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In 1981, the supply-siders commandeered the Reagan Presidency and employed their Voodoo economics, as Bush senior had called it in 1980. He was saying that tax cuts would not increase government revenues. As you can see on the graph above (get it on your smartphone [#app info]), the Voodoo failed just as Bush predicted, and the supply-siders turned a 32-year winning streak into a debt disaster that continues to this day. For 20 years, under Reagan and the Bushes, the national debt increased compared to GDP every single year. In most other years it decreased. Twenty years in a row can't be just an accident, but to understand you need to learn the voodoo strategy. (Why graph Debt / GDP ?)
Bush senior fought against supply-side debt, so the Republicans didn't support him and he lost to Clinton, who put an end to supply-side economics. G. W. Bush brought it back full strength, with V.P. Cheney saying "Reagan proved deficits don't matter." Currently supply-siders are in full control of the Republican party.
What about Obama? Notice how the debt accelerated during Bush's last two budget years. Obama's debt is a continuation of that trend and neither Bush nor Obama are directly responsible for that acceleration. It happened because of the recession. Bush set the all-time record by increasing the debt by $1.1 trillion in 100 days between July 30 and Nov 9, 2008—but that had little to do with his choices.
Recessions cut tax revenues—in this case, dramatically. That accounts for nearly half of the deficit. So blaming Obama for the full deficit is like blaming him for not raising the tax rate to keep tax revenues up. Most of the increased spending is automatic increases in unemployment benefits, food stamps, and social security payments for early retirement. Very little of it is from stimulus spending, and that's over.
The green line shows what would have happened to the national debt if Reagan and the Bushes had balanced their budgets as Reagan claimed he would. G.W. Bush, in all modesty, claimed he would "retire nearly $1 trillion in debt over the next four years. This will be the largest debt reduction ever achieved by any nation at any time."
Republicans are quite [#embarrassed] by this performance, so they have invented a cover story: The Democratic Congress did it. Nice try. But for 12 of the 20 years the Congress was not Democratic. Also, presidents can veto, and when it was Democratic, Congress passed smaller budgets on average than the Republican Presidents asked for. Presidents propose the budget, and they have the most influence. Check it out.
The Election. ZFacts' new Reality App has this graph, amazing facts (e.g. who ran the debt up by more than $1 trillion in 100 days), and much more. To see and install it on your mobile, browse to zFacts.com/vote . If you're on a PC/Mac click here.
If Romney is elected, the debt will continue to rise the same reasons it went up under Reagan — more military spending and tax cuts for the rich. Obama will follow Clinton's path, but will have a harder time of it, because this recession is far worse than the one Clinton faced when he took office.
|[=embarrassed] By 1987 Ron Paul was asking "How is it that the party of balanced budgets, with control of the White House and Senate, accumulated red ink greater than all previous administrations put together?"|
Get this graph with the Reality App
Includes 14 graphs and simple explanations. Plus the most accurate election prediction anywhere, updated daily. Works on anything with a browser. More info and see it on zFacts.
|[=PopNotes] Just hover over green-underline links above to see the "pop" notes.|
GDP is Gross Domestic Product — the value of everything "made in America" from pizza to the Blue Angels' air shows. So this is the best measure of how rich the country is just in terms of the economy.
Now here's the case for comparing national debt to national GDP:
What matters is how big your debt is compared with your income. A 12-year old with a $1000 debt is in deep trouble, but a 30-year old with a $200,000 mortgage and a $600,000 a year job is in no trouble at all. When Reagan said the 1981 debt was "out of control" at 31% of GDP, it was like saying someone with a $200k mortgage making $600,000 a year has an out-of-control debt. It was just plain nuts. Yet the press never figured this out, so he got away with it.
In reality, Reagan started with the lowest debt (compared to our ability to pay) at any time in the last 50 years. And even in 1946, when the debt was at 121% of GDP, the country was in no trouble at all.
|[=any OMB budget] The Office of Management and Budget, at the White House, publishes the president's proposed budget every year, and one appendix always list the historical debt/GDP values. It's the same for Republicans and Democrats, because it just makes the most sense.|
|[=PopNotes] Just hover over green-underline links above to see the "pop" notes.|
Ground was broken for the Pentagon on September 11, 1941, and the Japanese bombed Pearl Harbor on December 7, 1941. So war-time spending started early. GM reports producing trucks for WWII in 1940. But 1942 was when spending really took off. So here's what happend to GDP and Unemployment.
[#Relative to 2011]
|1940 – 1941||15.7%||14.6% – 9.9%||$0.8 Trillion|
|1941 – 1942||16.9%||9.9% – 4.7%||$2.5 Trillion|
|1942 – 1943||15.1%||4.7% – 1.9%||$5.4 Trillion|
Notice that stimulus spending works more easily when there is high unemployment. It stops working when everyone is employed. It's hard to say how effective the 2009 stimulus was but it seems to have been about as effective when the differences are accounted for. The economy was in free fall when it was passed. It is hard to know how much worse it would have gotten without the stimulus spending and without the confidence that government was stepping in to get things under control.
Also, the 2009 stimulus package, although about $0.8 Trillion in total was spread out over several years. So it was not nearly as strong in any one year as even the first year in the table above. On top of that, the 2009 stimulus was, in large part, tax cuts which are not fully spent and so are much less effective that the direct, rapid government spending of WWII.
ca. 1942 GMC CCKW 353
6x6 Military Personnel Carrier
Although conservatives like to argue that the WWII spending had nothing to do with reducing unemployment, this seems preposterous. For example, GM tells us: "From 1940 through 1945 GMC built over 528,000 6x6 military trucks." To build those it had to hire people first to build the plants and assembly lines and then to build the trucks. How could hiring all those people not reduce unemployment? And then of course there was building the Pentagon, the Navy and the Airforce. All of the hiring happened because of goverment spending.
For economists: A new analysis of the multiplier effect of government spending find it too be quite large.
|[=Relative to 2011] The increase in debt was divided by the GDP to get the debt increases as a percent of GDP. That percentage was mulitplied by todays $15 Trillion GDP.|
|[=PopNotes] Just hover over green-underline links above to see the "pop" notes.|
Going into WWII, America put America Back to Work
So what's stopping us now? (September 10, 2010)
Fortunately no. America is so strong we can afford enough spending to pull out of this terrible recession soon. In fact not pulling out will cost us the productivity of 10 million Americans for years to come. And it will cost the unemployed and their families who did not cause the recession untold heartache, and in many cases an undeserved loss of self respect.=]
Great video, However, in the video you include Jimmy Carter as reducing the deficit. As much as I like Jimmy Carter, his administration started out with a deficit left over from Ford of $ 77 billion and ended up with a deficit of $ 85 billion. If I’m wrong let me know.
Off the top of my head, I think you are, as you say, talking about the deficit. The video is about the debt, and more specifically about the debt as a % of GDP. So I think you are probably right about the deficit. That's how much the debt increases from one year to the next (and there are various definitions of debt--I use the one the Republicans use and put on the national debt sign in NY -- the big one).
OK, so your deficit numbers tell us hat the debt was going up every year -- what gives? Well that's right, but the countries income was going up every year. Under Carter is was going up really fast because of inflation > 10% and normally the economy grew (in a real sense -- inflation is fake growth) by 3%. So over 4 years the economy got much bigger.
So even though the debt was getting bigger, we were getting bigger much faster. When you are 10 years old, a $1000 debt is a big deal. When you're 30, you many have a $100,000 mortgage and that may be not a problem at all. You are far bigger economically when you are 30, so a much bigger debt is, in effect much smaller. Watch the first part of video again. It explains a little more.
Also the $85 billion was probably worth a lot less than the $77 billion due to inflation.
President Bush claims that "we have now achieved our goal of cutting the budget deficit in half." [#Source] Is this true?
First, be careful, the deficit is annual additions to national debt. So all he's saying is that the national debt is not going up as fast as it had been. It's certainly not going down (as it did in between 1995 and 2001 — see graph). So in terms of the accumulated national debt, we haven't cut anything except its rate of increase (that's better, but the debt is still headed the wrong way).
Second, he's not talking about the annual gross (total) budget deficit, but only a part of it. As this chart shows, the total deficit has hardly decreased at all. [#note]
Bush's deficit, call it deficit 'lite', counts borrowing from the 'public' (financial markets) but does not count borrowing from Social Security--which is huge. This ignores the fact that like public debt, Social Security contributions are actually an obligation that must be repaid. Most importantly, those funds should be helping to increase savings and investment in order to provide for the coming retirement of the large "baby-boom" generation. They should not be used for current government expenses (see below).
Did Bush's "pro-growth" policies cut the deficit lite in half? No. The deficit always goes up in a recession (2001--2003) and down when the economy recovers (last two years). To check on his policies, look at what actually happened compared with what he predicted his policies would do. ( Graph )
If one counts Social Security contributions as offsetting the deficit, then the deficit lite has gone down by almost half, from $413B to $248B. But that's just a normal result of increased Social Security contributions, which, as pointed out above, are themselves an obligation that must be repaid. The real total deficit, the gross national deficit, is still near a record high. That's not normal.
Bush almost cut "deficit lite" in half, but the real total deficit is still taking billions from Social Security. more
Deficit "lite" vs. the gross deficit
The gross (total) deficit is bigger because it takes into account that when the fed's general fund (mostly military spending) borrows money from the Social Security Trust Fund, it will have to pay it back. Borrowing from Social Security is still borrowing. Deficit lite, which Bush is talking about, assumes there is no such obligation — that Social Security will not have to be paid back. So the more they borrow from Social Security the smaller is deficit lite.
Because of this, when more of us have jobs and pay more Social Security, deficit lite goes down because the general fund borrows more from Social Security — which they don't admit they have to pay back — and less from the public (and foreigners) — which is the only part they admit they must pay back.
How can they call "deficit lite" the "total deficit"?
As you might expect, it's a bit confusing. The "deficit lite" is basically the gross (total) deficit (military spending, etc.) plus all the extra money that comes in from Social Security. Since the Social Security surplus is added, they call this sum the "TotalDeficit."
This is what's happening. The gross deficit is about $550B and when you subtract$300B coming in from Social Security you get the $250B deficit lite. Tastes better.
But subtracting does not sound like you're getting a total. So they turn it all upside down. They say the gross deficit is minus $550 and then they add the $300B from social security, and get minus $250. Since, with signs reversed, they are "adding" they call their answer of -$250B the "total" deficit even though its much much smaller than the gross deficit, which is the real total deficit.
You can check out this charade in the Economic Report of the President, Table B-78. (Economists put up with this because (1) they're paid to, (2) they have a legitimate use for the deficit lite number, and (3) their political bosses love it.)
The annual deficit vs the national debt
The annual deficit is this year's spending minus this year's income. If we spend $900B with income of $600B in one year, the annual deficit is $300B. That makes the national debt go up by $300B.
The annual deficit is how much the debt increases each year. On any day we can ask how much the annual deficit was over the preceeding year and find it by subtracting the national debt a year ago from what it is now.
That's how the graphs above were made. You can find the national debt to the penny here for almost every day back through 1993.
[=Source] Bush's press conference, October 11, 2006
"Before I take your questions, I'd like to discuss a couple subjects.
First, I want to briefly mention that today we've released the actual budget numbers for the fiscal year that ended on September the 30th. These numbers show that we have now achieved our goal of cutting the federal budget deficit in half, and we've done it three years ahead of schedule.
The budget numbers are proof that pro-growth economic policies work. By restraining spending in Washington and allowing Americans to keep more of what they earn, economy's creating jobs and reducing the deficit and making our nation a more prosperous nation for all our citizens." (NYTs)
|[=note] This chart shows the total deficit in dollars, although it would be more correct to show the deficit as a fraction of total economic activity (for example, Gross Domestic Product -- new chart coming!). Since total economic activity has only changed by a few percent per year recently, the overall picture will be quite similar to what this chart shows.|
Currently, contributions to Social Security are greater than payouts because members of the large baby-boom generation are currently in their prime earning years. But the baby-boomers are about to start retiring. In fact, an increase in the Social Security tax was passed just to help fund their retirement.
This money should be saved/invested in order to make it easier for the younger generation to support the baby-boomers after they retire. How could this happen? If the rest of the government budget was in balance then the current excess of Social Security contributions over payouts would result in more investment.
Here's how a surplus produces investment: an excess of Social Security contributions over payouts (assuming the rest of the government budget in balance) would be used to reduce outstanding debt. That means buying back bonds. That means more money in the hands of former bond-holders, who clearly were interested in saving the money, not spending it. To save that money they'd buy corporate bonds or stock, or put in the bank, etc., all of which would encourage more investment in real, productive assets. Investment now means increases in productivity in the future. A more productive younger generation would have an easier time supporting the soon-to-be-large number of retirees.
That's why it's important to look at the real deficit that does not include Social Security contributions in excess of payouts. The current deficits indicate that the government is spending far in excess of revenues, thereby more than offsetting intended Social Security saving. And, as the annual total deficit graph shows, the situation is not improving, even after a recession.
The reasons for the annual total deficit continuing at near-record levels — even after a recession — are not hard to find: (1) huge tax cuts; (2) Iraq war expenditures.
How could Reagan mistake the lowest national debt for the highest?
See the real US national debt graph here.
The most popular national-debt web sites continue the same confusions that caused Reagan to believe the national debt was higher than ever when it was at its lowest point since before World War II. Here is what you see when you look at the debt in nominal dollars.
The misleading nominal-dollar graph shown above comes from the Brillig site. That site has been reminded (via email) of the effects of inflation and as a result has corrected for it by adding the following graph. But this graph still ignores population growth and the fact that the country has gotten a lot richer in the last 50 years. The result is still tremendously misleading, but at least now you can see the Reagan rise and the Clinton dip.
The nominal Gross Domestic Product (GDP) takes all of these effects into account. It grows with inflation, population and increased income. By comparing the national debt to GDP, we get a fair check on whether it is growing or shrinking relative to what we can afford. That is why the White House web site give gross national debt as a percentage of GDP, which is what I have plotted on the page above.