What Caused the Budget Deficit?
David Leonhardt has a nice article breaking down the sources of the growth in the budget deficit. Since Leonhardt works for The New York Times rather than USA Today, they didn’t see fit to illustrate his article with a pie chart, but I made one myself:
— “The first category — the business cycle — accounts for 37 percent of the $2 trillion swing.”
— Second, Bush-era legislation “like his tax cuts and the Medicare prescription drug benefit, [that] not only continue to cost the government but have also increased interest payments on the national debt.”
— Third, “Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000 [...] 20 percent of the swing.”
— Fourth, “About 7 percent comes from the stimulus bill that Mr. Obama signed in February.”
— Fifth, “only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.”
In other words, the very high deficits are not Obama’s fault according to any normal way of assessing political blame. That said, large deficits aren’t a moral failing that we need to hold someone accountable for. Rather, they’re a potential future practical problem that will have to be solved. Doing that will probably require a mixture of higher taxes, somewhat more hard-core health care reform that is likely to pass in 2009, and reductions in defense and possibly Social Security outlays. I don’t really find it especially surprising or alarming that nobody wants to vote for any of those things in 2009. After all, nobody who has to stand for election really wants to do any of that stuff. And the deficit isn’t a problem in 2009 and almost certainly won’t be in 2010. The main issue is whether Congress will be prepared to take tough measures when and if doing so actually proves necessary. Meanwhile, the health reforms being debated in congress will get us some of the way to where we need to be, and also hopefully lay the groundwork for further measures if the best hopes about what’s currently on the table don’t wind up materializing. The simple fact of the matter, after all, is that nobody really knows what the impact of something like comparative effectiveness research will be. It could save a lot of money, or it might not—we might just get healthier while spending a similar amount of money. But if we get it in place sooner rather than later, we’ll know and be in a position to act.
31 Responses to “What Caused the Budget Deficit?”
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June 10th, 2009 at 1:04 pm
Matt, repeat after me, Social Security is not the problem. Cutting funding for Social Security after three decades of raiding its coffers is merely a way of letting the terrorists win – somewhat like selling Dr. Tiller’s clinic to a radical anti-women group.
June 10th, 2009 at 1:12 pm
It’s disgusting that social security gets thrown in this list.
Since social security is in surplus, it doesn’t even fit the topic.
June 10th, 2009 at 1:18 pm
Obama Bernake & Bush Greenspan
June 10th, 2009 at 1:20 pm
Well, the memo from Jennifer said that Third Way wants it in there and that’s an order, so what choice did Matt have?
June 10th, 2009 at 1:22 pm
This is interesting analysis, but you’ve labeled the chart a bit wrong. It’s not just “sources of deficit”; it’s “sources of surplus elimination and deficit”. Eliminating everything in the chart would give us an $800B surplus, not a balanced budget as the post suggests.
It would be more interesting, I think, to see the Bush policies broken down a bit differently. How much is tax cuts, how much is prescription drugs, and how much is Iraq/GWOT spending?
June 10th, 2009 at 1:29 pm
I don’t think defense is the problem either. Obama plans on holding the defense budget constant in real terms (i.e. shrinking it as a percent of GDP). At a time when we have discovered that our cold war era weapons may not be well suited to war on terror era needs.
I suspect we all know the ways Social Security is/is not a problem. Regretably, the Greenspan social security tax increase goes in the “fool me once, shame on you” folder.
June 10th, 2009 at 1:33 pm
“In other words, the very high deficits are not Obama’s fault according to any normal way of assessing political blame.”
Of course the deficits are Obama’s fault according to the normal way of assessing political blame. Namely, revenue that is lost due to tax cuts for wealthy people and money spent on a ridiculously outsized military do not contribute to the deficit. On the other hand, money spent to educate poor people, keep them from going to emergency rooms for basic medical care, not to mention money spent keeping old people somewhat independent, leads to fiscal catastrophe.
June 10th, 2009 at 1:37 pm
I agree with MY here. I just wanted to second the idea that Sotomayor looks like a long-term, heavy drinker. Not that that has anything to do with anything, it’s just going around right now.
June 10th, 2009 at 1:44 pm
Thank god for this corrective.
I am so sick of hearing Republicans freak out about Obama spending. Obama’s spending isn’t a problem. If Reagan, Bush or the other Bush had spent like Obama, we’d have no deficit problem and we’d have better infrastructure, healthcare and energy, and we wouldn’t have thousands of troops pointlessly tied down in Iraq.
The only fiscal slam on Obama I can see is that thus far he’s proven insufficiently capable of cleaning up the fiscal catastrophe mess that 3 credit-card Republican presidents left him.
But, I’m sorry, the answer to undoing 30 years of conservative profligacy isn’t to shelve budget-neutral investments in things like healthcare and energy policy that have long-term returns. No matter how much Republicans like to scream that budget-neutral things will increase the deficit.
June 10th, 2009 at 2:13 pm
[...] Where’s The Deficit Coming From? 2009 June 10 tags: budget, current events, deficit, fiscal responsibility, Obama, pay as you go, politics, wordpress-political-blogs by Marc The NYT has a nice large graph illustrating the sources of the American budget deficit this year, which is really to large to be put on a page. Luckily, someone simplified it into a pie-chart here: [...]
June 10th, 2009 at 2:35 pm
[...] is well worth reading through the specifics. For those who prefer a quick visual summary, Matthew Yglesias has produced a handy chart to show where to place the [...]
June 10th, 2009 at 2:59 pm
The reason there is a deficit is that we borrow money instead of creating what is needed and constitutionally allowed. For more information, head this way.
http://www.monetary.org
June 10th, 2009 at 4:40 pm
[...] Yglesias has some nice comments on his blog about how the deficit is not some intrinsically moral issue, and [...]
June 10th, 2009 at 4:43 pm
Yes, Obama’s spending is a problem. Mortgage rates for conforming loans has leaped from 4 3/4% to 5 5/8% in a matter of days. Why? Because of this.
Don’t like Bush programs? Repeal them. Otherwise everything is on Obama’s watch, for which he is responsible. You might also note that the Times uses a deficit figure for this year of $1.2 trillion. Don’t believe everything you read, especially from the NYT.
June 10th, 2009 at 6:15 pm
Re: Mortgage rates for conforming loans has leaped from 4 3/4% to 5 5/8% in a matter of days. Why?
You are aware that mortgage rates fluctuate quite regularly, an blaming (or crediting) the president for this is absurd. If (as seems quite possible) this increase in the rate decreases demand for mortgages, then the rate will go back down again.
June 10th, 2009 at 9:55 pm
Brillant analysis.
So Obama spends even more money than Bush and is prepared to commit this country to massively increase our debt to GDP ratio over the next ten years…and it’s all Bush’s fault. I suppose when unemployment hits 11% (after we were told that the stimulus will halt it) that will also be Bush’s fault.
Could you guys give me a date when you’re going to start assuming a degree of accountability for your shitty policies. I mean, I agree, up to the this point, a portion of this was Bush’s fault. But you gave us projections, and those projections have (predictably) turned out to be completely wrong.
You know what, I’ll give you a date. Election day 2012. That’s when you guys are going to own this and the country will elect some nut Republican because you guys fucked up things worse than your predecessor.
You’re problem is that you think that everyone on the right (including people like me that are really on the right) are out to get you. That’s not the case. Some of us aren’t ideological…we call it as we see it. And when we try and tell you that your fucking shit up…you attack us personally. Well, I continue to provide you all good advice and you continue to dig your own graves…and mark my words you’re going to pay for this one for a while, because you won’t be able to blindly spend money with our finances so radically out of control.
Some of us warned you, you attacked us. The facts are now killing you.
Now we’re going to have to worry about some nut Republican getting into office with a deathwish to attack NK or Russia or God knows where. Thanks guys.
June 10th, 2009 at 9:59 pm
And JonF…Get a fucking clue. It is the President’s fault. You can’t just commit the country to massive spending programs with the Fed and Treasury begging people to finance our debt and not expect something to give.
You guys have no concept of the price you pay for your policies. You’re like some fucking South American dictator that thinks that by printing more money he can spend his way out of oblivion.
Why don’t you guys stick to FP and let the adults handle the economics.
June 11th, 2009 at 12:12 am
“You’re like some fucking South American dictator that thinks that by printing more money he can spend his way out of oblivion.”
Ah, the “South American Dictator” critique. Your use of it here, unfortunately, portrays you as doubly stupid. First, the people telling you what to think normally use this to criticize Obama for suggesting that he might prosecute the Bush Administration for approving in and engaging in widespread torture.
Second, the fact you would use the South American Dictator line proves you are a sucker of Rush’s Limbaugh’s flaccid rhetorical cock without the ability to comprehend even his most inane talking points.
June 11th, 2009 at 9:41 am
A lot of the blame for the financial crisis is put on individuals overspending their means (and rightly so) and it finally caught up to us..
Now we are doing the same thing at a federal level with massive spending programs.
It didn’t work for us as individuals and now it is going to work at a national level???
June 11th, 2009 at 10:14 am
Geez, Matt, you made “Recession” blue! Nice shot to our own goal there! The various components of the graph should be ideologically color coded (Bush policies red, Extensions to Bush policies purple, Stimulus light blue, Obama policies dark blue, and Recession the gray-ish color).
June 11th, 2009 at 11:00 am
[...] of Matt Yglesias, here’s a simple summary [...]
June 11th, 2009 at 12:13 pm
When bill clinton signed the north american free trade agreement.and the jobs left the good old U.S.A. Their are no jobs here because of this, the companies moved to slave labor,child labor .get the picture.cheap labor.
June 11th, 2009 at 12:18 pm
I an making a comment here because It really interest me to see such organzatonal racism. It really doesn,t matter If I am a democrat or republican it seems everyday I wake up to see one side attacking the other.I tell you I am really ashamed of our government and what it stands for.When you have a dictator talking to the american public commenting that our current polices are becoming more socialist and communist than his are I think a lot of people need to wake up. We are all brothers and sisters under the same roof. Whatever is happening to our personal freedoms when we have a government telling us what to eat wear,drive.how much money we can make. I can understand the younger generation not understanding. But a lot of our politicians are older and fought for freedoms. Have they forgotten how we got our freedoms. This country has been based on wars. This is how we got our freedoms and have retained them. Nobody likes to see people die this is just a fact of having freedom. Does anybody really believe that if we lay our arms down we will be able to glide through life like everything Hunky doory.Give me a break.Why are we debating torture and why is it all we see is how bad this is why aren’t we filming terroist torturing people cutting their heads off maybe this would be a better torture for our terroist freinds. I just dont get it. I will end by saying all you who think your above what can happen to you better think again I am talking all the power holders oil barons, companies. Industry giants beware if you think you cant be overtaken.You make this country what it is employing people and keeping things at an even kilt wake up to whats happening at your front door.
June 11th, 2009 at 2:05 pm
Uhm, thanks for the nonsensical comment. I am not sure if it is serious or parody.
June 11th, 2009 at 5:01 pm
brewmn,
For your information I can’t stand Rush Limbaugh.
With respect to my comment…let’s see:
Can you answer the question, how are we financing the spending that we are engaging in? The answer is, we’re printing more money! Funny, isn’t that what Venuzeula does…or let’s not go down the dictator road…how about Argentina? Or Mexico? So my apologies, we’re like a Latin American banana republic. Take your pick of which one.
As to the torture stuff, no, don’t really see how that has anything to do with South American dictators since they’re the guys usually doing the torturing. That would make the previous administration like a South American dictator if you were to examine it from that angle. And to the extent that the Bush Administration broke the law, by all means, the Obama administration should prosecute them. However, all of these guys are in bed with one another…so don’t hold your breath. I imagine that when the Obama Justice Department decides not to prosecute anyone, you’ll be one of the principled folks out there in front of the White House. Or don’t you have the time?
June 11th, 2009 at 7:54 pm
[...] Read all about it! This entry was written by tommer and posted on Thursday, June 11, 2009 at 4:53 pm and filed under Research and Background, Uncategorized with tags Public Policy. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL. « REPORT ON WHITE HOUSE BRIEFING ON ART, COMMUNITY, SOCIAL JUSTICE, NATIONAL RECOVERY [...]
June 12th, 2009 at 5:31 am
[...] "causes" of the budget deficit has been widely reported and the bottom line repeated many times: President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the [...]
June 12th, 2009 at 9:55 am
[...] at the analysis another way courtesy of Matt Yglesias here’s how it looks as a pie [...]
June 12th, 2009 at 10:19 am
[...] 12, 2009 by Pedro Mota Santos Achei piada ao pie chart do Matthew Yglesias sobre as principais motivações do aumento do deficit americano. É muito actual porque já tem a [...]
June 12th, 2009 at 10:26 am
For the Reich wing nut jobs in case your interested Ray Gun Ronnie,Bush 1,Clinton and the Shrubs deregulation and free trade agreements have put this country into a downward spiral of GREED.As for the current defecit, the SHRUBS fine work in Iraq has put us where we are today as he went thru Clinton`s $275 billion surplus in heart beat,$10 billion a month in Iraq,tax cuts for the wealthy that since has not created on f ing job and his blatant lack of oversight of Wall St. and letting it bleed the average American of it`s jobs,homes and health care are despicible.Obama took on this job and needs to spend,just look at what the New Deal was accomplishing until F.D.R caved into the RE-PUKES who were wooried about spending and helping Hitler take over Germany.
June 16th, 2009 at 7:20 pm
[...] office in 2001 to a $1.2 trillion deficit currently estimated for this year (via Freakonomics and Matthew Yglesias). That’s a $2 trillion swing in yearly spending – in just over 8 years. It’s [...]