Thursday, February 28, 2013

It's the Recession, Stupid.


Many conservatives and other critics of the Obama Administration have made much of the President's "spending binge." As regular readers of the blog no doubt remember from earlier posts of mine, I've pointed out that most of this so-called spending was basically out of the president's hands--that is, most of the increase in the deficit was due to the recession, rather than anything the President specifically did.

One way of demonstrating this is by looking at the structural deficit versus the cyclical deficit. For those of you non-wonks out there, the structural deficit is an estimate done that attempts to determine what the budget deficit would be given normal economic conditions, whereas the cyclical deficit is, well, just the plain old deficit. 

So let's compare them, shall we? Here's a handy graph I dug up from Evan Soltas
You'll notice that there's a pretty sizable gap there, right? So if we were in normal economic times, the (structural) deficit would be around what it was during the mid-1990s--right around 2% of GDP. Considering that in normal times, the U.S. economy grows on average around 2.5-3% a year in real (inflation-adjusted) terms, a deficit of this size would basically mean that our total debt levels would hold steady or maybe even slightly decrease. For a more detailed look at it, here's the structural tax revenues and spending levels vs the actual spending and tax revenue levels:


I don't see much of a marked change in structural spending or tax levels after Obama took office, so what does that tell you?

Now, you shouldn't draw any unwarranted conclusions from this--I'm not trying to say we don't have a long-term debt problem. We definitely do, thanks in large part to ever-increasing health care costs, and that will definitely have to be dealt with in due time. My point here is that there really has been no so-called Obama-era spending binge--it's the recession, stupid!