There are several “factoids” running around the internet that Obama has run up more debt than all past presidents combined. According to the Treasury Dept that claim is not true but the run up in debt has been outstanding since Obama took office in January 2009. When Bush left office, the total debt was 10 trillion. It was 15.5 trillion at the end of February 2012.
As the graph below illustrates, we have been borrowing lots of money for the past thirty years.
Then I wondered: after adjusting for inflation,what is the annual increase in federal debt for each President? Adjusting for inflation allows us to compare apples to apples. The Federal Reserve supplies us with both data on the debt and a deflator to adjust current dollars to real 2005 dollars. Obama’s average is computed up to Dec 2011.
Remember, these are inflation adjusted dollars. The big spending started with Reagan but both parties have become very practiced at developing good explanations for why we have to spend a lot of money.
Like many, I have thought that the severe downturn has dramatically reduced federal receipts. As a percentage of GDP, it has – receipts have been coming in at 15 – 16% of GDP, when the long term average is 18 – 19%. But … bigger government spending has inflated GDP about 10%. What have receipts been over the past decade? During the Bush years, the Federal government pulled in an average of 2.13 trillion dollars a year in 2005 real dollars. During the Obama years, the average is 2.0 trillion. The drop in receipts has been relatively slight. 80 – 85% of the responsibility for the big run up in the debt is spending.
Last week, Senator McCain acknowledged the true cost of defense spending at $1 trillion and it is defense spending that led the Bush administration to run up a $5 trillion dollar deficit in eight years despite four years of robust growth, fueled largely by a real estate bubble. The bubble burst and the severe fallout from that debacle has prompted even more defense spending – social support programs to defend Americans against lost jobs, lost health insurance and lost home equity.
“Too much spending!” Republicans cry but do not want to cut back on defense spending or agricultural subsidies in rural areas where their support is strongest. Income tax subsidies are another form of spending, one highlighted by the Simpson-Bowles commission. In this broken, contentious political climate, neither side of the political aisle can agree on any meaningful reductions in tax subsidies because the voters who put them there can not agree.
Since neither side can agree on spending cuts, there is only one other solution – higher revenues. Yes, that’s the punch line. Funny, isn’t it? If neither side can agree on spending cuts, they surely can’t agree on where to get higher revenues.
Bleeding heart Democrats cry out for tax justice for the poor while Republicans stand strong for tax justice for the rich. The Tax Policy Center can find no studies showing that taxes on the rich influence job creation, either positively or negatively. To conservatives who believe that they do, facts are unimportant. Conservatives are like football fans – all you gotta do is believe.
Democrats suffer from the same “fact blindness,” disregarding several studies showing that long term unemployment subsidies undercut the confidence and skills of the unemployed, making them less employable the longer they are out of work. Car and home buying subsidies of the past few years have done little but push forward the buying of cars and homes. When the subsidy programs expired, so too did the buying of cars and homes. Despite the demonstrated ineffectiveness of these social subsidies, Democrats continue to propound that they are for the working person. Another month and another proposal of yet another program for the “vulnerable.”
The moderates of either party have either been voted out of office or left in frustration. Olympia Snowe, a Republican Senator from Maine, is the latest to quit the carnival show of Congress. She wrote, “I do find it frustrating, however, that an atmosphere of polarization and ‘my way or the highway’ ideologies has become pervasive in campaigns and in our governing institutions.”
We can not agree on spending cuts and we have two large spending items looming in the near future which will only exacerbate the debate. The Boomers are just beginning to collect on their deferred annuity program – we know it as Social Security. They are one kind of bondholder expecting the government to make good on the promises it has made. The really big bond leviathan is that world wide group of holders of U.S. debt – over $10 trillion in treasury bonds and notes. We have benefited from the “flight to safety” over the past few years as investors around the globe have bought U.S. debt at ridiculously low rates. Investors will want a more normal return for their money eventually and when that happens, the annual interest expense on our debt will rise. These two groups of bondholders with demands and expectations will light the fuse.
If you think the past decade has been contentious, you ain’t seen nothin’ yet.