Deficit realities: No cuts needed
from Peter Radford
It seems like the entire economic discussion is now about the Federal deficit and what we ought to do about it. You all know my position by now: nothing. The deficit is going to melt away, or at least back to manageable proportions. So there is no need to do anything. Really.
But, in the interests of science, and to give you some context, I ought to pass along to you some facts and figures. That way you can keep score for yourselves at home.
Since Obama arrived in the White House the accumulated deficits have been approximately $5,100 billion. That’s a lot by any standards. To put that in perspective: accumulated GDP has been $59,231 billion dollars. So the deficit has been about 9% of GDP throughout.
Deficits are always large during an economic downturn because tax revenues plunge as wages and profits take a hit. This was the mother of all recessions and so of the $5,100 a substantial part is due, not to policy – Obama being a closet socialist trying to take over the entire economy – but to the downturn itself. This is the bit we can expect to go away through time as the economy recovers and tax revenues get back to normal. A rough estimate produces about $1,500 as this effect. This is about $375 a year or 30% of the deficit. So if we do nothing, we can expect the deficit to shrink by that much.
Then there’s all the short term and one time spending enacted to shore the economy up during the crisis. This includes the stimulus and things like the bank bail outs. These add up to about $1,600 over the last four years or about $400 billion a year. Obviously these are also going to go away, indeed the stimulus is already down to a trivial level.
Then there’s the Bush wars. Don’t forget about them. They weren’t paid for by extra taxes, they were paid for by borrowing and thus added to the deficit. Over the past four years their cost has been about $720 billion or $180 per year. One of these days those costs will go away, even though, for now, they still linger on.
And then there’s the impact of the Bush tax cuts. Even after the recent tax hike for high end wage earners there is still a huge drag on the budget from those cuts. To the tune of about $1,400 over the last four years. That’s $350 a year.
Now let’s add this all up.
The annual deficit since 2009 – the four years of Obama’s administration so far – has been approximately $1,275 billion. Makes your head spin, right?
Take away the effects of the crisis itself or $375 billon a year. Take away one time crisis related costs that will go away or another $400 billion a year. What do we get? A deficit of around $500 billion a year.
End those wars and that reduces us further. To around $320 a year.
In 2012 GDP, unadjusted for inflation, was about $15,700 billion. So this adjusted deficit of $320 billion is just about 2% of GDP. Compare that with the average of 4.23% during the Reagan administration. Yes, I know. Reagan had to deal with a recession too. So let’s be fair. Let’s add back to the Obama score that part of the deficit due to the downturn itself and to the stimulus. That means we have to add back about 3% of GDP making the average Obama deficit around 5% compared with Reagan’s 4.23%. Not a big difference. Especially when we take into account to the enormity of the recent recession.
So if we do nothing at all we can expect the deficit to shrink back to below the average we saw during the Reagan years when, as you no doubt recall, Dick Cheney famously said that deficits don’t matter. If that is so, the future Obama deficits will matter less.
Or ought to.
But the Republicans don’t seem to agree. While they loved those Reagan deficits, voted for them, and embraced them wholeheartedly. The Obama deficits, which are around the same totals and have the same impact, are, apparently a threat to the very soul of America.
Somewhere along the road to today Republicans had an epiphany. They saw the balanced budget light. And did a total U-turn. Whereas once deficits were the work of God, now they are the work of Satan. And like all born again folks their fanaticism for their new cause is extreme.
You see, I don’t think for one moment that the likes of Paul Ryan actually worry about deficits as deficits. They just adore the war spending after all. No. They only ever object to deficits when their cause is social spending. Then all hell breaks loose and Republicans are beside themselves with angry fiscal rectitude. In the GOP’s eyes we cannot afford deficits when the spending is on the poor, only when it is on war. Social spending, bad. Military spending, good. Since both are government sending we can’t quite make out what Republicans think of that. Perhaps they’re just confused.
Anyway. The point of all this is to give you some context. Our deficits, labeled as a cause of crisis and imminent disaster by the media and right wingers, are under control. They need no action. The arithmetic says so. You saw it with your own eyes.
There’s that last bit. The Bush tax cuts. Let’s see. We had whittled the ongoing deficit down to around $320 billion a year by subtracting all the odds and ends associated with the recession and the Bush wars. The Bush tax cuts add about $350 billion a year to the deficit. Huh? $320 billion minus $350 billion is … roll the drums … a surplus of $30 billion a year.
Yes. You see without the impact of the extraordinarily reckless George W Bush, our ongoing deficit wouldn’t be there at all. We’d have a surplus. Small, but definitely a surplus.
Eat your heart out Paul Ryan. We have a better budget plan than you do. All we have to do is eradicate the impact of Bush and his Republican friends on history and we are all square.
Too bad we didn’t think of that at the time. Well some of us did. But I won’t brag about that.