Home > Economy, Recession, taxes > A picture of history

A picture of history

from Peter Radford

There is no serious effort in Washington to deal with our so-called debt crisis. I would like to think this is because people realize we don’t have one, but a more realistic interpretation on non-events is that the Republicans are stuck in a rut of obstruction. They have no policy other than to contradict whatever Obama says. Even if this means contradicting what they themselves said in the past. At the moment this obstruction produces gridlock on any constructive efforts to get the economy moving at a more rapid pace. It also means avoiding negotiating on the budget, even though both the Senate and the House now have working budget proposals. The problem seems to be that were the Republicans to engage in negotiations they wouldn’t be able to engineer a crisis atmosphere within which they could extort excessively. They want, apparently, to wait until we nudge back up against the debt ceiling at which point they can reload their hostage taking weaponry and cause the nation greater mayhem.

This is, of course, juvenile and irresponsible. But it remains the current GOP modus operandi.

They are stuck in this supremely negative position because the economy has recovered enough to draw the sting out of the deficit. As I have mentioned before, the government’s budget outlook has improved. If by improved you mean it is edging towards a better balance and away from the endless free fall of the deep crisis years. They are also stuck because their own budget proposals have been demonstrated to be hollow, lacking any principle, and largely made up. In other words the ‘crisis’ is receding and they have nothing much to say.

Nonetheless I suspect this phony silence will be broken by bouts of bickering. So in the spirit of public education I offer you the chart below. It shows the amount of debt held by the public – i.e. it ignores debt where one part of the government owes another part. That’s the blue line. And it shows the annual deficits. That’s the red line. Both are shown as a ratio of GDP.

You will note a few things:

  • The debt to GDP ratio was much higher at the end of World War II than it is now
  • The healthy growth of the 1950′s through 1960′s, coupled with very small budget imbalances, allowed the debt to GDP ratio to fall consistently and significantly
  • The debt to GDP ratio turned back up when Reagan moved the budget into larger deficits
  • That the ratio then improved under Clinton
  • It worsened again under Bush II
  • And it fell off a cliff at the end of Bush II and the beginning of Obama due to the mega-recession
  • Finally, you can see that the budget is improving, which implies that the debt to GDP ratio will not worsen much more. Indeed it may improve.

The lessons?

  1. The debt to GDP ratio has been much worse than it is now, and yet the world did not come to an end
  2. The Republicans have been more fiscally reckless than the Democrats – at least since WWII
  3. Growth [and inflation], not austerity, is the most successful healer of a debt problem

Anyway, here’s the chart:

 

  1. Daikon
    May 14, 2013 at 9:27 am

    This article is too partisan. Mr. Obama is also a strong supporter of austerity and of cutting Social Security and Medicare. The biggest in Washington is that the leadership of both parties has been effectively captured by Wall Street. I hope your analyses will be more objective in the future. Thank you.

    • Amy
      May 14, 2013 at 10:59 am

      Unfortunately, as much as I like President Obama, I think he says he supports austerity and cutting programs to make himself look better to Congress and the American public. I think he if were true to himself and had a more forceful attitude, more would get done.

      • JR
        May 14, 2013 at 1:50 pm

        What both of you are missing is the it does or does not say the Obama supports austerity.”Growth [and inflation], not austerity, is the most successful healer of a debt problem.” What does say is that the Republican party has been more reckless with fiscal policy and that the current affairs in Congress are that they are blocking everything just to oppose Obama. I agree with the first statement without looking at facts and figures, and the Republicans themselves have stated the second one time and again. At least on the political side of the article.

  2. Jean Clelland-Morin
    May 14, 2013 at 2:25 pm

    As long as we have NO Meaningful Campaign Reform, the primary motivation for how a congress-person votes is whom can s/he boot-lick to keep those cushy jobs and benefits. / Jean Clelland-Morin

  3. Ken Zimmerman
    May 14, 2013 at 7:19 pm

    Peter, I know you mean well. And if you are an economist, which I assume you are what you say makes sense, from certain theoretical perspectives. But it’s not economic theory that is used by most who push their representatives in Congress and the White House to design policy. I’ve interviewed hundreds of Midwestern and Southern Republican ordinary citizens. First words out their mouths are almost always the same. 1. the government needs to stay out of my business, 2. the government is too big and spends too much on the wrong things. 3. the government needs to never spend more than it takes in, i.e., no deficits. 4. Socialism is creeping in or more accurately is being forced on the US. 5. the federal government is the enemy, don’t trust it. These are not office holders in local governments but many of those office holders have similar ideas and act on them. In other words if you want the Republicans in Congress to change you have to first change their constituents. Even if Congressional Republicans are merely hiding behind their constituents to serve the interests of international banking and industrial corporations, their constituents either refuse to believe this or pay no attention. Change from the bottom is the only real solution in this situation. Economists can help with that by not continuing to spew notions of economies that are little more than giant balancing systems that define ways to get rich rather than ways to create good lives. Even Adam Smith knew this and said it. But too many economists have lost touch with it.

    • Robert Locke
      May 15, 2013 at 8:43 am

      Every point you mention is silly. 1. The government needs to stay out of my business. See the Republicans operating on K street. 2. The government is too big and spends too much on the wrong things. Defense spending? 3. The government needs to never spend more than it takes in. Republicans built up massive deficits. 4. Socialism is creeping or more accurately is being forced on the US.. Nonsense. Not by Obama and the Democrats for sure. These are nonsense statements. So what are you saying, that we need to take advice from the Knownothiing Party. This country has problems and it is the job of the elite to do the thinking that will help solve them. That should be what this blog is about. The Republican Party is not the party of Lincoln and this is not the advice Lincoln would have given his Party. The opinions of the constituencies of a Southen based Republican Party can no more save this country than the opinion of Demcorats in the Slave-Holding States of the 1860s. Wake up your country needs you.

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