Apportioning Blame for the Deficit

David Leonhardt's column breaking down the "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 deficits, despite what many of his Republican critics are saying.

I have two problems with the analysis.  First, the NYTimes' excellent graphics department this time goes overboard with a big and difficult to read chart.  Matt Yglesias does much better summarizing the point with that old standby, the pie chart:
Deficit
Second, although not "wrong" the Leonhardt's analysis doesn't reveal the arbitrariness of this way of apportioning deficit blame.  

The reason why the hundreds of billions of dollars of spending in Obama's agenda is said to be responsible for only a "sliver" of the deficit is that the agenda also includes taxes, thus the net effect is low.

Now Obama deserves kudos for a more honest budget process.  Indeed, if the only choices are the tax and spend party and the no-tax and spend party then I prefer the former for both economic and political reasons.  Thus as political accounting Leonhardt's conclusion is reasonable.

I suspect, however, that many people will not see that the economic accounting is arbitrary and potentially misleading.  To see why, imagine that President Bush increased taxes in the last days of his administration and Obama increased spending in the first days of his administration.  We would then be in exactly the same economic position as we are now but everyone would be writing about how "Obama's ambitious agenda is responsible for a large portion of the deficit."  In other words, if it were not for Obama's spending, the deficit would be hundreds of billions of dollars lower. 

Washington is all about political accounting but we should not be misled into thinking that because Obama's agenda accounts for only a "sliver" of the deficit that this makes it a modest or cheap agenda.  The agenda is big and expensive and every dollar of spending is a dollar that adds to the deficit.  

Comments

I would add at least two points. First, the Democrats wanted a larger Medicare prescription drug benefit and also they claimed credit for the idea when Bush implemented it. Should that count on the Bush ledger alone? That is just one example of many.

Second, Obama and co. have the option of repealing many of the expensive, deficit-increasing programs which preceded them. If they don't do so, you could say they get "credit" for them all over again. Overall, the shares of the pie add up to more than one.

I think the Republicans' recent narrative about "Obama's deficit" hasn't really been about doing that kind of repeal, Tyler. They've positioning themselves for future elections, the budget be damned.

They should get back on track, because if they aren't going to be the party who seriously promotes cost cutting, and not finger pointing, who will?

If Bush had tried to raise taxes at the end of his term, he would deserve some credit, wouldn't he? Isn't one reason he is held in low esteem in many quarters his unwillingness to pay for spending he approved of?

I don't think that is much of an argument.

It's also misleading in that the red, orange, green, and gray ALL need to be hacked, and they helped cause the blue.

And, deficits don't matter, except for sustainability of the government. If your grocery store was running at a deficit, you'd be ecstatic, for a while. What matters to the economy is government spending. But, they don't believe this, only see things in partisan shades, so no hope in seeing that analysis.

Second, Obama and co. have the option of repealing many of the expensive, deficit-increasing programs which preceded them. If they don't do so, you could say they get "credit" for them all over again. Overall, the shares of the pie add up to more than one.
Aw, hell, I was going to make that point!

It does seem to ignore that money is fungible. It's as if Obama married a profligate spender with huge debts, and went out to get a second job to pay for a new car. Sure, he's paying for the car, but the debts and the future obligations are still there. We have to pay for what we already have first, even if he isn't the one that bought it. In addition, by extending the Bush tax cuts for the majority of taxpayers, he's bought in to the irresponsibility in exchange for votes. Obama's a great guy, but he's continuing the tradition of extreme deficit spending.

Blaming certain politicians for the deficit works on the assumption that deficits are always bad.

Obama came into office wanting to stimulate the economy with fiscal policy. If the deficit is extinguished with taxes, the stimulus will fail.

Certain policies like the Iraq war are amazingly costly to stop. Sure Obama could pull out (even) earlier than he is planning on but, there are moral and practical costs to doing so. In a similar way it is more costly in terms of political resources to stop raise taxes or stop a bad policy than it is to initiate a good policy. Obama campaigned on raising taxes on the rich. He was very clear about that, and elected not to do so because of the recession.

I don't particularly understand the usefulness in distinguishing between "Bush Policies" and "Extension of Bush Policies." I realize that the "Extension of Bush Policies" require legislation to keep going each year (in the case of the AMT patch, this is also a "Extension of Clinton-Bush Policies," as it's been going on for a long time), whereas the other ones don't.

But eventually, with the presidency and supermajorities in Congress, any Bush policy that's not repealed or changed, Obama and the Democrats are going to own and be responsible for as well. They're choosing to extend it.

And certainly there's a difference between cutting taxes when the 2012 budget outlook 11 years in the future shows a $800 billion surplus (and if that was never realistic, which it might not have been, then it shouldn't be used as a starting point) and making the situation worse when the budget outlook already shows a $600 billion dollar deficit in 2012 three years from now.

The bottom line is that Mr. Obama's administration continues to add to the deficit with no intention to ever pay it back.

In summary: "If you cannot solve a problem, - make it bigger".

Obama's part comes in the future: average deficits of $1 trillion over the next ten years. If this continues for two terms, Bush's policies will pale in comparison.

And, I don't care who's done more damage than who. I don't want to double the national debt by 2019.

Are these pie chart people the same guys claiming a vast right wing conspiracy because a conservative economist thought a doubling of prices over ten years was a 10% inflation rate rather than 7%?

It is misleading to use the projected (in 2001) surplus of 800 billion as the reference point from which to attribute the sources of the projected deficits now. The reason is that maintaining a large long term budget surplus is not the optimal situation. If there is a large surplus then either the government should do something useful with the extra revenue or decrease taxes. Collecting tax revenue and not putting it to use does not do any good.

The misleading part is to refer to "Bush" policies and "Obama" policies with regard to tax and spending. Congress controls tax and spending. If you want to talk about political accountability, at least look at the right elected body.

I also have a huge problem accepting the starting assumption that there was a magical surplus at the beginning of the Bush administration. Historically, budget projections have never been very accurate because fallible humans can not predict the future. In 1995, Clinton's own OMB predicted deficits of several hundred billion dollars in 1999. Instead, because of spending restraint, low oil prices, increased productivity and the internet boom we had the happy arrival of a bouncing baby surplus. A creature not seen in public since 1969.

Clinton would have been labeled fool if he had predicted such an outcome.

All one can say at present is, all else being equal, we know the path where current projections are leading. Given that we can not predict bad things like Katrina or 9/11, we have no margin for error. In my mind, that is the great risk that Obama and the Democrats are taking. By allocating all the potential slack in borrowing, he leaves us at the mercy of any emergency.

Sorry ma'am, we can't give you your income tax refund this year because we have to spend $500 billion to rebuild San Francisco. Hey, South Koreans, your on your own to handle that North Korean collapse, we have to provide General Motors with another $100 billion subsidy for the green cars they can't sell.

First fun fact: Reagan, Bush, and Bush added twice as much Federal debt in two decades as all the other presidents added in two centuries.

Second fun fact: the economy killing, job killing Clinton tax hikes that were piled on the tax hikes that caused conservatives to vote against President Bush and as a result elect Bill Clinton, set the stage for the longest expansion in US history and the creation of 22 million jobs over the eight years of the Clinton admnistration. That is in round numbers 200,000 jobs added on average every month Bill Clinton was president.

Third fun fact: the economy stimulating, job creating Bush tax cuts in 2001, 2003, 2006, and 2008 created on average 1000 jobs per month while Bush was president.

Fourth fun fact: Reagan's tax cut kicked off the deepest recession prior to the present recession; the up turn that ended the recession and started the longest expansion up to that point in US history was kicked off by Reagan signing his first two of a half dozen major tax hikes. Those tax hikes stimulated the creation of about 16 million jobs over his term, or about 150,000 jobs per month.

Fifth fun fact, Jimmy Carter and Bill Clinton with their economy crushing, job killing, high taxes saw nearly twice as many jobs
created (33M) in their 12 years in office as were created in the 20 years that Ron Reagan, HW Bush, and W Bush were president (18M).

Sixth fun fact: The expansion that ended the depression occurred when Hoover signed a big tax hike FDR used to fund government spending, and was sustained by a tax hikes in 1934, 1935 ("Soak the Rich" tax), and 1936 to fund added government spending, government spending on infrastructure producing revenue seven decades later. (The 1937 recession occurred when government investment spending was cut, not after a tax hike.)

Can anyone point to a tax cut that led to job and economic growth, and a tax hike that led to a reduction in economic activity and employment?

Mulp-

By fun, I take it you mean fantasy, right?

mulp, I'm pretty much with you when it comes to ideological persuasion, but your "analysis" is incredibly simple-minded and ignorant. It's full of post hoc fallacies and simple statistical lies.

Well, that is how science works: take the facts and analyze them.

You have every right to present added facts that show that my simplistic and ignorant analysis is wrong. But you neither refuted any of the facts, nor you come up with a better reason for the expansions occurring than the tax increases which preceded the three most robust expansions in the past century.

Merely denouncing my presentation of facts and calling me ignorant is about as convincing as those who argue that the moon, sun, stars revolve around the earth because that is what everyone knows is true, and that is the only thing that makes sense.

Meanwhile, the same day this thing comes out, Arthur Laffer gets to write an op-ed in the WSJ about future inflation--this is the man responsible for the most dangerous napkin in human history. He has been proven about as right as Lamarck and his influence has been as pernicious as Lysenko. Is there any evidence of his idiot nostrums working any place with a marginal tax rate south of 85%, if that?

LACK OF ESTIMABILITY FOR MOST CATEGORIES.

For example, in causation
Bush Policies --> Recession --> Stimulus
Only hermeneutics will separate these for a pie chart.
You could say,
given how well "Bush Policies" explain the deficit,
is there any information left for "Recession" to explain the deficit.

Many would say that without the "Bush Policies"
(with their ensuing recession, bailouts, continuing programs, and implied stimulus),
we would currently have no large jump in the deficit.
Indeed, to attribute the deficit to the "Obama Agenda"
would be like putting a man on a chair and a noose around his neck,
then concluding that his death ten hours later arose from his own actions.

You could argue that the man should starve (GDP dive) rather than hang (have large deficit). Having made his choice, we blame him for hanging (have large deficit) rather than for starving (GDP dive).

To Mulp
Reagan inherited the Carter mess: high unemployment, high inflation. The Fed moves to control inflation kicked off a deeper recession, one worse then the current recession. Who knows how many jobs Reagan "saved" when he had a Fed pushing the economy into a recession rather then the current Fed pushing the economy to expand. The Reagan tax cuts and reductions in regulations reversed the extreme decline of the Carte years and did it while fighting record inflation.

The fact that Reagan policies tried to starve the beast (Congress) with debt isn't a problem for me. How you spend the money is more important then if you ran a deficit. The investment in defense offers long term benefits.

Clinton was lucky to have a big tax reduction in the form of lower energy costs. Add NAFTA, welfare reform, growth in the third world, plus the economy was rebounding from a mild recession even before Clinton took office: right place at the right time. Plus the peace dividend of the Reagan years allowed Clinton to ignore defense spending (as he largely ignored the growing terrorist threat.)

Bush 41 raised taxes, increased spending and helped create a recession that removed him from office. Bush 41 worked more with Democrats then Republicans.

BTW when do Democrats go along with tax cuts, when the government is in slow growth mode. You have causation going the wrong way.

Bush 43 threw money at education, increased government expenditures on health care, let Republicans in Congress spend like Democrats, And don't forget that the economy was in recession when Clinton left office. Looking back the Bush 43 growth record was poor, in part, because investment in real estate grew at reckless levels. If some of those investment had been made in other sectors of the economy we might have seen greater growth in the economy. But how do you blame Bush for the mania that became real estate investing? (Don't forget Democrats were pushing housing investment.)

And you don't have a clue about the Great Depression.

"imagine that President Bush increased taxes in the last days of his administration and Obama increased spending in the first days of his administration. We would then be in exactly the same economic position as we are now but everyone would be writing about how "Obama's ambitious agenda is responsible for a large portion of the deficit." "

And if my aunt had male genitalia, she'd be my uncle. The problem with this counterfactual is that it is completely obvious: if Bush *had* increased taxes to pay for his spending, then his responsibility for the deficit *would* have been less. If Obama wasn't insisting that his major spending plans must have defined funding sources, then he *would* be responsible for more of the deficit. But Bush didn't, and Obama is, and there's nothing left of your conclusion.

If you want to set up a critique that Obama's proposed spending is not something that we should want to fund, make that critique and make it honestly. But taking a plan that at least attempts to be responsible and trying to tie it to the legacy of past irresponsibility is just intellectual sleight of hand, and leaves me less convinced of your point rather than more.

Okay, mulp. Here you go.

Reagan, Bush, and Bush added twice as much Federal debt in two decades as all the other presidents added in two centuries.

Statistical lie. While it's true they added more in dollars, that's not a significant measure of the debt - the real question is how the debt measures up to GDP, and as you can see WWII easily beats this. [http://upload.wikimedia.org/wikipedia/en/3/3b/USDebt.png]

Second fun fact: the economy killing, job killing Clinton tax hikes that were piled on the tax hikes that caused conservatives to vote against President Bush and as a result elect Bill Clinton, set the stage for the longest expansion in US history and the creation of 22 million jobs over the eight years of the Clinton admnistration. That is in round numbers 200,000 jobs added on average every month Bill Clinton was president.

Post-hoc fallacy, and oversimplification to boot. The expansion under Clinton was a result of many factors working together, and had very little to do with Clinton's policies.

Third fun fact: the economy stimulating, job creating Bush tax cuts in 2001, 2003, 2006, and 2008 created on average 1000 jobs per month while Bush was president.

See above - the "jobless recovery" was a result of many different factors.

Fourth fun fact: Reagan's tax cut kicked off the deepest recession prior to the present recession; the up turn that ended the recession and started the longest expansion up to that point in US history was kicked off by Reagan signing his first two of a half dozen major tax hikes. Those tax hikes stimulated the creation of about 16 million jobs over his term, or about 150,000 jobs per month.

Post-hoc fallacy, and (surprise) oversimplification. The 80-82 recession has more to do with the Volcker disinflation and the aftershocks of the oil embargo than Reagan's tax cuts.

Fifth fun fact, Jimmy Carter and Bill Clinton with their economy crushing, job killing, high taxes saw nearly twice as many jobs created (33M) in their 12 years in office as were created in the 20 years that Ron Reagan, HW Bush, and W Bush were president (18M).

Post-hoc fallacy.

Sixth fun fact: The expansion that ended the depression occurred when Hoover signed a big tax hike FDR used to fund government spending, and was sustained by a tax hikes in 1934, 1935 ("Soak the Rich" tax), and 1936 to fund added government spending, government spending on infrastructure producing revenue seven decades later. (The 1937 recession occurred when government investment spending was cut, not after a tax hike.)

Post-hoc, and oh puh-leeze, the expansion that ended the depression didn't even begin until the middle of 1933, after FDR had taken office. Economists actually generally credit the tax hikes (and the Smoot-Hawley tariff, and the poor Fed response) as being major factors in causing the length and severity of the Great Depression.

Can anyone point to a tax cut that led to job and economic growth, and a tax hike that led to a reduction in economic activity and employment?

Try regressing growth on tax revenue as percentage of GDP for the US, Canada, and western Europe and see what happens.

Conclusion: your heart is in the right place, but your brain needs to catch up.

I think the part that is frustrating the NYT is the line Rush, Hannity, and Beck is pushing. That is, pointing at the huge debt and then pointing at Obama. Whether or not Obama could be repealing Bush measures, it deserves to be pointed out that these policies were implemented by a President that Rush, Hannity, and Beck cheer-led for eight years.

It's the hypocrisy that is disturbing. Though of course it would be too much to ask for them to admit fault and ask Obama to change course. Easier to point fingers.

Great article about the tax-shift, finally someone is pointing out the fallacy.

Accepting some patients and rejecting others based on medicare use as much rationing as accepting some patients and rejecting others based on how much they're willing to pay. The key is to find a way to distort incentives so that doctors ration health care based on how much a patient needs to be seen.

Instead of emphasizing taxing and spending, Washington should emphasize economic growth. Of course, this will never happen...

DanC wrote: "The biggest problem in McAllen TX is that physicians have learned to game the medicaid system."

You'd be more convincing if you knew the difference between Medicaid and Medicare.

Doug-

I'm not sure I agree with this: "Accepting patients based on how much they are willing to pay allows largest possible amount of resources to flow to those areas of care that have the most demand, so that more of that type of care can be produced."

You seem to be assuming that ability and willingness to pay (i.e., demand) is correlated with medical urgency. Why is that assumption justified?

From a technical standpoint, this is an absolutely horrible graph. It's difficult to read, the axes are not defined, there's time-series data mixed with categorical data. It hides critical information such as deficit trends. No one could read this graph and use it for any reasonable analysis. It's pure spin. But as spin, it's highly effective. The same 'features' that make it hard to read also make it hard to rebut, and therefore it's the perfect tool for pundits and ideologues to use against their opponents.

To SteveH
where in my post did I confuse medicaid and medicare?

Perhaps McAllen, were private insurance is rare, gives us a picture of what happens when government programs dominate.

It's G that matters, not G-T! G! The G is what makes you poorer, T only tells you when you'll feel poorer: now (large T) or later (large G-T).

What matters is who increased the G more. I don't even have to look at the data: the simple fact that NYT tells me stories about G-T and not about G almost proves that Obama increased G more than Bush, or else they'd use the right statistic. And the guy has like five months in the office. Think about it!

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