Bush and Obama’s Deficits: the Real cause

The above graph was printed in the Washington Post in Ezra Klein’s column.   What it says may shock you.  For all the talk about Obama wanting to massively increase government spending, it’s clear that the real drag on the budget these days comes from programs passed during the Bush Administration.    The graph does not just include Obama’s spending in his first two years, but projects it outward.    The only way to get spending under control is to undo things done during the Bush Administration!

Add to that the fact that the biggest debt increases happened under Republican Presidents — Reagan and Bush the Younger — and the whole narrative of this being a big government problem caused by the Democrats falls apart.

Now, don’t get me wrong.   I’m not trying to blame the Republicans.   There is too much blame being thrown around.   In many ways the debt spiral has been a cultural phenomenon, as Americans became hooked on consumption and credit, with private debt and credit card debt growing faster than government debt.    In our system you don’t get an economy this dysfunctional without it being a bi-partisan effort.

The blogger “From my inkwell” hits the nail on the head when he indicates that this is really a problem relating to values.   Coincidentally netflix happened to deliver the second Wall Street movie “Greed never sleeps” this week, and we finished watching it Tuesday night.    One thing clear in that world of high finance portrayed a bit caricature-ish but reasonably accurately by Oliver Stone, is that values don’t matter.   It’s a game.

The moral philosopher Adam Smith, embraced by libertarians who often never actually read what he wrote, did not think markets were magic.   Absent a system of ethics and values, markets can easily fall apart because people with inside knowledge can use that to manipulate the game and essentially steal value from others.   They don’t need weapons, they don’t need crude physical force, all they need is an advantage, knowledge and resources.

In 2008 we had an economic crisis caused by a greed induced orgy of marked endorsed insanity.   Mortgage backed securities, considered safe “AAA” bonds, were being manufactured and sold at an unprecedented pace.  The reason for the subprime debacle was not government, but private banks demanding more mortgages that they could bundle into bonds and sell to unsuspecting dupes (like people saving for retirement or municipalities for their firefighters).   Mortgage brokers, unrestrained by ethics, ignored the ability of the buyer to pay back the mortgage and approved insane loans — someone making $30,000 a year could get a $750,000 mortgage.

When this lead to a housing crash and a near collapse of the world financial system, the “dupes” took the loses, but most Wall Street players stayed in the game.    Insider politicians figuratively slept with the Wall Street big shots who are now making record bonuses and posting obscene profits just two years after this great swindle.   And on Main Street?   Well, recession and fear rule.   No values.   No ethics.  Just greed and the market.

It’s not that markets are evil.   It’s more that markets reflect the people who are in them.  If unethical folk driven by pure self-interest make up the market, then you’ll get a system devoid of morality.  The rich will make out big time, average folk will suffer.  The problem in our society now is not so much what policies the government makes, it’s one of ethics.

Yet most Americans are ethical.  Most work hard, care for others, give to charity, and recognize that they are part of a community, connected to others.   But they aren’t the ones with the wealth and power.   They aren’t the movers and shakers, the ones “playing the game.”  Also too many of us, including myself, have gotten caught up in the game of over valuing material possessions and not really thinking about the ethical, environmental and human consequences of our actions.  Pollution, exploited foreign workers, and a growing current account deficit are abstract and invisible, it’s easier to consume.   As MAD’s Alfred E. Newman would say “what, me worry?”

Which gets us back to the budget debate.   Republicans and Democrats have it wrong.  It’s not about whose plan to choose, it’s about embracing a different set of values.   One value is simply to live within our means.   That doesn’t mean never running budget deficits.   We installed a geothermal heating system this June, and we had to borrow to do so.  We’ll have it paid off in less than two years, but debt itself isn’t bad.   Most Americans have a home mortgage and car payments, after all.   That’s why a balanced budget amendment makes no sense — sustainable debt for a good cause makes sense.

But in the “something for nothing” mentality of the last thirty years debt became structural.  That has to change.   It will involve raising some taxes, but also cutting a lot of spending.   With all due respect to my friends on the left, unless the public becomes convinced that higher tax rates are acceptable, spending cuts are necessary.   They should be humane, fair, and involve a restructuring of programs to achieve their goals rather than a heartless slashing, but we need as a society to embrace the idea that government debt needs to be sustainable.

More than that, though, we have to give up the mentality that consumption is “good for the economy.”   Advertisers have created a load of  “artificial needs” (or wants) that people strive to fulfill, usually on credit.   Capitalism is excellent at producing value, but it needs to be shifted ethically to creating opportunities for those who have not, including the third world.   This means finding a way to be productive rather than focusing on mindless consumption.

President Obama gave a good speech Monday, but he needs to broaden his approach.   We need to talk about values, what it means to be part of the American society.   If not, then we’ll keep bickering our way into decline.   There is no magic fix.  Government can’t simply bring back the rah-rah days of hyperconsumption of the 2000’s.   We all have to look inside and recognize that values matter — be it on Wall Street, Main Street, or Capital Hill.

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  1. #1 by Onefineham on July 27, 2011 - 14:32

    I wrote a haiku about this the other day that I think puts it nicely:

    http://todosquepaso.com/wordpress/2011/07/debt-ceiling-haiku/

  2. #2 by Onefineham on July 27, 2011 - 14:34

    Wow… that’s cool… I thought this theme looked familiar… I use the same one!

  3. #3 by Michael on July 27, 2011 - 15:43

    Scott, wonderful post. I too expected broader themes from the President and Speaker: that our budget needs to reflect the sense of fair play, competitiveness, and opportunity needed to get our economy back on track. Or, President Clinton’s first campaign slogan, “no more somthing for nothing.” Yes, compromise is needed, but a small theme from two leaders who are not typically gradual thinkers. In negotiations, each party usually has to help solve the other’s problem. That’s tough to do without a broader theme.

  4. #4 by classicliberal2 on July 27, 2011 - 19:16

    It’s good to at least see someone at the Washington Post finally catch on to the real source of the deficit, even if it had to be a columnist (I’ve been writing about it in various venues since some time last year–maybe even here). Unlike you, I think it IS important to point the finger of blame, and to point it firmly and in the proper direction. It’s not just important; it’s indispensable. If you don’t understand what that chart outlines, you have no clue what has been happening with the budget, no way to make the kind of informed decisions required of responsible citizenship.

    • #5 by Scott Erb on July 27, 2011 - 20:02

      Well, that’s the thing — there’s so much demagoguery about Obama and the Democrats as piling on the debt and “loving to spend” that reality gets lost. Nobody seems willing to stand up and point out that the Reagan “morning in America” economy was built on debt and deficits (and lowering oil prices), that we hit a debt to GDP ratio by 1990% and it didn’t rise at all (and even dropped) during the Clinton years, only to go up thanks to programs enacted when the Republicans held the House, Senate and Presidency. The Republicans have taken ownership of the “we’re for fiscal conservatism” narrative when their record is quite different. 2012 is going to be an important election, both for the Presidency but also I think the House is going to be in play again.

  5. #6 by renaissanceguy on July 28, 2011 - 16:23

    Scott, I have no problem acknowledging the role of the Republicans in all this. That is why I am now a Libertarian. What still doesn’t make sense to me is that if Democrats think that Republicans spent too much, why have they not cut back but instead have spent even more? It’s really strange to think that way. I see no logic in it.

    • #7 by Scott Erb on July 28, 2011 - 17:27

      One could argue that they did — the last Democratic President had a balanced budget, and from 2000 to 2006 the GOP controlled government. On the other hand, most did go along with the Bush era spending, so they clearly aren’t blameless.

      2008 changed things — it caused a recession that drove up debt (recessions have less revenue and more spending due to unemployment, etc.) and I’ve already discussed the merits of a stimulus package. At the time I wrote that Obama needed to follow the stimulus with real budget cuts. I think he wants to. I think this problem can be dealt with if our politicians put ideological purity aside and make some real compromises. Obama has held out his hand to the GOP to do this, I think they need to give it a shot – the stakes are too high.

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