Keith Hennessey

A decade of spiraling deficits

Last Friday while speaking at the University of Nevada, Las Vegas about the economy, President Obama said:

And these were all the consequence of a decade of misguided economic policies — a decade of stagnant wages, a decade of declining incomes, a decade of spiraling deficits.

I want to focus on that last phrase:  a decade of spiraling deficits.

The best way to compare deficits over time is as a share of the economy.  This first graph shows budget deficits during President Bush’s tenure.  On this graph deficits are positive, so up is bad.  The dotted green line shows the average deficit since 1970 for comparison (2.6% of GDP).  As always you can click on the graph for a larger version.

Bush deficits

This graph does not show “a decade of spiraling deficits.”  It instead shows eight years of deficits averaging 2.0 percent of GDP, followed by a horrible ninth year as the markets collapsed and the economy plunged into recession.  (Budget wonks who want to understand why I think we should look at nine years for a Presidency rather than eight can read this.)  Even 2008’s bigger deficit than 2007 can be mostly explained by a revenue decline as the economy slipped into recession pre-crash.  Before the crash of late 2008 President Bush’s budget deficits were 0.6 percentage points smaller than the historic average.  Deficits did not “spiral” during the Bush presidency or the decade.  The bumped around the historic average, then spiked up in the last year.

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