Tuesday, February 9, 2010

The Deficit Problem

      I need to write about one more situation in my sermon concerning Barack Obama’s handling of the current recession: I realize that continued government spending to create jobs and pull us out of this downturn will entail running up deficits.
      First a little history: During the period 1900 - 2010 the federal government has ended the year with a surplus 33 times and a deficit 78 times. There were five successive surplus years from 1900 to 1904, eleven from 1920 through 1930, and four from 1998 through 2001.
      I believe a fair way to compare the size of the deficits is by ranking them as a percent of Gross Domestic Product. Not surprisingly, of the top 20, seven of them occurred during the war years 1918–1919 and 1942–1946. Five of them occurred during the Reagan years 1982-1986, and three of them occurred during the Bush-41 presidency. Only two occurred during the “runaway spending” years of the Great Depression. One occurred during the Carter presidency, and the other two were in 2009 and 2010.
      I do not mean to suggest that deficits are a good thing – only that they are not unusual. However, no less a person than Dick Cheney has said, “Reagan proved deficits don't matter.”
      As a matter of fact, during the Bush-43 years not much was heard regarding deficit spending. Coincidentally(?), during those years government spending increased an average of 5.3% - the biggest year to year increase since “guns and butter” Lyndon Johnson’s average increase of 4.9%. Even Reagan’s increases averaged only 1.9%; his deficits resulted not so much from spending increases, but more from tax cuts.
      When conservatives favor deficits, it is for one of two reasons:

1.) Tax cuts free up money for investors, which stimulates the economy.
2.) Tax cuts “starve the beast” i.e. eventually the deficit will get so bad that the government will be forced to drastically cut spending.
      Whatever the reason, the bill will eventually come due. However, in all the years of greatest deficits as compared to the GDP, good times managed to pay it off. The longer the recession, the more sacrifice it will take to make it up. The question is not “can we afford a jobs stimulus?” it’s “can we afford not to have one?”
      For this reason, Obama’s number one priority, to which he is now giving lip service, is, to paraphrase Bill Clinton, “It’s the jobs, stupid.” To people who have no income, no amount of tax cuts will enable them to buy anything.
      For those number-oriented readers, the following chart lists the top twenty years in which deficit spending was highest as a percent of Gross Domestic Product:

YearDeficit %Responsibility
194328.05War
194524.06War
194422.35War
191916.86War
194212.04War
191811.88War
201010.64Obama
20099.92Bush-43/Obama
19469.05War
19835.88Reagan
19855.03Reagan
19864.96Reagan
19364.76Depression
19844.71Reagan
19924.58Bush-41
19914.49Bush-41
19354.12Depression
19764.04Carter
19823.93Reagan
19933.83Clinton

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