National Debt Graph by President

This graph was made from unmodified data straight out of G. W. Bush’s Office of Management and Budget (up to Obama and except for the green line).  (Why graph Debt / GDP ?)

Reagan took some economics in college, and he really did want to reduce the debt. But he got snookered by some Wall Street “economists” who told him he could have his cake and eat it too. They had a brand-new theory that said the government can collect more money by reducing taxes. Wouldn’t that be nice! George H. W. Bush found this a bit hard to swallow and called it Voodoo economics.

What’s supply-side (voodoo) economics, and where did it come from?

In 1981, the supply-siders commandeered the Reagan’s budget process and employed their Voodoo economics — cutting taxes to increase revenue. But just as Bush (and pretty much everyone) had predicted, it didn’t work. Instead, as you can see from the graph above, they turned a 32-year winning streak into a debt disaster that continues to this day. George Bush the First started reversing these policies and Bill Clinton continued with an even stronger reversal. But George Bush the Second, at Cheney’s urging (“Reagan proved deficits don’t matter”), went right back to the voodoo. 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.

What’s causing today’s huge deficits? Deficit basics. Top 4 deficit causes.

Currently, supply-siders are still in control of the Republican party, and they will do this again if given a chance. But remember, this is not traditional balanced-budget conservatism. Reagan always said he would balance the budget, but that was based on the supply-side theory of “cut taxes to raise revenue.”

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 was responsible for the turn-around from surplus to deficit soon after he took office, but not for the impact of the recession on the budget.) Nonetheless, 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 (1)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?" 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.

 What will happen when Mitch McConnell takes over the Senate?


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References   [ + ]

1. 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?"