Jonathan Chait

Obama, Bush, And The Deficit

By

Former Bush administration economic adviser Keith Hennessey argues that it's unfair for President Obama to accuse the previous administration of presiding over "a decade of spiraling deficits":

I want to focus on that last phrase:  a decade of spiraling deficits.

The best way to compare deficits over time is as a share of the economy.  This first graph shows budget deficits during President Bush’s tenure.  On this graph deficits are positive, so up is bad.  The dotted green line shows the average deficit since 1970 for comparison (2.6% of GDP).

This graph does not show “a decade of spiraling deficits.”  It instead shows eight years of deficits averaging 2.0 percent of GDP, followed by a horrible ninth year as the markets collapsed and the economy plunged into recession.  (Budget wonks who want to understand why I think we should look at nine years for a Presidency rather than eight can read this.)  Even 2008’s bigger deficit than 2007 can be mostly explained by a revenue decline as the economy slipped into recession pre-crash.  Before the crash of late 2008 President Bush’s budget deficits were 0.6 percentage points smaller than the historic average.  Deficits did not “spiral” during the Bush presidency or the decade.  The bumped around the historic average, then spiked up in the last year.

It's true that it's not literally accurate for Obama to accuse the Bush administration of presiding over a decade of spiraling deficits. The Bush deficit rose, then fell a bit at the peak of the economic cycle, and then shot upward once again as the economy crashed. Likewise, it would be unfair to describe Kirstie Alley as having her weight spiral upwards, when it fact it has risen asymptotically upward. Hennessey has a point here. A tiny, tiny point, but a point nonetheless.

Where Hennessey goes badly wrong is in his attempt to defend the responsibility of Bush's fiscal policy. Hennessey argues that deficits under Bush were not that high until the end, when they got catastrophically high, but the high point was he fault of the economic crash rather than Bush's policies. The problem, of course, is that Bush inherited a very sound fiscal position. At the peak of the Clinton-era economic boom, the budget was running a surplus equal to 2.4% of GDP. At the height of the Bush-era economic cycle -- "boom" isn't really an accurate description -- the budget ran a deficit of 1.2% of GDP. Which is to say, Bush's policy of launching two wars, a series of major tax cuts, an expansion of defense and homeland security spending and a prescription drug benefit without any offsets whatsoever structurally increased the deficit by about 3.6%. (Note that this argument assumes that Bush bears zero blame for the economic crisis that concluded his presidency.)

Hennessey proceeds to castigate Obama for projecting budget deficits higher than those than ran under Bush:

Which exactly is the decade of spiraling deficits?  The last one, or the one we’re beginning now?

For comparison:

  • Bush average:  2.7% (including the 8.3% for FY 2009 when President Bush left office in January);

  • Obama average (projected for two terms spanning nine fiscal years):  6.35% ...

This graph shows a sharp projected decline as we recover from the crash/recession followed by a steady upward climb.  If President Obama’s budget is enacted as proposed, his smallest budget deficit will be bigger than the largest pre-crash Bush deficit.

This is absurd. First, Obama will have the first several years of his presidency burdened by the gravest economic crisis since the Depression -- a crisis that makes large deficits not only unavoidable but actually desirable. Second, Obama inherited a trillion dollar deficit. Hennessey is making a comparison devoid of the context of the situation a president inherited. Bush inherited a great situation and proceeded to make it terrible. Obama inherited a terrible situatuion and proposes to make it a little better.

You could argue that Obama should be doing more to improve the budget situation, though of course we will have to see if his deficit commission succeeds. But of course the status quo bias of the political system plus the unpopularity of spending cuts and tax hikes, makes it very hard to decrease the deficit. That's one reason why Bush's deficit-increasing policies were so pernicious. Had Bush never decreased taxes, it would be very easy for Obama to maintain Clinton-era tax rates. Given the fact of the Bush tax cuts, restoring Clinton-era tax rates would be extraordinarily difficult.

If you want to set the bar high enough, and ignore the political difficulties involved in reducing the deficit, you can make Obama's fiscal record look bad. That approach, which is the approach of most fiscal scolds, is uncharitable but at least coherent. To castigate Obama's fiscal responsibility while defending Bush's, on the other hand, is intellectually incoherent propaganda.

Loading Related Articles...
Article Tools
SHARE YOUR THOUGHTS

Show 1 comment

You must be a subscriber to post comments. Subscribe today.