POSTED ON SEPTEMBER 29, 2010:
Is Obama To Blame?
Fingers should be pointed at all sides
You're outraged. I am, too. A moribund economy. Massive budget deficit. Incomprehensible federal debt. A looming specter of higher taxes.
Blame Obama? Don't be so easy on yourself.
First, the economy was in the tank before Obama took office. What is being dubbed The Great Recession officially started more than a year earlier (December 2007) and the S&P 500 declined 37% over the eight years before Obama took office, i.e., the "W" years.
Second, federal fiscal deficits are normal and necessary during times of economic weakness and war.
Virtually every modern macroeconomist agrees that the federal government should attempt to smooth out the common and natural cyclicality of the broader economy. Recessions and depressions cause people to suffer; put a dent in the factors of production; and spur social unrest and war.
Federal governments can lessen economic cyclicality by adding "fuel" to the economy during times of economic weakness and "tapping the brakes" during times of accelerated economic growth. Rapid growth can lead to a crash. What we want is steady and sustainable growth.
Economic "fuel" comes primarily in the form of government spending (roads, bridges, unemployment benefits, military spending, etc.), lower interest rates and lower taxes. "Tapping the brakes" is accomplished by withdrawing these "stimulants."
Our federal government intervenes in the economy, in a very real way, for our collective benefit. It provides a few other functions that are, in theory and practice, "good" for us. Namely, building infrastructure that's important for economic growth (roads, bridges, telecommunications, air travel, etc.); equipping and maintaining defense capability and diplomatic efforts; establishing and maintaining a set of laws and the rule of law; providing a basic safety net for those unable to care for themselves or find care (sick, elderly, infirm, jobless), etc.
Money is required to fund these federal programs. The money comes from the people through taxation. Most citizens willingly pay their share but wish to minimize the "burden," of course. We want to keep as much of our own money as possible. But the difficulty is the federal government's expenses are not level from year to year.
Incomes and outflows ebb and flow and cycle much like, and with, the economy. Federal spending rises sharply during times of war and recession -- for the reasons described above -- and should decline during times of peace and economic prosperity. So what we should see at the federal level -- when the goal is simply to adequately fund necessary government programs over time -- is budget surpluses during times of economic prosperity and budget deficits during times of economic difficulty. In fact, it's budget surpluses during good times that make the aid possible, and less risky, during the difficult times. But without surplus and saving during the good times, we run the risk of our federal government being:
a. being unable to meet it's stimulus and aid needs during difficult times, or
b. having to borrow heavily during times of economic need and bearing the associated risks
Unfortunately, we did not save for our current rainy day (at the federal level). This is the real crime of federal economic irresponsibility. It occurred over a 30-year period. Many are to blame, but ultimately it rests with you and me -- the voters who put the politicians in office and allowed them to remain though they continued to run deficits during times of peace and economic prosperity. And, of course, blame people who did not vote at all.
We are at war and have been suffering from a deep recession, yet during the incredible stretch of peace during the 80s and 90s, and the economic prosperity of the 80s, 90s and 2000s, we ran deficits!
In the 1980s we racked up more than $2 trillion in debt! Reagan years! A Republican president was in office nine of the 10 years. Democrats controlled the House nine of the 10 years, and Republicans controlled the Senate for six of the 10 years.
During the 1990s we spent more than we brought in nine of the 10 years. They were great years economically! The only year with a surplus was under the Clinton administration.
During the unprecedented economic expansion of the 2000s, we spent more than we took in each and every year! Way more. Federal debt nearly doubled, rising from $6 trillion to $11 trillion! Republicans controlled the White House for eight of the 10 years, controlled the House for seven of the 10, and enjoyed total federal control for four full years, i.e. occupied the Oval Office and controlled both the House and Senate all at the same time. I focus only on the Republicans here because they seem to be the ones who most vehemently blame the other.
In summary, yes, the current budget deficit is alarming, but three things should be noted:
(1) It's common, and actually functional, for us to run federal deficits during times of war or economic difficulty. We currently have both.
(2) The economic stimulus package of 2009, which was very costly and contributed to the large current deficits, was approved by both houses of Congress, signed into law by Obama, and supported by Federal Reserve and Department of Treasury officials. It almost certainly averted a broader collapse of the financial markets and a deeper recession.
(3) The current budget deficit is made more alarming because of the substantial amount of debt already on the federal books: $9 trillion before this recession began and $10.5 trillion before the Obama administration entered the White House.
So the next time you share your outrage over the size of the current federal deficit, the terrible economic climate, or the threat to our free-market system and way of life, consider:
Recessions/depressions occur, on occasion. It's normal. Nobody is really to blame.
Budget deficits are normal, and functional, during times of war and recession. We are currently in a deep recession. We are also in a war.
The real crime is not that we are running a large deficit at this time but that we did not save for this rainy day. That we didn't run surpluses during times of peace and economic prosperity. Even worse, we ran deficits. Large deficits.
The real crime of federal economic irresponsibility is that we ran deficits during the long periods of peace and economic prosperity in the 80s, 90s and 2000s. If it weren't for this, our large current deficit would not be a problem. Deficit spending is functional and necessary during times of broad economic recession and war.
Stop blaming Obama. Both parties are at fault. Heck, the entire electorate bears responsibility. You. Me. And we'll continue to get the same from our politicians until we elect ones who will reduce spending, run surpluses during times of peace and prosperity, pay down debt and save for the inevitable rainy day.
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