Thursday, March 15, 2012

Obama's "unprecedented massive deficits"

I received the link to the above graph, which is courtesy of the Heritage Foundation, a right-wing think-tank, from a commenter on a previous post, where I'd discussed the consequences of the Republicans' "Southern strategy" of deliberately wooing white racists.

We had an interesting discussion there, so I thought I'd take this link and his argument seriously and write a follow-up post. His idea, much of which is taken from that Heritage Foundation post, is that Barack Obama promised to cut the deficit in half, instead quadrupled it, that he's vastly increased spending, and that, basically, "it really comes down to Republicans wanting small government and Democrats wanting large government."

OK, that's a lot to investigate. I'm no expert, and I'm particularly short of time right now. Plus, it's hard - without making this my life's work - to find exactly comparable data online. But I think I can at least raise a few questions about this.

First, let's look at that Heritage Foundation article, Bush Deficit vs Obama Deficit in Pictures. The article was published March 24, 2009. Barack Obama had been in office two months. Yes, two months! And the Heritage Foundation was already complaining about "Obama's unprecedented massive deficits."

You don't think this was all about politics? We weren't even halfway through fiscal year 2009 yet, the year which started before Obama took office, the last year budgeted by Bush. Barack Obama's first budget was for FY 2010. That graph above (which is three years old now) was deliberately misleading. It was partisan politics and nothing but partisan politics.

So let's look at the big picture, shall we?

That's the gross national debt, as percent of GDP, since 1929. This had risen during the Great Depression, then skyrocketed in World War II, reasonably enough, but afterward, both political parties had been prudent. Of course, note that America's GDP was growing strongly, too. There are two sides to that equation.

But look what happened starting in the Reagan years. That was when supply-side (aka "trickle-down" or "voodoo") economics became Republican Party dogma. According to supply-siders, tax cuts were all that mattered. Specifically, as Dick Cheney famously said in 2002, "Reagan proved deficits don't matter." (Oddly enough, you don't hear that so much from the right-wing these days, now that a Democrat is in the White House, do you?)

George H.W. Bush briefly tried to fight it, labeling it "voodoo economics" before surrendering to it himself, as he saw which way the wind was blowing in the GOP. As the above graph shows, only the Democrats worried about the deficit, with Bill Clinton actually giving us budget surpluses, before turning the country over to Bush, Jr.  (Note that 2001 was Clinton's last budget, and our last surplus.)

Lest you think it was just Clinton, Congressional Democrats also showed a concern about the deficit which Republicans dismissed. When Democrats took control of the House of Representatives in 2007, they adopted "Paygo" rules which required that new spending or tax cuts not add to the federal budget deficit. (Those rules had been in existence previously, but Republicans had ended them early during the Bush years.)

But those "Paygo" rules were why the Patient Protection and Affordable Care Act - "Obamacare" - was designed from the start to reduce the deficit - by $143 billion in the first ten years and $1.2 trillion in the second, according to CBO estimates. (Note that some of that savings was later eliminated after objections from Republican leaders, since they wanted to campaign on it costing America.)

When Republicans took control of the House again in January, 2011, they immediately canceled "Paygo" - just as they had during the Bush years - replacing it with "Cutgo," which exempted tax cuts. Here's how Washington Monthly put it:
The "Paygo" policies of the 1990s proved to be pretty popular and effective. It's a basic idea -- in a nutshell, if policymakers want to increase spending or cut taxes, they have to figure out a way to pay for it. The point is to prevent increases to the deficit by telling officials to "pay as you go." It helped Clinton eliminate the deficit altogether and deliver some of the largest surpluses ever.

Republicans of the Bush era didn't care for the policy, and quickly scrapped it. The GOP couldn't pay for massive tax breaks, or two wars, or Medicare expansion, or No Child Left Behind, but they passed them all anyway, each time just throwing the costs onto the deficit. It's how Republicans managed to add $5 trillion to the national debt in just eight years.

Last year, Democrats brought Paygo back, though they waived it for emergency spending. When Dems took up health care reform, for example, they made sure it was paid for. Indeed, all of the major Democratic initiatives considered in this Congress, other than the Recovery Act, were careful not to add to the deficit at all. (When Senate Dems voted to bring back Paygo, literally all of the Republicans balked -- including the Republicans who claimed to support it.)

With Republicans apparently poised to regain power -- ironically while talking about fiscal responsibility -- the GOP is once again poised to scrap Paygo, but Boehner & Co. intend to replace it. The new plan is to go with something called "Cutgo."

And what's Cutgo all about? Instead of paying for new initiatives as they're considered, Republicans want to cut existing spending to offset the costs of any new spending.

If this sounds dubious to you, there's a good reason. Jon Chait explains:
Looking ahead to controlling Congress, Republicans again propose to eliminate Paygo, as they did under Bush. But this time they propose to replace it with a different rule, Cutgo, which would require that new spending be offset with spending cuts. That would indeed be an effective way to limit new spending programs. Of course, it would retain the ability to pass tax cuts with no offsets whatsoever. The decision once again reflects the core Republican belief that tax revenues do not need to bear any relationship to expenditures.

Right. This is precisely the kind of shell game one expects from politicians who don't take policy or fiscal responsibility seriously.

So, for 30 years, the  Democratic Party has been the only political party in America which was actually concerned about budget deficits. Are you really telling me that completely turned around with Barack Obama? Well, the right-wing Heritage Foundation waited a whopping two months before accusing the new president of that. But since Republicans went ahead and eliminated those "Paygo" rules just as quickly as they could, it's a little hard to take their complaints seriously, don't you think?

So what happened? Well, take a look at this graph:

That shows federal receipts (in red) and expenditures (in blue). Note how the brief 2001 recession and Bush's tax cuts lowered receipts so dramatically during his administration, while spending rose steadily. Now look at the economic collapse at the end of the Bush years. Tax receipts dropped off a cliff.

When Barack Obama took office, all of that was already happening. Tax receipts were plummeting, both because the stock market was crashing and because people were losing their jobs. Expenditures rose - again, most of it automatically, as people without work qualified for unemployment benefits, food stamps, and other welfare. There was nothing Barack Obama could do about that, certainly not without making the recession even worse (and it was already being compared to the Great Depression).

Now, true, Obama added to the spending with his stimulus package. But the point of that, which we had clearly learned during the 1930s, was to prime the pump. In a severe recession, we suffer from a lack of demand. People losing their jobs - even just worried about losing their jobs - stop spending, and that causes more companies to cut back, which just causes demand to drop even more, which causes companies to cut back further, etc.

It's not just private companies, either, since lower tax receipts cause state governments to cut spending and to cut payrolls, which has the same ripple-effect throughout the economy. These circumstances are when we need deficit spending. Deficit spending in good economic times just gives us bubbles and creates debt for nothing (especially when it's not invested in America, but only spent for political gain). But deficit spending during economic slumps is Economics 101.

Well, today's Republicans don't believe in Keynesian economics. They stick to their "voodoo economics" dogma, no matter what. And in order to get that first stimulus package through Congress, Obama had to make all too much of it tax cuts. At the same time, it was too small to make up for what the states were doing, slashing their own payrolls as the federal government was desperately trying to keep people working.

Still, it worked. It stopped the economic collapse in its tracks, and unemployment - a lagging economic indicator - is improving, too, if slowly:

The change in private sector jobs, by month. Red is Bush, blue Obama.

But what about those massive budget deficits under Obama? Remember how the Heritage Foundation jumped the gun, complaining about the deficit after Barack Obama had been president for only two months? Guess how they knew that the deficit would be so bad? Yeah, almost all of it was built in before Obama was even elected, let alone took office. It had nothing to do with him.

There are a couple of things to note about this. First, the biggest part of our deficit, by far, is the Bush tax cuts. Remember when Barack Obama planned to cut the deficit in half? Well, most of that was going to come from ending the Bush tax cuts, which were scheduled to expire after ten years, anyway.

So far, that has proved to be impossible, because Republicans have absolutely refused to raise taxes on the wealthy. In fact, Obama had to give them a two-year extension on tax cuts for the rich just to get anything at all accomplished. So yes, they're right, Obama won't accomplish his pledge. But look at why he won't accomplish it.

The other two big components of our projected deficit? The Bush wars, waged - for the first time in our history - without raising taxes to actually pay for them, and the economic collapse itself, which also happened before Barack Obama took office. (Forget about whether the wars were right. Why did we not pay for them?)

Neither of these things are easy or quick to fix. It's a lot easier to start a war than to end it, at least without leaving a complete disaster behind. And the world's largest economy doesn't pivot on a dime. Bush's economic collapse would be slow to repair even if Republicans weren't dragging their feet and even actively sabotaging the recovery. (Remember that debt ceiling debacle last summer, which set the recovery back months and, for the first time in our history, lost America our top credit rating, for no reason but political gamesmanship?)

Here are a couple more charts which make similar points in different ways:

The first shows how one little change - very simple, very easy - would stop the rise in government debt in its tracks. Just eliminating the Bush tax cuts would do it. But Republicans refuse to even consider it, not even as part of a compromise package that would also slash spending.

During negotiations last year, Barack Obama bent over backward trying to compromise. In fact, I would have been furious with him if he'd succeeded, because he was willing to accept massive cuts in domestic spending for very little increase in revenue. (He really does seem to be a terrible negotiator.) But Republicans refused even that. No tax increases, especially on the wealthy, no matter what. Period.

During one of the early Republican presidential debates, the candidates were asked about this. Would they accept a compromise with the Democrats, where they'd get ten times what the Democrats got out of the deal? Not one of the candidates would go for that. Even a 10 to 1 compromise was anathema. They want everything, or they'll bring America crashing down under crushing debt.

These aren't people who actually care about the deficit. These aren't even people who care about government spending (especially since they're all eagerly promoting yet a third war, with Iran). They care only about tax cuts for the rich. It's a faith-based dogma as extreme as anything America has ever seen.

This second chart compares new policy initiatives under Bush and Obama (click the image to enlarge it):

Now sure, you might point out that Obama has only had three years, while Bush added all those extra expenses over eight years. And that's true. But you need to look at those policies more closely.

We're still trying to get out of Bush's wars. We're still suffering from the Bush tax cuts, even though they were supposed to expire after ten years. And the Medicare drug benefit is permanent. But Obama's big policy expenditures are overwhelmingly short-term stimulus, expenses that are strictly temporary and quite brief. They're designed to get our economy humming again as soon as possible, while adding nothing to our long-term costs.

And health care reform was designed to save money. Originally, "Obamacare" would have saved hundreds of billions of dollars over the long-term. But some of that savings was lost when Republicans objected. Well, it's not as easy politically to increase revenue - even when it comes from cutting waste in Medicare - and Republicans have no shame when it comes to taking advantage of that.

Of course, why should they, when they're never penalized for it? Either through ignorance or ideology, their supporters give Republican politicians a free pass on these things. As long as they claim to be concerned about the deficit, they can continue increasing the deficit and blame it on the Democrats. After all, they have a whole chorus of cheerleaders, from Fox "News" on down (and yes, that includes the Heritage Foundation).

Well, what do you think? I must say that it's pretty clear to me who's concerned about the deficit and who isn't.*  It's pretty clear to me who's actually responsible for our record-breaking budget deficits. (Though I certainly don't absolve those Democrats who went along with the worst excesses of the Bush administration, they didn't lead us into this mess. They were just too eager to go along with it, especially when Bush was popular.)

And it's pretty clear to me that this right-wing foundation, which was hammering Barack Obama about budget deficits after he'd been in office only two months, while simultaneously trying to absolve George W. Bush of any responsibility for eight disastrous years, is not an organization we can trust to be anything but purely partisan. But you can believe whomever you want.

* OK, it's long after midnight, and I'd really like to get to bed, but I know I haven't touched on that whole "Republicans want small government and Democrats want large government" stuff. Well, let me just say that I think that's a bunch of crap. Whatever you hear now, George W. Bush was the darling of the right-wing, and he did nothing but continue to grow government. He just didn't want to pay for it.

Democrats, on the other hand, have been quite willing to cut unnecessary government. They don't, as a rule, want to shrink America's government down to where "we can drown it in the bathtub," to use Grover Norquist's immortal phrase, but they don't want big government for the sake of big government, either.

Note, for example, this comparison of budget deals under two Republican and two Democratic presidents:

Democrats actually seem to be more eager to cut spending than Republicans. Of course, Republican rhetoric is completely the opposite. But maybe you should watch what they do, rather than listen to what they say.

For example, when Republicans took control of the House of Representatives last year, one of the first things they did was to demand spending cuts. They nearly shut down the government, in fact, until they got exactly what they wanted. And what they got was... an increase in spending. Yeah, after all that talk, they actually increased military spending more than they cut domestic spending!

But, of course, they're the party that wants smaller government, right? I mean, just listen to them. :)

Now me, I don't want smaller government, necessarily, but I don't want larger government, either. I want a government that's the size it needs to be. Government is necessary. We have a federal government for good reason. And we need a larger government these days than we had a century ago. That's just a fact. How big is too big? I have no idea.

But the right-wing loons who are willing to bankrupt America, just to force smaller government on us, well, I think that's treason. Grover Norquist and his pals may want to drown America in a bathtub, but I'll defend my country from fanatics like that. And so should any reasonable person.

Unfortunately, ill-informed people listen to Fox "News" and believe whatever they hear. I hate to break it to you, but Fox lies. Republican leaders lie. They may think they have a good reason to lie, because they really, really want to put Republicans back in power again, but it's still a lie. (This is that whole idea that the end justifies the means. Well, it doesn't. Most of the time, in fact, the means is far more important than the end.)

And these are the same people who have nearly destroyed our country in recent years. They're the same people who got us into two unnecessary wars, one against a completely innocent country, for no reason whatsoever. (Barack Obama showed us how we should have gone after Osama bin Laden in the first place.)

They're the same people who gave us record-breaking budget deficits, not to invest in America, not to invest in education, research and development, or infrastructure, but simply to give tax cuts to the wealthy. They're the reason why American workers had it better in the 1970s than today. They're the reason why wealth and income inequality have skyrocketed. They're anti-science. Heck, they're anti-education.

Don't get me started. :)  Listen to them if you wish. But for chrissake, don't listen just to them, no matter how plausible they sound.


Jim Harris said...

Thanks Bill, this is a fantastic amount of research on your part. I wish I could memorize it all for when I argue with my Republican friends who constantly complain about the fiscal irresponsible Democrats.

WCG said...

Thanks, Jim. I really didn't want to spend so much time on it, but I respect honest comments from people who disagree with me, and I wanted to show that I took them seriously.

Still, I really doubt that any of this would change the opinion of your Republican friends. If it were that easy, we wouldn't be in this mess. :)

Landis said...

Wow, just read all of that. I am glad I had a part in sparking all of this. All of the research is insightful. Your commentary is great. I want to look more into this as soon as possible (little ones sick right now). But I am glad that I stumbled across your blog, you seem to be someone who knows what he is talking about.

I also want to get back to my other post, I completely understand your viewpoints on that one. I've questioned my beliefs many times.

WCG said...

Thanks, Landis. I find this stuff interesting, so it's really easy to get carried away in these blog posts. :)

But politics is complicated. You can find anecdotes to back up almost any position. And politicians not only have to compromise to get anything accomplished, they also have to worry about getting elected. So they always have to worry about keeping their constituents and their donors happy.

It makes for a very complicated situation. That makes it interesting, at least to me, but it also makes it hard to see the forest for the trees. I get infuriated at the Democrats sometimes, and no politician does what I think he should do all the time.

But politics is the essence of human society. There is probably nothing as human as politics. It's messy, and it's about as appetizing as watching blood sausage being made, but I think it's fascinating. And nothing human is going to be perfect, I suspect.

Re. your other post, I'll be interested to hear your reply, whenever you can find the time (sorry to hear that your kid is sick).

You might want to check out my Non-Belief series, too. I try to explain my thinking in those. As always, I welcome thoughtful comments and criticism.

Jim Harris said...

But it should change their minds. Why it doesn't is another story to research.

BTW, I mailed links to this piece to eight my liberal friends who often post stuff about Republicans.