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Monday, February 01, 2010

Huge Deficits May Alter U.S. Politics and Global Power

By DAVID E. SANGER
NYT

WASHINGTON — In a federal budget filled with mind-boggling statistics, two numbers stand out as particularly stunning, for the way they may change American politics and American power.

The first is the projected deficit in the coming year, nearly 11 percent of the country’s entire economic output. That is not unprecedented: During the Civil War, World War I and World War II, the United States ran soaring deficits, but usually with the expectation that they would come back down once peace was restored and war spending abated.

But the second number, buried deeper in the budget’s projections, is the one that really commands attention: By President Obama’s own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 — years after Mr. Obama has left the political scene, even if he serves two terms — they start rising again sharply, to more than five percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.

For Mr. Obama and his successors, the effect of those projections is clear: Unless miraculous growth, or miraculous political compromises, create some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors. Beyond that lies the possibility that the United States could begin to suffer the same disease that has afflicted Japan over the past decade: As debt grew more rapidly than income, the country’s influence around the world eroded.

(More here.)

4 Comments:

Anonymous cheap r4ds said...

Reagan ran up terrifying deficits and the Republicans never blinked. It took a Democratic President Clinton to put this country back in the black.

4:39 AM  
Blogger Patrick Dempsey said...

You couldn't be more wrong. Reagan's deficits were short-term deficits as a result in cutting taxes and deregulating the economy. By the time Clinton assumed office and the full weight of Reagan's reforms were in effect, the money was rolling in to the Treasury and Clinton left office with a surplus. In Clinton's defense, though, he was a good steward of the economy because he didn't really do much to it other than his 2993 stimulus bill. Not even Clinton's tax increases could derail Reagan's reforms. But, the cumulative effect of 20 years of stimulus packages and free money backed by the federal government is what derailed everything. Now, Obama's deficits (and Bush's for that matter) are spending deficits which only prevent growth because so much has to be diverted from the private sector to fund the government.

Reagan did have to deal with a spendthrift Democrat Congress, but the majority of his reforms came to fruition in the 1990s and early 2000s. So, it's not like there were any other Republicans in positions of power in the 1980s Congress. You must have been sleeping in history class or something.

You have to realize there are two types of deficits - a deficit as a result of cutting taxes and a deficit as a result in increased spending. The first is a healthy deficit because the future growth as a result of the reduction in taxes pays that deficit back - as you saw under Clinton. The other is the worst form of deficits imaginable because increased government spending does not lead to sustained economic growth. Spending deficits stifle growth. If the other form of deficits were so good, Eastern Europe and the Soviet Union should have been economic juggernauts in the latter half of the 20th century.

7:41 AM  
Blogger TM said...

Some facts:

Reagan added $2 trillion to the national debt
Bush I added $1.4 trillion
Bush II added $5.6 trillion
The current debt (est.) is $12 trillion
(2+1;4+5.6)/12 = 75%
So 3 Republican presidents are responsible for 75% of the national debt.

1:56 PM  
Blogger Patrick Dempsey said...

As I said, the Democrats controlled Congress under Reagan and Bush I. To absolve the Democrats of any fiscal profligacy during that time is ignoring the obvious. But, you make the fatal assumption that the Bush's were conservatives. They were not. Bush II was a light socialist whose policies I railed against as a member of the UofM Policy Forum in 2004/2005 to the certain praise of Tim Penny who told me 'Patrick, you are unlike any other Republican I know - far more critical of your own party than anyone else I know' to which I responded 'Tim, that is because I am not a Republican'. Compassionate Conservatism is just a euphamism for Big Government Republicanism and the engine of that 'compassion' is increased government spending.

Democrats and Republicans are equally culpable and we can go round and round and play blame games and play 'gotcha' politics. I won't. But, I will say that the reality is the deficits due to a reduction in taxes is a short term deficit later resulting in expanded economic growth to which both LBJ and Clinton could aver. Spending deficits under Bush43 and now Obama will continue to stifle growth and crowd out investment leaving only government expenditure in place. That is not a recipe for a health economy. Take out the government component from the Q4 GDP numbers and you have negative growth. That is the reality of spending induced deficits.

8:00 PM  

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