Opinion

A decade of spiraling deficits

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Keith Hennessey
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      Keith Hennessey

      Keith Hennessey is a Research Fellow at the Hoover Institute at Stanford University. He served as a White House economic adviser during the Bush administration. Previously, Mr. Hennessey spent eight years on Capitol Hill, most of it working as Economic Policy Advisor to Senate Majority Leader Trent Lott (R-MS). He also worked for Senator Pete Domenici (R-NM) on the staff of the Senate Budget Committee, and on the staff of the 1994 Bipartisan Commission on Entitlement and Tax Reform.

      Before coming to Washington in 1994, he spent two years developing software at Symantec Corporation and two years at Harvard where he received a Master in Public Policy degree from the John F. Kennedy School of Government. He earned a BAS degree in math and political science from Stanford in 1990. Mr. Hennessey is single and lives in Arlington, Virginia.

Last Friday while speaking at the University of Nevada, Las Vegas about the economy, President Obama said:

And these were all the consequence of a decade of misguided economic policies — a decade of stagnant wages, a decade of declining incomes, a decade of spiraling deficits.

I want to focus on that last phrase:  a decade of spiraling deficits.

The best way to compare deficits over time is as a share of the economy.  This first graph shows budget deficits during President Bush’s tenure.  On this graph deficits are positive, so up is bad.  The dotted green line shows the average deficit since 1970 for comparison (2.6% of GDP).

This graph does not show “a decade of spiraling deficits.”  It instead shows eight years of deficits averaging 2.0 percent of GDP, followed by a horrible ninth year as the markets collapsed and the economy plunged into recession.  (Budget wonks who want to understand why I think we should look at nine years for a Presidency rather than eight can read this.)  Even 2008’s bigger deficit than 2007 can be mostly explained by a revenue decline as the economy slipped into recession pre-crash.  Before the crash of late 2008 President Bush’s budget deficits were 0.6 percentage points smaller than the historic average.  Deficits did not “spiral” during the Bush presidency or the decade.  The bumped around the historic average, then spiked up in the last year.

Yeah, but what about that horrible 8.3% in 2009 when President Bush left office?  That figure is a combination of a severe decline in federal revenues as the economy tanked, plus the projected costs of TARP for fiscal year 2009.  If we include that terrible ninth year in the Bush average (as we should), then the average Bush deficit is still only 2.7%, one tenth of a percentage point above the average over the past four decades.  (All data are from CBO’s historic tables.)

Yes, that last year sucked.  Yes, when President Obama took office he faced an enormous projected budget deficit for his first year in office (which jumped from 8.3% when President Bush left in January to 9.9% at the end of that fiscal year).  But it is inaccurate and misleading to characterize the previous decade as “a decade of spiraling deficits.”

Am I making too big a deal out of one phrase?  I don’t think so, because President Obama’s economic and political argument centers on redefining the entire Bush tenure as an economic failure.  There is therefore a big difference between “a decade of failure” and “seven years-of-pretty-good, followed a disaster in year eight.”