Economist's View: Bush's Fiscal Irresponsibility

リンク: Economist's View: Bush's Fiscal Irresponsibility.

Don Luskin has an article in the NRO discussing Paul Krugman's column "Democrats and the Deficit." The article is critical of Krugman's position that Democrats should be careful not to hand budget surpluses to Republicans because they are likely to give them away as tax cuts rather than use them responsibly as down payments on future government liabilities.

As part of his argument, Luskin tries to rebut "Bush’s irresponsibility" by arguing Bush has done as well as Clinton on federal budget issues. For example, he says:

The debt [under Clinton] was 49.3 percent of GDP, higher than in any year of the George W. Bush administration

Well, okay, but let's look a little closer. This is from the link Luskin provides to the OMB's debt to GDP data:

Notice anything about the graph? While it's true that the debt to GDP ratio is lower today than the 1994 value of 49.3%, it's risen steadily under Bush. At the end of fiscal year 2000 the debt to GDP ratio had fallen to 35.1%, and it fell to 33.0% at the end of fiscal year 2001. But since 2001 it has risen steadily. So the important part of the story is not that the debt to GDP ratio is lower now than it was in 1994, instead, it's that the ratio has risen steadily under the Bush administration.

For more perspective, here's all of the data from the OMB (since 1940):

Start in 1980 and see if you can identify Republican and Democratic administrations from movements in the debt to GDP ratio [Answer here - the graph shows both public and inter-agency debt, but the pattern is the same as for just public debt shown above. See if the graph confirms Luskin's claim that Clinton doesn't deserve any credit for deficit reduction because it's the party that controls congress, not the president, that matters. If so, what happened under Bush?].

Looking at the two graphs gives you an idea of why Democrats who worked so hard to get the debt to GDP ratio down during the Clinton years have been so frustrated with this administration's handing it back as tax cuts. Krugman's position is much easier to understand given the debt to GDP ratio's history over the last 25 years of rising whenever Republicans are in the White House. Somehow, that part of the story is missing from Luskin's analysis.

One more note on the figures Luskin cites. Luskin uses a 2.2% figure for the deficit to GDP ratio for the 1990s and compares it to the current ratio of 2.1% as evidence of the Bush administration's success in bringing down the deficit (That .1% fall in the ratio is impressive, don't you think?). Oops. If you limit the average to just the years Clinton was president and throw out the Bush I years, the average falls to 0.8%. So, even with recent improvement in the deficit to GDP ratio from the peak of 3.6%  in 2004 to the current value of 2.1%, it's still more than double the average during the Clinton years. Oh, and by the way, the rest of Luskin's piece, "Speaking Truth to Power," is no better at speaking the truth. If you read it, realize the risk of being misled.

Posted by Mark Thoma on January 4, 2007 at 02:07 AM in Budget Deficit, Economics, Politics | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/t/trackback/7374348

Listed below are links to weblogs that reference Bush's Fiscal Irresponsibility:

Comments

The Skeptical Optimist keeps a Debt Clock. It show 65% of GDP and rising.

I guess Luskin is using the US Dbet less any obligations to intragovernmental accounts.

I suppose you only count debt which is owed to the wealthy not obligations to working class and building infrastructure.

But aside from that truthiness TSO views the debt as a revolving charge account never to be paid down, just roll the bonds over so no one pays real money for the government we get.

Posted by: ilsm | Jan 4, 2007 3:58:15 AM

Worrying about the budget deficit, simply plays to Republican meanness in slashing away at domestic social benefit programs. If the deficit is a worry, or even if not, then look to the $14 billion dollars a month spent on the tragic insanity of occupying Iraq, and leave Iraq immediately. There is a saving of $170 billion a year, not to mention the saving of another $8 billion or so by not having to increase the saze of the military.

Posted by: anne | Jan 4, 2007 4:21:24 AM

When is Uncle Ronnie going to be recognized as the anti-FDR?

It's amazing how much negative affect the Reagan administration has had on the U.S.; from the federal debt to income inequality to oil profligacy to lousy health outcomes to terrible foreign policy, etc;etc;.

I think the Reagan era will be identified as the most significant cause for the decline of the U.S.

Posted by: evagrius | Jan 4, 2007 4:36:19 AM

My American Husband checks the news everyday "to make sure that Reagan is still dead". (To be entirely true, in the hopes the same fate has befallen Bush, too)

Posted by: Isabel | Jan 4, 2007 5:25:57 AM

... if they open their mouths: Bush, Luskin, Safire, Brooks, ...

Yes evagrius, 'tis one of the great mysteries. Or, is that myths?

Posted by: ken melvin | Jan 4, 2007 6:46:50 AM

How come that, on the link that Luskin provides, the deficit is not 2.1% for either 2006 or 2007, yet it is used as current value. Wouldn't his time series be of a differently calculated deficit than that 2.1% value?

Posted by: Cyrille | Jan 4, 2007 8:08:42 AM

Safire speaks truth occasionally, but it's limited to his On Language columns and his apologies for having blown so many predictions from the previous year while making the current year's predictions.

Posted by: Ken Houghton | Jan 4, 2007 8:30:55 AM

I find Luskin's article not so much misleading as irrelevant.

As a snapshot the current situation looks fine. Unified deficits of 2.1% of GDP are sustainable indefinitely unless nominal GDP growth slows dramatically. In fact, the debt/GDP ratio would probably drop slightly over time if deficits were sustained at that level.

But we know that the unified deficits won't stay that low as a percent of GDP once the Boomers start to retire in large numbers. So what's his point? We get to 2.1% by not funding known future liabilities, so we know that in the future either 1) taxes will rise as a proportion of GDP, or 2) benefits will be reduced relative to expectations, or 3) other government spending will decrease relative to GDP, or 4) the annual deficit/GDP ratio (and hence the debt/G