Who caused the deficit?

I’m not a supporter of President Obama, but if I thought that balancing the federal budget was the overriding issue, I would vote for him.  On fiscal matters, he is a better conservative than the present Republican Party leadership.

Remember that the fiscal year begins in October of the previous year.  The 2009 fiscal year began Oct. 1, 2008, and so is the responsibility of the George W. Bush administration, except for the stimulus program enacted after Barack Obama took office.

The main causes of the federal budget deficit were the tax reductions proposed by President George W. Bush, the cost of invading Iraq and Afghanistan, and the Great Recession, which reduced tax revenues while automatically increasing spending for the social safety net.   Recall that when President George W. Bush took office, he and Federal Reserve Chairman Alan Greenspan thought that federal budget surpluses were a problem, and Bush’s tax reduction program was intended to eliminate those surpluses.

I see little hope of balancing the federal budget until (1) the Clinton era tax rates are restored, (2) military spending is brought under control and (3) the Great Recession comes to an end.  President Obama has proposed restoring Clinton era taxes on upper-bracket taxpayers, and he is reducing the size of the U.S. military (although not cutting back on its mission).  Obama’s embrace of drone warfare is, I think, partly for budget reasons, like the Eisenhower-Dulles “massive retaliation” policy of the 1950s.

The most important step to bring the federal budget under control would be to bring the Great Recession to an end.  Budget problems, like other problems, are relatively easy to solve under conditions of peace and prosperity.  So long as unemployment is high and poverty is increasing, tax revenues will be low and spending on the social safety net should be relatively high.

Newt Gingrich called President Obama the “food stamp” President.  The present food stamp program was created by bipartisan legislation in the 1970s co-sponsored by Senators Robert Dole and George McGovern.  The reason spending on food stamps is high is because the Great Recession is pushing people into unemployment and poverty-wage jobs.  We should not change the law and let children go hungry, but by work toward a high-wage, full employment economy in which hard-working people won’t need food stamps.

Click on Marketwatch: Obama spending binge never happened for background and the source of the first two charts.

Click on The Four Causes of the Huge Deficit for more background and the source of the next to last chart.

Click on Causes of the Trillion Dollar Deficits for more background and the source of the bottom chart.

Click on Greenspan Endorses a Cut in Tax Rate for an article from 2001 about how Federal Reserve Chair Alan Greenspan and President George W. Bush wanted to get rid of budget surpluses.

Click on ‘Reagan Proved Deficits Don’t Matter’ for comment on the Crooks and Liars web log on changing Republican attitudes toward the deficit.

It is true that the Democrats had a majority in the U.S. Senate and House of Representatives in 2007-2009, and therefore share responsibility for the U.S. budgets during that era.  There is a meme going around the Internet that says the Democrats were solely responsible for U.S. fiscal policy during that period, but I don’t recall any great confrontations between the President and Congress over the budget back then.   President Bush after all had the power of veto.

All this reminds me of the meme that the Federal National Mortgage Association and Federal Home Loan Bank Board were responsible for the subprime mortgage crisis.  It is true that Fannie Mae and Freddie Mac took on their share of subprime mortgages, which they should not have done, but they were followers, not leaders, of the big Wall Street firms such as Goldman Sachs.  Maybe Fannie Mae and Freddie Mac might have acted more responsibly if they had remained government agencies rather than being privatized.  In any case, I don’t see how Democrats bear more responsibility than Republicans for this.

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One Response to “Who caused the deficit?”

  1. Atticus Finch Says:

    Both parties overspend, period. It’s just the Republicans try to play the “fiscal conservative” card when they clearly aren’t – making them hypocrites aswell.

    Like

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