Comparing Relative Deficit, Debt and Spending Levels

This article from Robert Robb provides a good comparison between the relative debt, deficit and spending levels of the Bush and Obama Administrations, as well as providing several historic benchmarks. The entire article is well-worth reading, but these points jumped out (apologies for excessive quotation):

'From 2008 to 2009, federal spending increased 18 percent. This was a budget year that straddled the Bush and Obama presidencies. But the spending increase was driven by anti-recession measures, predominately the Bush stimulus and bailouts. Obama supported these measures. In fact, his complaint about the Bush stimulus was that it was too small. This raises a question of political ontology: If Obama agreed with Bush, is it still just Bush's fault? ... Obama proposes that the federal government spend over 25 percent of GDP in 2011, compared to a historical average of around 20.5 percent. He justifies this as necessary to continue to fight the recession. Obama, however, projects that the recession will be fully over in 2011 and robust growth under way. Yet he proposes that federal spending continue to be nearly 24 percent of GDP through 2020. In other words, rather than wind down the additional recession spending after recovery, Obama is proposing that it simply become a new, higher base. After the World War II debt was reduced, accumulated federal debt never exceeded 50 percent of GDP until 2009, when it reached 53 percent. Under Obama's recommendations it would grow to 77 percent by 2020. If Obama were to recommend a path to return spending to its historical share of economic output, in 2020 the deficit would be just $255 billion, about what the federal government spends each year on large capital projects, and just 1 percent of GDP. In other words, not a problem. And federal spending would have still increased by more than 4 percent a year since 2008. Instead, Obama recommends a 2020 deficit of over $1 trillion and a troubling 4.2 percent of GDP.'

Scary stuff indeed. Unfortunately, the president seems to feel he only needs to 'explain' things a little more clearly for the public to get over its annoying habit of judging his fiscal policy based on these numbers.

Cognitive Dissonance?

First to the cognitive dissonance half of this post: at his address on the economy at Georgetown University yesterday, President Obama said, "We must build our house upon a rock ...We must lay a new foundation for growth and prosperity — a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad. ... And most of all, I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America’s future — a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt, reckless speculation and fleeing profit but is instead built by skilled, productive workers; by sound investments that will spread opportunity at home and allow this nation to lead the world in the technologies, innovations and discoveries that will shape the 21st century. That is the America I see. That is the future I know we can have. ..." The President also said, "All of these actions — the Recovery Act, the bank capitalization program, the housing plan, the strengthening of the nonbank credit market, the auto plan and our work at the G-20 — have been necessary pieces of the recovery puzzle. They have been designed to increase aggregate demand, get credit flowing again to families and businesses and help them ride out the storm."

Here's the cognitive dissonance: how can we move to a society of savings while simultaneously bulking of lending and credit? Debt is debt, even if it's easily repaid, and it's still there. I've written about this issue a number of times, and I'm still not sure of the correct answer. However, I do know that we can not simultaneously increase debt and reduce it. The massive increases in government spending over the previous two months (combined with the proposed increases in the budget) only make this idea more dissonant.