Breaking Down the Deficit

David Leonhardt‘s carefully-researched column in yesterday’s Times breaks down the causes of the increasing budget deficit. The bottom line: Don’t blame the Obama agenda, “it is responsible for only a sliver of the deficits.”

Courtesy of Matt Yglesias, here’s a simple summary chart:

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But Alex Tabarrok at Marginal Revolution remains unimpressed, arguing that:

The reason why the hundreds of billions of dollars of spending in Obama’s agenda is said to be responsible for only a “sliver” of the deficit is that the agenda also includes taxes, thus the net effect is low.

Umm … that’s exactly the point. When shifts in spending are matched by shifts in taxes, the deficit doesn’t change.


the Gooch

That assumes raising rates will always raise revenues. The millionaire tax in Maryland proved that wrong.

Spending is the only thing the government can really control. There is no exact science to raising revenues.

jeffreytg

I am unimpressed that a president who campaigned on "change" is given a pass when he fails to make change. Any continuation of a Bush policy that adds to the debt is the current president's problem and fault.

The chart fails to consider time, Bush had 8 years to accumulate the deficet dollars in the graph. Obama has had less than 5 months. I can not see the raw data in the chart. But if we say 5 months is 1/2 a year- Bush's deficet took 16 times longer to accumulate than Obama's has. Is the Obama share of the charted deficent less than 1/16th of Bush's?

Sean

When you don't roll-back the previous president's policies, they become yours.

gospazha

Sorry - Obama and Congress have complete authority (not veto-proof, but that doesn't matter with the Democrats controlling both branches) to override past Bush policies. Therefore, the 111th Congress and Obama are still to blame for the current deficit.

Brian

Given the amount Obama is spending, it's hard to believe that he's responsible for only a 'sliver' of the pie chart. That said, I know Bush was also fiscally irresponsible. Let's assume the pie chart is accurate. An underlying assumption seems to be that a balanced budget is above all else in importance. Increased spending should never be justified by increased taxes. Americans get hurt, all across the income spectrum.

DrS

The seperate categories for "Bush Policies" and "Extension of Bush Policies" is a bit deceiving. I think it implies a huge portion of spending is money that Bush hadn't spent, but would have. If I am reading correctly, it is money that the new administration has spent a lot on, that Bush spent a good deal less on.
This isn't to say I believe in the myth of the fiscally responsibile Bush administration, but I think "Extension of Bush Policies" and "Obama Agenda", as well as the "Stimulus Package" could all be fairly blamed on the current administration.

a_c

It is not just the deficit that needs looking at; it's the size of the government.

Also, how much of this is based on Obama's wildly optimistic economic growth estimates, which are already, as per Greg Mankiw, falling far wide of the mark?

Andrew

Though, one could argue that Obama's increased taxes are causing the "Recession" slice of the pie to become larger.

JohnG

There is a difference between the Bush era causes (done deals) and the Obama proposal (still on the table).

Just because you are 100 feet under water is no reason to try to go lower.

peter

shouldn't it be noted that Bush had eight years to come up with wasteful policies, but Obama's only had six months? I'm no Bush fan, but maybe we should give Obama a fair chance at racking up a horrible defecit.

Tristan

I read the "Extension of Bush Policies" to mean policies that Bush put in to place that would have expired during this administration, that were extended, most likely due to the recession.

But if you're trying to divy up responsibility, those should be at least 1/2 Obama, if not more.

Joe Smith

The fiscal policies of the American government during the Bush administration were utterly irresponsible.

The good news and bad news is that all that has to happen to eliminate the imbalances is for Americans to accept a 10% average drop in their standard of living. The political challenge is allocating that average across the populace.

Mike

DrS, you're reading it incorrectly I think.

I got that to mean it's things Bush implemented that Obama has thus far kept.

Conservatives will yell about how it's irresponsible or how "Obama doesn't understand" (the most common phrase in political discourse today, I think) whatever the issue or spending is on. Liberals will argue that he was left such a mess, he has to keep some things in place, even if they're wastful, rather than yank all this money away like the rug out from someone's feet.

Point is, they're both to blame for it, unless Obama does eventually scale back that section of the pie, or eliminate it altogether.

frankenduf

so that's basically a pie representation of the fact that the Bush administration almost completely gutted the federal government- i do, however, also agree with DrS- if the Obama administration continues to spend billions propping up military excursions in Iraq, Afghanistan, and anywhere else he chooses, this is basically the 'Bush doctrine' and Obama is responsible for following suit

jblog

When you don't roll-back the previous president's policies, they become yours.

Well put.

Romain Wacziarg

I wonder how much of the current deficit is due to FDR - after all, a lot of the entitlement problems that are now causing fiscal problems with the retirement of baby boomers date back to that era.

The above observation shows the extent to which an exercise that seeks to assign "blame" for the deficit is fraught with difficulties.

Milton Recht

It is a bad business plan to increase spending before revenues start to increase. Many a business has failed on the assumption that it can spend now and pay for it later.

It is better in an ongoing enterprise to let revenue increases lead spending and not vice versa. There is more than enough investment by the government in existing infrastructure and services that the government should wait to spend until it can show deficit reductions.

There is a lot of bloat and inefficiency in current government programs and spending. A little belt tightening by the government never hurts. Even in the current down economy, probably more could be achieved by productivity and efficiency gains than by deficit stimulus spending.

Even in health services, the government already spends and invests a lot of money in Medicare, Medicaid, VA Hospitals, VA health benefits, and transfer payments to hospitals. All the promised benefits of "new" healthcare could have occurred from past investment if they were real. It is a common business excuse to blame failure to achieve goals and targets on a lack of money. However, for every business that uses that excuse, there are examples in the same industry and at the same time of successes on the same lower budget. Only in business, the spending money is not endless.

The government always promises costs savings and increased tax revenue. However, unlike in private business, where failure to meet expected budgets can lead to an executive's job loss or a business failure, Congress and the President are almost never measured by money spent and the return on their investments.

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Brad

Andrew, what huge tax increase by Obama do you see making the recession worse? Or are you still thinking about the campaign with his talked about increased taxes on those over $250k which haven't been implemented.

DrS, a balanced budget is above all else important. Really? There's never a reason to run a deficit or a surplus?

Mattie Shoes

The recession slice is the one that bugs me. If you start making less money, you correct your spending to bring it in line with your income. Saying "oh, the deficit is due partly to the recession" seems just as retarded to me as my neighbors eating their 25 dollar pizza, watching their 2000 dollar TV, talking on their 50 bucks a month cell phone, watching their 80 bucks a month cable, while complaining that they can't seem to pay off their credit card bills.

Jesse Rich

If Obama is the president, then wouldn't the extension of Bush policies make them Obama policies if he has chosen to continue them? What are the savings from the discontinuation of other Bush policies?