
Second, Obama and co. have the option of repealing many of the expensive, deficit-increasing programs which preceded them. If they don't do so, you could say they get "credit" for them all over again. Overall, the shares of the pie add up to more than one.
Aw, hell, I was going to make that point!
Posted by: Neal at Jun 11, 2009 8:31:23 AM
"Or look at the Obama goal of reducing costs in health care. Perhaps you can reduce expenditures (by the government) on health care by reducing payments to health care providers and rationing care, which may reduce future government expenditures, but how can a simple deficit chart account for the reduced access to health care."
There is substantial evidence that areas with the highest utilization of health care, have worse outcomes, controlling for levels of illness. We need to look at those programs that have better outcomes while spending less. Many of those programs smack of what you might call socialism, ie, there are controls or rationing on what is allowed. The incentives lead providers to provide more care, not better.
Steve
Posted by: steve at Jun 11, 2009 8:31:34 AM
It does seem to ignore that money is fungible. It's as if Obama married a profligate spender with huge debts, and went out to get a second job to pay for a new car. Sure, he's paying for the car, but the debts and the future obligations are still there. We have to pay for what we already have first, even if he isn't the one that bought it. In addition, by extending the Bush tax cuts for the majority of taxpayers, he's bought in to the irresponsibility in exchange for votes. Obama's a great guy, but he's continuing the tradition of extreme deficit spending.
Posted by: MattMc at Jun 11, 2009 8:31:39 AM
Law of supply and demand tell us that increased taxes result in lower expenditures. If lil Bush had raised taxes, then you can be sure lobbyists would be intent on reducing spending.
Posted by: Mattyoung at Jun 11, 2009 9:11:25 AM
Blaming certain politicians for the deficit works on the assumption that deficits are always bad.
Obama came into office wanting to stimulate the economy with fiscal policy. If the deficit is extinguished with taxes, the stimulus will fail.
Posted by: Michael at Jun 11, 2009 9:11:53 AM
Steve, I'd like to see the evidence you are talking about, especially the "controlling for levels of illness" part.
If a person is going to die, they are going to spend a lot of money, and the outcome will still not be good. You could forbid them from spending the money and get the same ultimate outcome, at lower cost, minus the benefits of experimentation. "All people die who we see get to this stage, therefore we won't try anything."
Posted by: Andrew at Jun 11, 2009 9:26:48 AM
Certain policies like the Iraq war are amazingly costly to stop. Sure Obama could pull out (even) earlier than he is planning on but, there are moral and practical costs to doing so. In a similar way it is more costly in terms of political resources to stop raise taxes or stop a bad policy than it is to initiate a good policy. Obama campaigned on raising taxes on the rich. He was very clear about that, and elected not to do so because of the recession.
Posted by: Michael Foody at Jun 11, 2009 9:30:57 AM
Everyone, except perhaps, Grover Norquist, would likely prefer tax and spend over no-tax and spend policies.
The question is why conservatives, in general, gave Bush a free ride on his economic policies. The policies were demonstrably bad. That is not to say Bush's choices on cutting taxes or spending were bad. It's just if Bush wanted to cut tazes, he should have cut spending. And if he wanted to increase spending, i.e., go to war, he should have increased taxes. That is, I thought, the conservative way.
I still don't understand Bush's theory on this. Not even the Laffer Curve supported him.
Posted by: Allan at Jun 11, 2009 9:31:21 AM
I don't particularly understand the usefulness in distinguishing between "Bush Policies" and "Extension of Bush Policies." I realize that the "Extension of Bush Policies" require legislation to keep going each year (in the case of the AMT patch, this is also a "Extension of Clinton-Bush Policies," as it's been going on for a long time), whereas the other ones don't.
But eventually, with the presidency and supermajorities in Congress, any Bush policy that's not repealed or changed, Obama and the Democrats are going to own and be responsible for as well. They're choosing to extend it.
And certainly there's a difference between cutting taxes when the 2012 budget outlook 11 years in the future shows a $800 billion surplus (and if that was never realistic, which it might not have been, then it shouldn't be used as a starting point) and making the situation worse when the budget outlook already shows a $600 billion dollar deficit in 2012 three years from now.
Posted by: John Thacker at Jun 11, 2009 9:32:15 AM
I have a similar pie chart. It is a circle with "FDR" written inside of it.
Posted by: 8 at Jun 11, 2009 9:54:19 AM
The bottom line is that Mr. Obama's administration continues to add to the deficit with no intention to ever pay it back.
In summary: "If you cannot solve a problem, - make it bigger".
Posted by: Libertarian Reader at Jun 11, 2009 9:59:29 AM
The current pols have responsibility for current spending. It's silly to blame somebody in Texas for what DC is doing now. Following Leonhardt's logic, we ought to blame Lyndon Johnson for the current Medicare mess and Roosevelt for the current Social Security disaster. Johnson and Roosevelt did what they did, but it doesn't absolve our current politicians from failing to take responsibility and failing to act. Our current politicians bear the full blame for what they do and fail to do now.
Posted by: Athens at Jun 11, 2009 10:03:38 AM
Obama's part comes in the future: average deficits of $1 trillion over the next ten years. If this continues for two terms, Bush's policies will pale in comparison.
And, I don't care who's done more damage than who. I don't want to double the national debt by 2019.
Posted by: Sean S. at Jun 11, 2009 10:03:55 AM
I still don't understand Bush's theory on this. Not even the Laffer Curve supported him.
I think the idea was that in the long run, we'd be able to grow out of the structural deficit.
Posted by: Neal at Jun 11, 2009 10:17:09 AM
Are these pie chart people the same guys claiming a vast right wing conspiracy because a conservative economist thought a doubling of prices over ten years was a 10% inflation rate rather than 7%?
Posted by: Andrew at Jun 11, 2009 10:18:14 AM
So it seems like it can be apportioned about 1/3, 1/3, 1/3. First third is the recession (the one at the end of Clinton/beginning of Bush). Second third is Bush policies that were Bush alone. Last third is Obama or Obama continuation of policies of Bush. Part of that is Iraq war, which Obama pledged to end but hasn't really done so. And part is Bush tax cuts, which Obama pledged to repeal in part, but hasn't done so. And some other policies.
Posted by: ah at Jun 11, 2009 10:24:40 AM
It is misleading to use the projected (in 2001) surplus of 800 billion as the reference point from which to attribute the sources of the projected deficits now. The reason is that maintaining a large long term budget surplus is not the optimal situation. If there is a large surplus then either the government should do something useful with the extra revenue or decrease taxes. Collecting tax revenue and not putting it to use does not do any good.
Posted by: Barghest at Jun 11, 2009 10:32:59 AM
