How did we get to Trillion Dollar Deficits?
It is always useful to go inside the numbers.
Ok, so one of the longer-term questions is how did we get to trillion dollar deficits?
First, here are the deficits since 2000:
Now, one of the things that I think needs to be noted: we hit a $1 trillion deficit before President Obama was able to introduce a budget. This is relevant because it is indicative of the fact that it is a problematic argument to make that the reason we have hit $1 trillion deficits is because we had some kind of radical shift in ideological perspective of the occupant of the White House (otherwise known as the “It’s the crazy socialist’s fault” hypothesis—i.e., that the PPACA and the stimulus are the fundamental problems). Rather, a combination of policy choices and a massive recession brought us to this point.
Now, what policies can be seen as contributing to these deficits?
Source for the above: the NYT.
Now, it is fair to point out: the Obama administration has continued the wars in Iraq and Afghanistan (although we have been drawing down in Iraq) and it also agreed to extend the Bush tax cuts—not to mention that the Medicare Part D program continues and so forth).
Now, it is clear that we have serious deficit spending by both administrations, but it strikes me as important to take an honest assessment of where recent spending trends started and for what purpose. To me this is not about Bush v. Obama, but simply a question of facts.
Another graphic worth considering:
Source: the NYT.
Of the things that should also be clear: stimulus spending is not the main problem.
Something else to consider (which is part of the above) is defense spending.
Dan Drezner shares the following (source: the Heritage Foundation):
I have to agree with his basic reaction to the graph:
The striking thing about this chart is that we’re spending more on the military now than we did during the peak of Cold War tensions and Reagan’s military build-up in the mid-1980’s — especially since military spending by the rest of the world has fallen dramatically since the end of the Cold War.
It really is stunning. The notion that we need this level of defense spending is problematic (to be kind).
Drezner went on to quote himself:
I’m about to say something that might be controversial for people under the age of 25, but here goes. You know the threats posed to the United States by a rising China, a nuclear Iran, terrorists and piracy? You could put all of them together and they don’t equal the perceived threat posed by the Soviet Union during the Cold War. And until I see another hostile country in the world that poses a military threat in Europe, the Middle East and Asia at the same time, I’m thinking that current defense spending should be lower than Cold War levels by a fair amount.
I must concur.
I am also at a loss how people can claim that we aren’t spending enough to “keep us safe” (and yes, I am looking at people like Jennifer Rubin). Indeed, that was the point of Drezner’s post. The idea that defending against terrorism needs to be more expensive than the Cold War should be considered ridiculous on its face, and yet…
At any rate: the problems that we face are not solely the domain of the current administration and are certainly not the result of a failure to pass a budget.* The story is a tad more complex than that.
—
*BTW, I will note that I think that failure to pass a budget is an abrogation of a basic responsibility of the Congress. However, that’s not why we have deficits, nor is it the reason why we are at an impasse over the debt ceiling (although I have heard any number of people assert that somehow these things are linked).
Are the little tags the Heritage folks put on the various swings in military spending for real? They’re pretty funny.
Anyway,
Our current pickle is due mostly to bad policies pursued from 2001 to present + a serious financial panic & its aftereffects. This gets confused/conflated with the long-term projections for Medicare (in a sufficiently long timeframe, IIRC, Medicare eats everything). Obama decided to go for a “Grand Bargain” which adds to that confusion/conflation problem. The issues are really distinct. We do need to figure out a way to prevent Medicare from eating the whole budget down the road. The short-term problem, however, is unemployment and its many deletrious effects.
Obviously I’m totally with you re: military spending. We’re spending 4.8% of GDP on the military, if I recall correctly (up from about 3% under the Clintonmonster), whereas most of our allies in NATO are down around 2%. We *should* be enjoying our peace dividend, even with the threat of terrorism (which is more of an intel/law enforcement problem than a military one, though there is a time & place for a military response). If we spent 3% of GDP on our military, it would still be absolutely dominant.
It’s also a good idea to avoid stupid wars like Iraq (and, after the initial operation, Afghanistan) and Libya (thankfully that should end up being far less expensive a mistake, but still). Libya reminds me a lot of Kosovo, actually. I’m opposed, but I doubt we’ll sink several trillion dollars into it the way we have Iraq. Obama, sadly, doubled down on Afghanistan nationbuilding and let himself get talked into Libya. No longer do I view him as a significant improvement from Bush the Younger on the foreign policy front. Or, as I put it in an email to a close friend “Barack Obama, neocon.” Liberal interventionist = Neocon who wants lots of allies to come along.
How do we get to a sane place from here, though? Our entire FP establishment is pro-intervention at this point. Many Conservatives even grudgingly patted Obama on the back for Libya, while others said he was doing the right thing badly. Few (Larison, to his credit) actually made the Conservative case for non-intervention. Some on the Left did too, to no avail.
Sorry for rambling. I’m frustrated.
@Rob in CT: No worries–I think a lot of us are frustrated (and there are any number of reasons to fuel said frustration).
In re: the conflation of policy choices and Medicaid costs: spot on. I meant to include something about the longer-term issues, but got too caught up in looking at the recent past.
Eisenhower’s fear of a permanent military-industrial complex eating up our national resources has come to pass.
@DC Loser:
It came to pass a long long time ago. Too bad it has yet to penetrate mainstream Village thinking.
To dig deeper into Rob’s comment, basic Macro says that during a recession, gov’t spending should _increase_, to replace the dropoff in business spending, stabilizing the GDP and general economy. The austerity programs being pushed on Europe right now are economic suicide.
Of course, that means gov’t spending should drop during boom times, when we have surpluses. But the last time we had a surplus, instead of reducing spending, the Republican Congress used it as an excuse to cut taxes, permanently reducing long-term revenue, guaranteeing the situation we see today. Stupid idea – unless you’re the one abusing your position of trust & responsibility to make a profit. To put it into capitalist terms, we had a lot of excess profit. But instead of putting that money back into the firm (the US economy), and fostering long-term growth, the greedy bastards took it all as straight profit – great for them, but bad for the firm.
For a group of people so firmly dedicated to the concept running gov’t like a corporation, the GOP consistently makes _terrible_ business decisions. If you vote Republican for reasons of fiscal conservatism, you are a gullible tool. End of story.
It beats me how anyone can call themself a fiscal conservative while endorsing spending close to as much money on the military today as we did in WW2 … fiscal conservatism means living with what you can afford, including overseas military adventures (the nicest thing I can call the Iraq War – a case could be made for going into Afghanistan, there never was a serious one for Iraq).
Once again, both parties are in favor of big gov’t. The disagreement is just what to spend it on (ie big military, big medicare, big social programs etc). Which is why we have deficits, and why we need to raise taxes. Since neither party is willing to decrease the size of the big items (military, medicare especially), the only other option for fiscal conservatism is to increase the cash in … and that means taxes. If nothing else, at least the Democrats are honest about this.
As you so often mention it is Congress that actually writes the budget and spending bills. So you should not only look at who is in the White Houser but who is in control of Congress. Democrats took control of Congress in 2008 and the deficits greatly increased afterwards.
Democrats typically want to spend more money than Republicans except on the military and intelligence agencies. The exception was after 911 when the Democrats suddenly did a 180 and wanted to throw all sorts of money at them. Then there was a free for all for paying money to 911 families, Katrina victims, and couple of others.
Yes Bush compromised too much on the increase spending. IMO emergency spending should be paid for in the next 2 to 3 fiscal budgets. I would point out that unemployment was low and GDP growth was pretty good for the most part under Bush.
Bush biggest failure though was on the regulatory side. He let the Clinton era financial regulations to continue. Also much of the regulations that were and are crippling the energy exploitation and development were allowed to continue even though he promised to tackle them. The exception was a brief period of “drill baby drill”.
I would point out one more thing. These overspending by both parties throughout the years just show why we need the Tea Party movement to vote in true conservatives instead of moderate\liberals who like to spend too much.
Democrats took control of Congress in 2008 and the deficits greatly increased afterwards.
Jesus, Wayne. No mention of the ’08 crash?
Democrats typically want to spend more money than Republicans except on the military and intelligence agencies. The exception was after 911 when the Democrats suddenly did a 180 and wanted to throw all sorts of money at them. Then there was a free for all for paying money to 911 families, Katrina victims, and couple of others.
Yes Bush compromised too much on the increase spending.
Did you seriously just try to pin 2000-2006 spending on the Democrats, when the GOP had the Presidency + both houses of Congress? Really?
If a Democrat had opposed the increased military/intel spending after 9/11 (and some did), they were accused of hating America and other nonsense. Being the spineless weaklings Democrats are these days, they shut up and went with the flow.
I would point out that unemployment was low and GDP growth was pretty good for the most part under Bush.
Which makes the massive run-up of debt indefensible. During times such as those, the government should be running small surplusses.
Bush biggest failure though was on the regulatory side. He let the Clinton era financial regulations to continue. Also much of the regulations that were and are crippling the energy exploitation and development were allowed to continue even though he promised to tackle them. The exception was a brief period of “drill baby drill”.
1. Are you saying that Clinton-era relaxation of regulation was bad and should’ve been reversed, or are you saying that Clinton was over-regulating?
2. Drill baby Drill was and is a mindless slogan. Whenever people were asked to actually show the math, it turned out that the “crippling regulations” were – at most – resulting in blocking drilling for enough oil to supply us for a week or somesuch. A pittance. Meanwhile, nobody in the Drill Baby Drill crowd seemed to wonder why resource extraction is regulated. It’s inherently dirty business, and it’s entirely reasonable to be cautious about it. There was a recent example of the potential downside to being sloppy about it. Perhaps you remember?
@Wayne:
Barf. The ignorant, dishonest, craven opportunists of the Tea Party are not in any way a viable alternative to the established players.
My only question is about the last chart – are those inflation adjusted dollars? I don’t think they are. Because what we spent for WWII in 1939-1945 dollars would be hella more than that in today’s dollars.
@Anonne: The bottom chart is in 2005 dollars.
I believe that the difference between the chart and your expectation, Anonne, is that these charts are often done by using % of GDP. By that measure, IIRC, WWII spending utterly dwarfs today’s levels. GDP has grown a lot. By % of GDP, I think, spending under Ike was higher than now.
So, while I do support cuts to military spending (medium to long term, not rightthisminute), historically the situation has actually been more dire.
@Annone
It has been the “established players” that have overspent and gotten us in this miss.
Saying your guy’s bad behavior of overspending is OK because the other group’s guy did it also is certainly not the answer. How about we vote for people of both parties that will do the right thing and get spending under control?
I should mention, by the way, that some increase in military spending would have occurred because of 9/11 regardless of which party had been in control. I think it would’ve been a lesser increase and I doubt we’d have invaded Iraq. Afghanistan I think happens, and being the quagmire that it is, would probably have turned out pretty similarly.
Anyway, a spike post-9/11 was highly likely under either Party’s leadership. The Dems would’ve have cut taxes *and* gotten into two wars, but they could very well have gotten into at least one of the wars. And they’ve added Libya, which while it’s been comparatively cheap so far, looks pretty stagnant.
So basically I think a Gore win in 2000 would’ve still meant a ramp-up in military spending, but perhaps not as much, plus at least 1 war but maybe not 2, without the tax cutting. Our fiscal situation would still have declined relative to 2000. Just not as badly, IMO.
@Wayne:
Except the tea party has demonstrated they’re incapable of governing. The President offered a deal weighted so far in their favor that just his publicly voicing some of the details has, for the first time in his presidency, markedly eroded liberal support in the polls. If House GOP had accepted the $4T grand bargain he almost certainly would have had to deal with a primary challenger.
Deficit reduction of that scale, and that badly stacked against the left’s priorities could only have ever happened under a Democratic president. A GOP Pres. would have to offer a hell of a lot just to overcome the reflexive opposition that would occur (filibustering, riling up the base to demonstrate, etc). I doubt they will ever see another deal quite as stacked toward the things they claim to care about, but they just couldn’t accept it, as the Tea Party brooks no compromise. Additionally, any deal the President appears to be a part of crafting is rejected out of hand, as another Tea Party legislative priority is the schadenfreude that comes from humbling the President, so sidelining him was almost inevitable. Consequently, politicians guided by such a movement can accept no compromise, no matter how sweet, as anything with even the tiniest buy-in from Democrats would smell of betrayal. Since compromise is required for our system of government to function, the more pressure the Tea Party manages to exert the more our country becomes ungovernable.
Saying your guy’s bad behavior of overspending is OK because the other group’s guy did it also is certainly not the answer. How about we vote for people of both parties that will do the right thing and get spending under control?
Assuming the economic environment was constant, this would make sense. But it’s not.
Bush inherited a government with a decent financial outlook. He also got a recession, from the bursting of the dot-com bubble. It’s reasonable to expect him to go for a temporary stimulus measure. That’s not what the GOP did, though. They put through 2 rounds of tax cuts they wanted permanent, and only put in the sunset clause to get past Dem opposition, IIRC.
Obama inherited a government with a much worse financial outlook, plus a far nastier recession. These situations are different. The appropriate policies are therefore different.
No they aren’t. Tax cuts are always the answer. To everything!
Summarizing the recent history:
In 2000 Democrats hand Republicans a tasty cheeseburger.
In 2008 Republicans hand Democrats a sh!t sandwich.
And the flavor is somehow the fault of the Democrats.
@Rob in CT: And some type of Prescription Drug benefit that was at least partially funded if not fully funded, and better designed to lower prices instead of Medicare Part D as enacted.
@mantis:
Still living in the Bush “stay the course” dream world.
Steven, thank you for this excellent and important post. Maybe you’ll write other posts which reference it, because you are clarifying crucial issues that are widely misunderstood.
Yes. We spend roughly as much as the rest of the world combined.
Rob:
This quite important point should be emphasized. The militarists always focus on military spending as a % of GDP, because this is a good way to make it look like spending is low. Notice this highly typical example from Heritage:
Take a look at their graph. It’s labeled “percentage of GDP,” but it’s still deceptive to say flatly that “spending on national defense … has declined significantly over time.”
And how does it make sense to discuss military spending as a % of GDP? This perspective embodies the wacky assumption that as our economy grows, the country becomes more expensive to defend. That’s nonsense. Our enemies did not get more powerful and more dangerous just because our economy grew.
DC Loser:
Exactly. Reagan wanted to defeat the Reds, but he did his job too well. When the cold war ended, a lot of defense contractors had to start worrying about where their next buck was coming from. Our first MBA president solved that problem for them. AQ came along in the nick of time.
Cold war version two (a/k/a GWOT) is a great example of how much can be accomplished when big government and big business work cooperatively. And the new version is better than the old version. It’s cleverly designed to last much longer.
OBL’s core strategy was to scare us into bankrupting ourselves, and the strategy is working. The GOP is the best ally he ever could have wished for. And the Dems are only somewhat better. It would be good if we had a two-party system.
Oh, like the repeal of the Glass-Steagall Act…yes, I agree, continuing that repeal was a terrible idea…
If such people will also repeal the tax code that manages to bring more revenue in, why not…
@Rob in CT: The possibility exists that the war in Afghanistan might have turned out differently (and better) without the invasion and botched occupation of Iraq…
Like a charm…sadly, many of the people who were the most adamant about defeating OBL don’t seem to realize this…
@Rob in CT: The possibility exists that the war in Afghanistan might have turned out differently (and better) without the invasion and botched occupation of Iraq…
Possible, yes. Unlikely, in my opinion. I think the more likely result of avoiding Iraq would have been increased focus on Afghanistan (basically what Obama did) earlier on. That isn’t really working, so doing it earlier does = things end up better. Maybe, just maybe, we’d have given up by now, but it seems it’s really really hard to extricate ourselves from these things.
Obama vs Bush. Who’s the real big spender? Do they share the same ideology? Does it matter who is more culpable? The debt crisis is real and the only solutions being discussed are the usual Washington 2-party clownposse politics as usual type. The past 50 years of the beltway’s propensity for unintended consequences and total disregard of moral hazzard is coming home to roost. Pandering, fearmongering, bribing and DC accounting will not fix the problem. Not to worry though, I sense a beautiful bipartisan solution just around the corner.
We need a new and better version of “Peace with Honor”.
Dueling deficit charts:
Who owns the debt ceiling issue again?
That’s right. Democrats twisted Bush’s arm and made him vastly increase the size and cost of the federal government. Cheney never said “deficits don’t matter”. The wild popularity that Bush enjoyed on the right while on his spending spree? Ummm, errrr. Move on folks – quickly now!
Sure. RIght up to where he left us on the brink of an honest-to-goodness depression. You sound a bit like the guy who is a total loser as an adult bragging about how he played football in high school. And you seem to be forgetting that the good economic years Bush had were driven by – repeat after me Wayne – credit.
I will let the irony here speak for itself.
The reason why I questioned the inflation adjustment of the charts is because I wanted to make a comparison to the price tag of the stimulus. My not so fully formed idea is, what is the actual size of stimulus that we needed to kick us out of the lingering effects of the Great Depression, and what would be the corollary to today’s Lesser Depression, as Paul Krugman calls it.
If the inflation adjusted dollars of WWII really was a mere 908 billion, doesn’t it inform us that the real size of the stimulus for our larger economy and population should be much, much bigger than the 787 billion we got? IIRC, most economists that supported stimulus at all figured the number should be far more north of what we got, $1.3T.
But in comparison to the spending increase pre-WWII versus our Lesser Depression, my feeling is that even $1.3T would have been insufficient. Just look at the increase in spending from the earliest point before Pearl Harbor, to the peak at $908B.
That’s a 450ish% increase in outlays. That is what total mobilization looks like. We didn’t have total mobilization for Iraq and Afghanistan, and there were few truly “shovel ready” projects to put people to work. Instead, we had tax cuts and aid to states, to preserve existing jobs and a few extensions to unemployment benefits to keep demand from falling through the bottom of the bucket. This is why the effectiveness of the stimulus is so hard to measure – the saving jobs part is taken for granted and obscured by state governor demagoguery.