Another Way to Explain "Deficit Spending, the Debt", a Balanced Budget Amendment, and Zen-Part 1 [165*10]

PUBLIC DEBT ACROSS ADMINISTRATIONS AND CONGRESS'

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OOOHHHHUUUUMMMMM

I WAS THINKING ABOUT DEFICIT SPENDING the other day (boy, I lead a boring life, don't I) and came up with what I think is a different way to expain why President Obama faced such a challenge after assuming office. What I want to do is present a hypothetical situation which strips away a lot of the "noise" that hides part of the real issues which faced Obama on February 1, 2009.

Let us assume, for grins and giggles, that when President Obama took office, the American economy was in Conservative heaven, other than the worst recession since 1937 was about to take place. To begin with, pretend there was/were:

  • no DEBT on January 1, 2008; America didn't owe a dime to anybody, which has occured servaral times in our history.
  • no Budget DEFICIT on January 1, 2009; in other words, tax revenue each year exactly equaled cash outlays for all government discresionary and non-discresionary programs.
  • a Balance Budget Amendment in place similar to the on proposed by the Conservatives
  • no additional increases in outlays planned for outyear budgets.

Assume further that the all of the precursors to the 2008 recession have taken place and the recession started as it actually did, in late December, 2007. I will also use actual budget numbers from that period.

 
Revenue (2005 $T)
Outlays (2005 $T)
Deficit (2005 $T)
Debt (2005 $T)
2007 (Bush)
$2.41
$2.41
$0
$0
2008 (Bush)
2.29
2.41
-.12
-.12
2009 (Obama)
1.90
2.41
-.51
-.63
2010 (Obama)
1.93
2.41
-.48
-1.11
2011 (Obama)
2.00
2.41
-.41
-1.52
TABLE 1

Note that the Revenues in the table above are real. The actual Outlays for 2007, in 2005$, was $2.57 trillion, however, I am going to pretend we have a balanced budget and limit spending to $2.41 trillion. OK, what can we discern from this simple table, given a starting point every conservative, every American really, would like to start from in 2008?

  • Without lifting a finger, Bush finds himself with a $120 billion deficit and debt of the same amount by the end of his term
  • Obama, if he let's the recession run its course and it miraculously follows the course it actually did, will have a budget deficit of $410 billion and a public debt of $1.5 trillion ... just by sitting there and doing absolutely nothing! (in reality, if he were to have done that, the deficit and debt would be much, much larger because the recession would have deepened)

But wait, there is more interesting things to add ... like interest on the debt. Let's readjust our table to account for this new variable, assuming a 3% interest rate.

 
Revenuess (2005 $T)
Outays (2005 $T)
Deficit (2005 $T)
Interest (2005 $T)
Debt (2005 $T)
2007
$2.41
$2.41
$0
$0
$0
2008
2.29
2.41
-.12
0
-.12
2009
1.90
2.41
-.51
-.0004
-.6304
2010
1.93
2.41
-.48
-.019
-1.13
2011
2.00
2.41
-.41
-.039
-1.58
TABLE 2

Now, President Obama has an additional $58 billion problem just because of interest on the new debt.

Keep in mind this $1.58 trillion is 39% of the $4 trillion increase in the public debt President Obama is getting blamed for being the cause. The question is, "where did all of this new debt and budget deficit come from?" It certainly wasn't from excess government spending because that was one of the assumptions, Obama could not spend any additional dollars beyond those in 2007. Since I have kept this example very simple, I have left you only one other choice - "the loss of tax revenue resulting from the recession."

That is quite a number, that 39%. What is more, it really does reflect reality even though the situation I presented appears to be artificial! Why? Because, I structured it such that, for this type of analysis, i.e., considering the effect of revenue loss, it is not. It is not, because I isolated revenue's influence and I used a real-life starting position and a real-life revenue stream From there, I held everything else constant to see what happens.

And what happened was pinning approximately 39% of Obama's debt problem directly to the loss of revenue caused by the recession from the previous administration; this amount of debt was going to happen regardless of what President Obama, or any other President, did or didn't do.

Now, let me walk that last paragraph back a tiny bit by saying that IF revenue loss were the only factor being considered, then the word "regardless" is somewhat overstated because there are possibly actions a president might have been able to take to mitigate the harm. However, there were other factors. One of those factors, unemployment, falls into the same category as revenue loss..

ECONOMIC STABILIZERS

UNEMPLOYMENT PAYMENTS IS JUST ONE component of a set of economic measures which automatically come into play when the economy goes south; together they are called "economic stabilizers". Unemployment, food stamps, and other welfare support system automatically kick in when masses of people begin losing jobs. They are not anything a President or a Congress have control over, in the short run; they will happen.

So, let's add them to our table and see what happens. (These are CBO data their study called, appropriately, "The Effects of Automatic Stabilizers on the Federal Budget", April 11, 2011.)

 
Revenues (2005 $T)
Outlays (2005 $T)
Deficit (2005 $T)
Economic Stabilizer (2005 $T)
Interest (2005 $T)
DEBT (2005 $T)
2007
$2.41
$2.41
$0
$.003
$0
$.003
2008
2.29
2.41
-.12
-.024
0
-0.14
2009
1.90
2.41
-.51
-.286
-0.004
-0.93
2010
1.93
2.41
-.48
-.324
-0.028
-1.76
2011
2.00
2.41
-.41
-.288
-0.053
-2.52
TABLE 3

Sooo, what have we now discovered on our little sojourn into my world of numbers, data, and analysis, far from the reaches of sound bytes and hyperbole? We have determined that there are two sources of new debt that will occur for any economic downturn for which subsequent politicians have no control, they are:

  1. The increasing deficit and debt resulting from the loss of tax revenue do to the slowing economy
  2. The increasing "economic stabilization" costs resulting from the economic impact of large job loss across the country.

As a consequence, we discovered that for the 2008 recession, using the applicable numbers, there is a minimum of $2.5 TRILLION in new debt that was going to be attributed to President Obama regardless, for the most part, of what he did, good or bad or not at all! $2.5 Trillion folks, out of the $4 Trillion is what he is erroneously being pummeled with!!

Said another way, one of President Bush's long-term legacies (actually I don't blame Bush, the man, rather, I blame the conservative economic system) is a $2.5 trillion bill to pay as a result of conservative economic policies put in place over the previous 14 years (including the 6 years conservatives had total control of Congress under Clinton). Because this debt, this $2.5 trillion, is a function of the recession, and not subsequent Executive or Congressional activity, it therefore needs to be taken off the table in any intelligent discussion of how President Obama has handled the recovery and fallout after the nuclear explosion did its damage.

OK, so what are we left with? $1.5 trillion, of course. An interesting number that is for it is roughly the amount of stimulus Obama was able to get through Congress to prime the economy, in accordance to Keynesian economic theory. It is this debt for which Obama must be judged a success or failure; the remainder is simply a present from the Conservatives.

WHAT DO YOU THINK?

Do You Believe The First $2.5 Trillion of the $4 Trillion Debt is Due to President Obama's Policies?

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DEMOGRAPHIC SURVEY #1

Do you consider yourself more closely aligned with the

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DEMOGRAPHIC SURVEY #2

Are You

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Comments 4 comments

HSchneider 4 years ago from Parsippany, New Jersey

You are attempting to debate Republicans with pesky little things called economic facts, My Esoteric. I am sure you will hear just the opposite tonight at the GOP convention. Facts cannot replace conservative demagoguery (actually outright lies). I applaud your efforts and I hope many open minded independents read this. Bravo.


My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Thanks HS. I am under no illusion those on the Right will probably blow this off as a pack of lies, but those who are SDOs among them, know it is the truth argue the opposite because they must, or switch sides. The RWAs amongst them rarely stop to analyze anything and only take the word of the SDOs.

It is those on the Right who do not fall into one or both of those categories (and there are many), and independents who I hope find this, and Part 2, useful and compelling.


famattjr profile image

famattjr 4 years ago from Madison, New Jersey

You will notice that conservatives always refer to the amount of accumulated national debt added under Obama's tenure, rather than pointing to expenditures/revenues. The reason is that they realize (I assume they are smart enough to) that a great deal of the increased debt is due to falling revenues due to the Recession and the increase in the countercyclical spending (automatic stabilizers) which were basically baked in the cake before Obama took office, such as Federal contributions to unemployment payments. One of the tragedies of the Bush deficits is that the debt already accumulated by the time Obama took office left less room for fiscal policy, in that people looked at the amount of the debt and just recoiled from it. Note that people also often refer to the total debt, which is now something like 16 trillion instead of debt held by the public which is around 11, and the latter is a better gauge of the actual debt. Obama has actually decreased non-defense discretionary spending. The big expenduture was the "stimulus" which was around 800-900 billion but spread over 3 years, (and 40% of it was tax cuts) as against a budget of what, 5 or so trillion. And as Jared Bernstein, I think it is, ,points out, such a non-recurring expenditure is less debt-producing because it fades away. A tax reduction, on the other hand, which in our environment is hard to get rid of, produces a loss of revenue year after year.


My Esoteric profile image

My Esoteric 4 years ago from Keystone Heights, FL Author

Thank you for your comment, Famattjr, your synopsis is perfect. I keep looking for metaphors to describe what Obama faced and Conservative reaction to it to help people understand the delimma he faced and the position Romney/Ryan have taken in characterizing Obama's performance.

I liken it to the Conservative economic policy pushing this enourmous boulder over a crest and starting it rolling downhill to a valley far, far, below with a town in the way. Just after the boulder starts rolling, Obama is elected and begins trying to stop it before it hits the town; remember this is a really big, heavy boulder the Conservatives started on its destructive path.

Momentum being what it is it is really, really hard to stop the boulder, wouldn't you agree? Well, Conservatives don't. In any case, there is Obama running downhill along with the boulder trying to get out ahead of it with Mitch McConnell and John Boehner sticking out their feet trying to trip him up, just as they promised they would do; making a very difficult job almost impossible, that was their plan after all wasn't it.

Now, almost four years later, the boulder as stopped rolling, much latter than it should have if the opposition had helped instead of hurt. It didn't wipe out the town, but the boulder laid waste to everything up the hill which was still suffering from being smashed and are still sliding downhill from being dislodged by the Conservative boulder; something Romney/Ryan are trying to pin on Obama.

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