Obama's deficit critics are discredited
Wednesday , March 05, 2014 - 1:18 PM
Events continue to thoroughly discredit many of the president’s harshest critics. Even before he was inaugurated many displayed a profound personal hatred of Barack Obama. In the first year of his presidency (2009), I asked many people this question: what is your number one complaint against the president? Some became livid and lapsed into incoherence. Others did “not want to talk about it.” But of those who articulated a response, I found the most recurrent response was “the huge deficits.”
In 2009, there was indeed a huge deficit of $1.4 trillion. The nation had never seen a deficit of that magnitude. Since the largest deficits ever coincided with the inception of the Obama presidency, those with little understanding of what causes deficits sought to lay the primary blame on the president.
But now the deficits are falling. The Congressional Budget Office (CBO) recently estimated that the 2014 budget deficit would be $514 billion — only about 37 percent of the 2009 deficit. The CBO estimates for 2015 the deficit will be $478 billion — about 34 percent of the 2009 deficit. Moreover, in 2009 the deficit was 10.1 percent of the Gross Domestic Product (GDP); this year it is projected to be only 3 percent and next year it is projected to be only 2.6 percent. Conclusion: the deficit has been falling, both in absolute terms and as a percent of GDP.
Unfortunately, much of the public is unaware of the falling deficits. Pew research suggests that just 29 percent of the public and only 12 percent of Republicans know the key facts. If the facts were more widely known, the reputation of many Republicans, especially those associated with the Tea Party, would be in tatters.
Many of President Obama’s early critics have much to learn about economics. History shows that recessions are immensely expensive for government. At the worst point of the U.S. recession which began in 2007, it is estimated that there were about 28 million who were unemployed, underemployed, or who felt looking for work was futile. That 28 million is about 10 times the entire population of Utah! Since these millions paid little or no taxes, the government received almost no revenue from them. Yet it incurred astronomical expenses to pay for the food stamps and other assistance to that group.
What caused the unemployment of the recession? Was it an outbreak of laziness? No! Employment is determined by production, which is determined by consumption, which is determined by primarily by private debt creation. Until the recession, Americans, thanks to our housing bubble, kept creating debt at an increasing rate. This private debt creation was the key to propping up the U.S. economy. In fact, Australian economist Steve Keen finds that the correlation between debt creation and economic growth is 94 percent. When the recession hit, individuals and business sought to reduce their debt. Individuals reduced debt by reducing consumption and businesses reduced debt by reducing investment. This fall in consumption and investment reduced production. And when production falls, unemployment rises and this leads to big deficits.
The U.S. Treasury recently said that 79 percent of the decline in last year’s deficit was due to higher receipts. Now that the economy is creating more private debt than it did in 2009, there is more consumption and investment, leading to more production and employment. This leads to more government revenue and smaller deficits.
The personal story of a president is irrelevant to the economy he presides over. Thus, presidents Franklin D. Roosevelt, Dwight D. Eisenhower, John F. Kennedy, Lyndon B. Johnson and Bill Clinton, who all saw the U.S. economy improve on their watch, had almost no private-sector business experience. On the other hand, presidents Herbert Hoover, Jimmy Carter, and the two Bushes — all who presided over poor economies — all had experience in operating private businesses. Herbert Hoover, who was unquestionably the finest businessman ever to occupy the White House, saw the economy totally disintegrate in the worst economic disaster of the this nation’s history only seven months after becoming president. G.W. Bush, the first president with a Masters Of Business Administration (MBA), left the nation with the worst economy since the Great Depression.
Even the personal character of a president is irrelevant to the economy of his tenure. Most of the presidents mentioned above who were associated with good economies were accused, often with enormous evidence, of cheating on their wives. On the other hand, those associated above with poor economies were all rock-solid family men who were scarcely even accused of marital infidelity. Evidence indicates that the economy does best under Democratic administrations. Timothy Ferris notes that $10,000 invested in a stock market securities index during the 40 years the Democrats had the presidency from 1929-2008 would have yielded more than $300,000; the same amount invested solely during the 36 years of Republican administrations in that period would have returned only $51,000.
Those unacquainted with history latch on to theories where the personality or the political party of the president is blamed for the economy. In 2009, many people wanted to cloak their intense personal hatred of the president in an aura of respectability and so they fabricated theories about the big deficit that time has totally disproved.
While those uninformed critics have not shown much aptitude to learn from their mistakes, certainly the rest of the nation can.
Jones lives in West Haven.