Obama & Deficits
Figure 1 – Deficits 2008-2019 (in billions of $):
- ARRA (the stimulus) doesn’t account for the bulk of the 2009-2012 deficits. Nor do the TARP or Frannie bailouts.
- Most of 2009 deficit is the result of actions, provisions, etc., that predated Obama’s presidency. Note that CBO’s January 2009 deficit projections were calculated & presented on 1/8/09 – before Obama’s inauguration.
Hence, I remain unimpressed by attempts to blame Obama for the deficits thus far incurred under his watch.
My real concern about Obama’s spending habits is WRT the long term. CBO’s scenario for economic growth assumes a bottom in 2009, followed a moderately strong recovery (3-4% real GDP growth from 2010-2014). However, between the massive damage to the financial system, risk aversion by lenders & investors going forward, & the continued deleveraging of private-sector balance sheets, continued weakness in both consumption & investment (and hence in economic growth) is not implausible; see, e.g., Jamie Galbraith, Martin Wolf, & the Levy Institute (657 KB PDF). So it’s reasonable to consider recovery scenarios far weaker than CBO’s projections. Under such scenarios, however, the red ink from both the CBO baseline and Obama’s budget proposals become far less affordable.
Figure 3 – Debt/GDP 2008-2019 (%), CBO Baseline deficits:
Should the debt-GDP ratio rise too high, creditors at home & abroad may lose confidence in the US Treasury’s creditworthiness – which point, we could see a dollar crash, a rollover crisis, dramatically higher interest rates, etc. IMHO, we would be well-advised to avoid tempting fate.
Notes for Figs. 1-2:
- “Pre-Obama Deficit” = “Total Deficit as Projected in January 2009” in Table 1-3 of CBO’s report.
- “TARP” & “Frannie” equal, respectively, “TARP” & “Fannie Mae and Freddie Mac” in Table 1-3.
- As a proxy for “Stimulus”, I’m basically using “Total Legislative Changes” in Table 1-3, which states that “CBO estimates that enacted legislation will increase the deficit by $195 billion in 2009 and by $1.3 trillion over the 2010–2019 period. Nearly all of that increase is attributable to the economic stimulus legislation”. In years where “Total Legislative Changes” exceeds the difference between CBO’s 1/09 & 3/09 projected deficits, “Stimulus” = “Total Legislative Changes” – “Total Deficit as Projected in March 2009” – “Total Deficit as Projected in January 2009” + “TARP” + “Fannie Mae and Freddie Mac”.
- “Other” = the difference between the two in years where “Total Legislative Changes” does not exceed the difference between CBO’s 1/09 & 3/09 projected deficits.
- “Obama tax cuts” and “Obama spending increase” equal, respectively, “Total Effect on Revenues” & “Total Effect on Outlays” in Table 1-5.
- For Fig. 2, “CBO Deficits” & “Obama Deficits” equal, respectively, “CBO’s baseline” and “CBO’s estimate of the President’s budget” under “Debt Held by the Public as a % of GDP” in Table 1-1.
Notes for Figs. 3 & 4:
- Nominal & real GDP data for “CBO growth” in each figure taken from here. GDP deflators were the quotient of nominal over real GDP. Nominal debt calculated using the aforementioned nominal GDP data, along with the debt/GDP percentages from Table 1-1.
- In all growth scenarios, 2008 & 2009 were the same as for “CBO growth”. Thereafter, real GDP was assumed to grow at 1% or 2% annually.