Tuesday, December 24, 2013

"The GOP's Great Depression agenda"

Ryan Cooper at WaPo "Plum Line":
Paul Ryan has set everyone’s socks ablaze with a new comment suggesting he wants to shake down the country again over the debt limit. This inevitably inspired a lot of amateur psychoanalysis attempting to figure out whether he was serious or just pandering to the base. Whether that is true is an important thing to figure out, but the deeper subtext here is that the Republican Party continues to organize itself around the kind of austerity agenda that, should they obtain enough power to implement it, would cause another recession immediately, possibly a very bad one.

Retrospective on dishonesty and hysterics around the rapidly declining deficit

One of the last handful of honest conservatives, Bruce Bartlett @ NYTs, looks back at the Bush-induced "Obama" deficits:
On Dec. 20, the Brookings Institution economist Justin Wolfers sent out this provocative post on Twitter: “The decline in the budget deficit since 2009 is the largest four-year improvement since the demobilization from WWII.”

I was aware that the deficit was declining sharply, both in nominal terms and as a share of the gross domestic product, but hadn’t thought much about the magnitude. Mr. Wolfers, whose partner Betsey Stevenson is a member of President Obama’s Council of Economic Advisers, is correct, as the data show. Fiscal year 2014 began on Oct. 1.

Congressional Budget Office
The Congressional Budget Office further projects that the deficit will fall to just 2.1 percent of G.D.P. in fiscal year 2015, less than it was in fiscal year 2008, when it was 3.1 percent of G.D.P. Thus we will have seen a decline in the deficit of 7.7 percent of G.D.P. over seven years.

There is indeed no comparable period in which the deficit fell as much since the aftermath of World War II for the simple reason that the deficit never grew large enough to drop so much. The largest deficit recorded in the postwar era before 2009 was in 1983, when it reached 6 percent of G.D.P.

After the war, the deficit fell to 7.7 percent in 1946 from 22 percent of G.D.P. in 1945. A surplus of 1.2 percent of G.D.P. was achieved in 1947.

This got me thinking about President Obama’s budgetary record when viewed from 2009. I turned first to the last C.B.O. projection of the George W. Bush administration, which was made on Jan. 7, 2009, and thus includes no Obama policies. The decline in the deficit after 2010 is largely attributable to the assumed expiration of the Bush tax cuts, because the C.B.O. must assume current law and they were set to expire at the end of 2010.

Congressional Budget Office
What’s important to see is that the federal government was going to run the largest deficit since World War II in fiscal year 2009, which began on Oct. 1, 2008, regardless of who became president on Jan. 20, 2009. It was baked in the cake by policies put in place by the Bush administration and the natural rise in spending and fall in revenues resulting from a sharp drop in economic growth and rise in unemployment, which economists call “automatic stabilizers.”

This point was always known by anyone who bothered to look carefully at the data, regardless of how many hand-wringers on both sides of the aisle acted as if the deficit was solely a result of President Obama’s policies. Both because of myopia and because everyone tends to invest the president with far more power than he actually has, there is a tendency to assume that whatever happens on his watch is attributable solely to him.