Budget

Obama's Budget Promises an Olympian Mountain of Debt For Our Kids to Pay Off

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Reason contributor and Mercatus Center policy analyst Veronique de Rugy notes that Barack Obama's brand-new budget proposal features an illustration of a mountain on its cover. That's fitting, she says, because the president is promising to build a mountain of debt over the next decade:

This budget would indeed produce a mountain of debt so the image is fitting. Debt held by the public will go from $14.1 trillion in 2016 to $14.7 trillion in 2017 and then onto $21.3 trillion in 2026. Under the budget's very rosy assumptions, deficits, which have already grown from $438 billion in 2015 to $616 billion in 2016, fall to $503 billion in 2017 (how deficits shrink by over $100 billion is a mystery) but they will be up to $741 billion in 2026.

And that's all under the optimistic (read: delusional) scenario of 4 percent annual growth.

Read more.

Whenever a new budget proposal comes out, I'm always interested in going to the big tally of how much is being spent vs. how much is being brought in. Here's the relevant info from the president's budget:

Granted, all the numbers and percentages are projections, estimates, and fantasies, but they are nonetheless telling.

Note especially that Obama is totally comfortable keeping federal spending as a percentage of GDP well above 20 percent. Since 1974, when current budget rules were adopted, outlays have averaged about 20.5 percent of GDP while revenues—poor, struggling revenues—have averaged just 17.4 percent of GDP. That explains annual budget deficits and mounting national debt totals and at least until the 21st century, both parties generally agreed (at least in principle, if not in reality) that revenues and outlays should roughly tally up. 

CBO
Mercatus

The spending explosion is not something that happened exclusively under Obama. As Reason has exhaustively documented, George W. Bush was a "big-government disaster," jacking spending through the roof even before fiscal year 2009, when he and Obama jointly spiked outlays to 24.4 percent of GDP, the highest level seen since World War II. If both Bush and Obama have a lot of explaining to do, so too does Ronald Reagan, who on average borrowed 18 cents of every dollar of spending he signed off on as president. It was good old Dutch who normalized the idea that persistent deficits weren't a problem because we were always just a couple of years of good growth away from achieving balance or surplus. Ultimately, though, it took a weird partnership between Bill Clinton and a Republican Congress in the very late 1990s to achieve that—and they did it by cutting a ton of defense spending in the wake of the Cold War.

That's not going to happen anytime soon, alas, with both Democrats and Republicans comfortable with spending around $600 billion on defense. Indeed, the ferocity with which both Ds and Rs fought to end sequestration is one indicator that the two parties ruling the government are always happy to spend more and more money, just as long as enough of it gets tossed in the directions they prefer. After a period of gridlock, during which real, per-capita spending flatlined and even dropped, the two sides realized in December that they could simply stick the future American taxpayer with the bill.

So they did. The worst part of Obama's budget—and the ways in which Republicans have conspired to increase spending just late last year—is that it attempts to normalize substantially increased spending levels as a percentage of GDP. Why exactly the government needs to be spending a higher percentage of GDP is not clear and I'm doubtful any member of either the GOP or the Democratic Party will ever bother clarifying the matter.

Back in 2011, Veronique de Rugy and I laid out a plan to balance the budget without raising taxes. Read "The 19 Percent Solution."

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  1. See Europe 2016 for how that pans out in the long run.

  2. And that’s all under the optimistic (read: delusional) scenario of 4 percent annual growth.

    If you’re a Keynesian, you get that growth by spending it.

    1. Not to mention of sizable portion of that ‘growth’ includes all the debt being piled on.

      1. Since GDP includes government spending, yes, all debt issued in a given year counts toward the GDP for that year.

        Our GDP is roughly $17 trillion. Growth in outstanding debt each year (which is not the same as the operating deficit) has been around $1 trillion since 2008ish. That means about 5 – 6% of our GDP is actually debt. Its not a perfect analogy, but this is akin to counting loan proceeds as income. Which would you get you thrown in jail if you tried it in the real world.

        A much better measure of GDP would be GDP ex federal debt. I haven’t seen this particular measure anywhere. If someone is tracking this, I’d appreciate a link.

        1. Which would you get you thrown in jail if you tried it in the real world.

          A government budget isn’t in the real world… or so I keep being told.

        2. Well, you wouldn’t put a loan on the income statement, it would go on the cash flow statement.

          1. I would hope that your debts show up on your balance sheet.

        3. It’s not only not a perfect analogy, it’s a meaningless analogy. GDP is the value of goods and services produced. Debt is simply one way of the ways of paying for that production. If you build a house for $1 million and pay for it with 20% cash and 80% mortgage debt you would not say that you built a house worth $200,000.

    2. “And that’s all under the optimistic (read: delusional) scenario of 4 percent annual growth.”

      Excuse me. I’m sure just a couple of days ago I read that Jeb Bush has a “4% plan”, so why can’t Obama have a “4% plan”?

  3. Why does everyone keep saying the debt has gone down under Obama? It’s all I read from places like NYT and the like.

    1. Because the deficit has declined from the highest level in history so they declare victory even though the deficit is still larger than it was at any point in the Bush administration.

      1. NOT TRUE

        FY 2009 IS BUSH’S FAULT

        LOOK AT THE CHART

        LOOK LOOK LOOK

        /shriek

        1. I was going to say that the DOW was in full recovery today, going up about 40 points, but it looks like it lost another 100, so I’m guessing we won’t see him around any time soon. Tomorrow’s another day.

          I’m guessing his boiler-room operation is busily shredding documents before the SEC raid.

          Either that or he’s started quietly investing in gold (PEANUTZ! GOLD BUGZ).

    2. People have confuze between debt and deficit.

  4. “And that’s all under the optimistic (read: delusional) scenario of 4 percent annual growth.”

    LOL, I just looked at a GDP growth by year chart and the US hasn’t had 4% GDP growth since 2004. What’s the picture look like if we average 2-3% like we have under Obama?

    1. Ahem:

      As whispers mount that the Fed could implement negative interest rates as a way to goose economic activity, Chair Janet Yellen said Wednesday the central bank has not completely researched whether that would be legal.

      During her semiannual congressional testimony, Yellen said the Federal Open Market Committee discussed charging banks to hold excess reserves at the Fed but never fully researched the issue.

      http://www.cnbc.com/2016/02/10…..ndent.html

      1. the central bank has not completely researched whether that would be legal.

        Of course they have. She just doesn’t like the answer, which is, apparently, no.

        1. For now.

          All it takes is enough justices to pretend otherwise and we can get “Wickard 2: Emetic Boogaloo”.

  5. Dear Reason:

    Figure B is literally unreadable, even when zoomed in.

  6. Well surprise, surprise, surprise.

  7. Sucks for the kids then huh!! WOOOOOOO!!!! ::collects Social Security::

  8. What are people’s thoughts on the $220 trillion figure that is sometimes tossed around? I read some criticism of it (and intergenerational accounting in general), some of which seemed legitimate, but some of which amounted to “the US is in no danger from debt because we can always just take out more debt or print more money!”

    1. The US is in no danger from debt so long as the $US and TBills are the reserve currency for the rest of the world. If Bitcoin actually happens it could bring the whole damn mess crashing down.

      1. Why would Bitcoin need to happen? All that needs to happen is for America to cease being the dominant reserve currency, which is way more likely than Bitcoin becoming a huge success.

        1. This on crack.

          As others have posted, as long as we remain the least worst economy, we’re ok. The second we’re not and everyone blinks, our attraction as a reserve currency will crumble very quickly.

          Lucky for us, China has decided that its stock market has to go up at all costs and is busily creating its own wealth-effect, so for the time being, everyone else is at least as dumb as we are.

          1. As others have posted, as long as we remain the least worst economy, we’re ok.

            All the alternatives are also fiat currencies, essentially backed by the ability of the government to confiscate assets from its subjects to make good on its obligations, so this is true. The reserve currency will belong to the government that the world believes will be most ruthless in its pursuit of its subject’s assets, since at this point nobody can possibly believe that any major government will control its spending.

          2. It isn’t that we’re the least worst, it’s that we still have more net productivity.

            From roughly 1900-1970, much of the world’s “reserve” was the US’s gold holdings. When it became far too obvious that the rest of the world was consuming that capital, Nixon slammed the gold window shut. The only reason the US dollar became the reserve “currency” afterwards is because it was really US net productivity that was backing the fiat. Once the rest of the world could no longer poach US gold, it simply began to poach US productivity.

            As long as the leading POTUS candidates sell and get support for continuation of poach-from-within policies, the US’s reserve currency status is solid. Until net productivity turns negative.

        2. Yeah let’s just hold our breath until the Yen or the Yuan or the Euro are backed by more than vague promises that they’ll do the right thing eventually. The only hope for a stable currency is one that no state is in a position to devalue at the first sign of stagnation.

    2. Yes, we can print more money. If we do that we never default. But if you print a ton of money inflation soars, which by itself is painful – especially for creditors – and the dollar would devalue substantially. The dollar is worth less. So goods from overseas would become very expensive. So we either pay for excessive debt with taxes or inflation (or we default, and there are consequences to that). If printing money was the answer then pre-WWII Germany could have printed itself out of the excessive burden of WWI reparations. Instead they had hyperinflation. That’s just one example of many where printing oneself out of default created massive inflation and cratered the economy.

      1. Can we actually inflate our way out of Social Security (which is inflation adjusted) and Medicare/Medicaid (which would suffer from inflation in healthcare spending)? Seems like those things become death spirals at that point.

        1. Excellent point. Inflation-adjusted entitlements would have to have their cost -f-living adjustments ratcheted down, or we’d just be spinning our wheels on those items.

  9. Unless you count the “crossover year” of 2009 in Bush’s column, Obama’s lowest deficit is higher than Bush’s highest deficit.

    Just sayin’.

    [flips switch on shreek signal]

    1. He’s in the fetal position in the corner of the boiler room. I suspect we won’t be seeing a lot of him until Recovery Summer XIX, Electric Bugaloo.

    2. Not quite. The deficit in FY 2008 was about $458 billion, slightly higher than FY 2015

      http://www.presidency.ucsb.edu/data/budget.php

      1. You are correct. I was looking at a chart.

        Caveat: there was a long stretch in 2015 where we issued no debt. This is, of course, laughable, and a sure sign the books were being cooked to a crisp. I have very little faith in any of the government’s numbers from 2015.

  10. If the deficit was only say 1% of GDP, you could, in theory pay it off through growth, but when it is 4%+ there is no way. The problem we’ll have is we’ll be Greece in another 5-10 years, and our debt’s interest payment will represent a sizable portion of the budget.

    1. As landsburg pointed out the best solution is to just stop adding to the debt. Over the long run with any positive growth the debt vanishes relative to gdp.

  11. As an aggregate, the country is either adding to its productive capital or is consuming its productive capital.

    Increase government spending – increase consumption of capital.
    Spend more than you take in – interest consumes capital..
    Unproductive borrowing overtakes productive borrowing – consumption of capital.
    Productivity falls – consumption of capital.
    Negative interest rates – consumption of capital.
    Quantitative easing – consumption of capital.

    A good 17% of the population is no longer on the road to serfdom – they’ve reached the destination (food stamps, disability, government service, government grants, etc.) Nearly all of them seem content. Those actually wanting tangible proof of personal productivity, rather than the illusion of productivity via debt they cannot repay in full or dependence on taxation for their income, must work longer hours than a generation ago.

    Kudos to life-long public servants and their cronies, sacrificing productivity and (someone else’s) capital all their lives so that our national dream of production-free consumption is closer to reality.

    1. Government spending could theoretically be taken from consumption and used to purchase capital, depending on what was taxed and how the revenue was spent. It isn’t in practice, and isn’t ever likely to be, but I’m sure the rare prog who isn’t a complete economic illiterate would be able to muster that argument.

      1. Trade transactions between two private parties are generally beneficial to both, even the transaction of tobacco. You can attach a specious reason of “consumption” to give the tax a name, but the consumptive purchase of the tobacco is one cost and the tax – being paid for out of additional saved productivity – is another cost. The tax paid is ALWAYS from surplus productivity, surplus which I now cannot apply to another productive use. Prior to the fraud of “consumption” taxes, governments applied “excise” taxes – aka taxes on the producers of specific items. Therefore, labeling the transaction “consumptive” is merely a meaningless, semantic game – the tax can only ever be paid from productivity.

        One can argue the gasoline tax being used directly to fund the construction of roads is simply a different (and possibly more efficient) way of the provider (the state) collecting transactional user fees. But if that collected gasoline tax is placed into a general fund instead of a specific road-use fund, then the direct accounting is lost and the claimed government productivity is being hidden. With electronic transactions, there is no reason the state cannot give me an itemized accounting of the gasoline tax (or indeed, any tax) I’ve paid over a period along with its debit into its specific-use account. If they are honestly applying this money, they should have nothing to hide. And I’m ignoring the fact that a percentage of road infrastructure is unnecessary.

  12. If both Bush and Obama have a lot of explaining to do, so too does Ronald Reagan, who on average borrowed 18 cents of every dollar of spending he signed off on as president

    True.

    But let’s remember that Congress completely controls and writes the budget.

    The President can suggest one, of course, but it has no relation to the actual budget we get or what gets spent where; it’s pure PR.

    I’d prefer the chart of President color-coding and per-capita be replaced with one that shows control of Congress color coding, to reflect that.

    1. But let’s remember that Congress completely controls and writes the budget.

      On paper, yes. The Obama Administration has put the lie to that, with the endless CRs and rolling Congress with a threat of a shutdown whenever they didn’t get what they want.

      They are both responsible, Congress for acts of omission, and the President for acts of comission.

  13. The President’s budget proposal is as legally relevant as my budget proposal (four words: FYCS). As a lame duck with an opposition Congress, it’s also as practically relevant. Why even humor the dipshit by reporting on what amounts to a 5-year-old’s christmas wishlist?

    1. You say that now, but just you wait until he abolishes the senate, using local governors to keep us in line.

  14. Nice to know that clinton and gingrich only cut fighter jetz in the 90’s. I’m glad cutting welfare had absolutely nothing to do with restraining spending.

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