Where were deficit scolds under Bush?
Paul Krugman, NYT
Martin Wolf has a piece in today’s FT making the case that (shock!) the deficit is not America’s biggest problem, or indeed a problem at all right now. His case is pretty much the same one I’ve been making; also, unlike Larry Summers yesterday, his piece doesn’t blur its point by starting with an extended exercise in dutiful deficit-bashing.
Wolf also puts this in the context of what has been happening to the private sector. As he says, the collapse of the housing bubble and a sharp rise in saving (due both to wealth destruction and to deleveraging) has led to a sharp movement from financial deficit to financial surplus in the private sector. Those who claim to be deeply upset about public sector deficits should be asked, what would have happened, given this attempt by the private sector to move into surplus, if the public sector had tried to stay in balance. Can you say Second Great Depression?
Meanwhile, via Mark Thoma I see that Robert Waldmann and Karl Smith have also gotten into the “what spending surge?” debate. Actually, here’s what may be the simplest way to see things. Here is total government spending (federal, state, and local) since 2000 on a log scale, so that a constant slope means a constant rate of growth. See the spending surge under Obama? Well, actually the reverse.
Yes, you can argue that spending was growing too fast under Bush, although it’s funny how few deficit scolds saw fit to mention that at the time. Or you can say that you just want less spending, although as always people who say this tend to be short on specifics. But the narrative that says that spending has surged under Obama is just wrong – what we’ve actually seen is a slowdown at exactly the time when, for macroeconomic reasons, we should have been spending more.