Monday, February 25, 2008

Debt as Percent of GDP

Inspired by this post at Angry Bear (ht Atrios), I noticed a striking pattern and decided to dig a little further into the data taken from the Economic Report of the President, table B-79. Over the last 30 years, when there has been a Republican occupying the office of the President, the national debt as a percentage of GDP has soared. You can see that it increased from about 35% at the beginning of the Reagan Admin to almost 70% by the time Bush Sr. was booted from office.

Another way to illustrate this is look at YOY change in the debt:GDP ratio. That is, if the ratio increased from Year 1 to Year 2, then the YOY change will be positive. Conversely, if the ratio decreased from Year 1 to Year 2, then the YOY change will be negative. This figure is particularly striking.
You can see that the debt:GDP ratio improved (ie became smaller) YOY under the Carter administration. This is especially surprising, because the US economy was in a recession and I imagine GDP growth was relatively stagnant. After all, this ratio could improve if GDP grew faster than the debt. Since a recession is, by definition, weak GDP growth, then that means there was no significant growth in national debt during Carters tenure.

Reagan/Bush Sr, in contrast, pushed the debt:GDP ratio to astronomical heights. No doubt this was a combination of increased military spending and decreased revenue due to massive tax cuts.

Clinton improved the debt:GDP situation somewhat, and in fact the debt:GDP ratios were most negative in 2000 Clinton's last year in office.

Bush, Jr has adopted his father's "charge it and forget it" ways and has pushed the debt:GDP back into record territory. Again, a nasty combination of tax cuts and rampant military spending.

Despite their claims, Republicans can hardly be called the party of fiscal responsibility...

9 comments:

rdan said...

Nice graphs. Comment more.

Afferent Input said...

Yeah, I know. Need to make this thing a regular habit, instead of an on again, off again hobby....

CoRev said...

I notice that Ole bad GW still has not reached Clinton's high.

I am forever amazed at the difference between those who believe in lower taxes versus those who believe in "?balanced budgets?" Considering we are paying off the current debt which was started in 1861.

If GW had the same luck, yes I said luck, as Bill Clinton, the budget would have been balanced late this year. But, alas, his bubble burst a year earlier in his term than Bill's.

Now then, we need also to look at what Bruce Webb is saying. We may be close to the point where the SSTF becomes an out of control cancer, growing uncontrollably.

rdan said...

Do want this posted at AB?

Afferent Input said...

CoRev-

You "correctly" point out that Bush hasn't reached Clinton's highest debt:GDP ratio in 1993. But budgets are sticky things. And after Reagan and Bush charged so much to the national credit card, Clinton had an enormous mess to clean up.

I would certainly argue that Presidents and Congress have only a limited impact on the larger economy in general. And the national debt isn't quite the same thing as, say, household debt. Thus nations can run a debt, but only within certain limits. Because there are costs to national debt. Be sure to ask your grandkids in 30 years. They'll be able to tell you all about it. Besides, if national debt doesn't matter, why have taxes at all? We should just lower the tax rate to 0%, right?

Regardless, national debt is something that is completely under the control of elected officials. It's clear that Democratic presidents make the situation better, and Republicans make it worse.

CoRev said...

afferent, first thanks for visiting my house.

Second, you compleletley missed my point re: national debt. If it was as bad as you imply then running the debt since 1861 surely would have resulted in some terrible result. But, alas, there is none.

The fallacy of our grandkids having to pay this terrible national debt load completely ignores the effect of fiscal growth. Will it be any higher/different in their age than ours? I doubt it, but YMMV.

Afferent Input said...

CoRev-

One major difference is that the debt is increasingly not held by US interest, but by foreign ones. Another major problem is that many nations are moving away from holding dollars and doing business in dollars. That's part of the reason why the dollar has tanked against virtually all other currencies.

One thing to keep an eye on is if oil-producing MidEast nations speed up the process of moving away from the dollar toward the euro or creating their own currency. All of these pressures make the existence of financing Govt expenses with foreign money much more complicated.

But if debt doesn't matter, why do we have taxes at all? Why don't we just cut it down to 0% and finance it all with treasures?

BTW, I noticed you have serious lack of trolls at your house. I'll try to stop by as often as possible and do my part!

Thanks for keeping this interesting.

cactus said...

AI,

We've looked at some of these issues at AB. If you've only just discovered us, you might like these posts .

(I'm actually finishing up a book along these lines.)

It looks like you have some stuff that would be of interest to us as well. Why don't you send us a few links?

CoRev said...

AI, "BTW, I noticed you have serious lack of trolls at your house. I'll try to stop by as often as possible and do my part!"

I already have one Flamer, Rdan, one on the verge of being banned, Buff, and soon a troll. Ooh, aah, progress.