Tuesday, July 20, 2010

GOP's deficit

I was going to debut blog posting revival with an analysis on healthcare quality, but turns out while watching the Sunday morning political talk shows this got my attention.

On ABC's Meet The Press, the Sen. John Cornyn, the chairman of the National Republican Senatorial Committee made quite a blatant accusation about the budget deficit. You can read the trascript of the discussion here. Quoting Cornyn:

SEN. CORNYN: Well, let's look at a few facts. I, I, thank you for the opportunity because I wanted to respond to what Chris said. You know, in the last year that President Bush was in office, 2008, the deficit was 3.2 percent of the gross domestic product. Today it's 10 percent. Just--we just hit the $13 trillion cap on national debt, $2.3 trillion...

Apparently we are going to hear this more and more, since the same issue was raised by Mitch McConnell on CNN's State of the Union. Transcript here.

MCCONNELL: -- how long can we -- how long can the other side run against the previous administration? They've been in charge now for a year and a half. They've been on a gargantuan spending spree. They've taken, as I said, the deficit as a percentage of GDP from 3.2 percent to almost 10 percent in a year and a half.

The first argument to be raised here is obviously that the TARP money and the bank bailouts were passed during Bush's term, not Obama's, which have been the major contributor to the budget deficit. But that's not all, since they are also blatantly lying about how big the deficit was.

Also as Paul Krugman brilliantly points out, what Cornyn and McConnell refer to as the last year of Bush actually does not include the 4th quarter of 2008 which is when all the TARP and bank bailouts were passed through the congress. Also the first quarter of 2009 reflects mostly Bush policies, since the fiscal stimulus bill, ARRA, was not passed until Feb 17.

Source: BEA through Paul Krugman

Republicans are making these claims to show how fiscally irresponsible Democrats have been, and how much Republicans value fiscal austerity. Their track record however, is exactly the opposite.

The US has been running a structural deficit (i.e. the persistent component of budget deficit, as opposed to the cyclical component which comes and goes with business cycles), since Bush took office to top this off. When Bush 43 took office US had a budget surplus of 2.5% of GDP. By the end of Bush's first year in office the federal budget was almost flat, at 0.6% of GDP. We never looked back after that. At one point in 2004 the budget deficit was nearly 4%, which recovered to 1% in June 2007. When Bush left office in January 2009, the budget deficit was 5.4% of GDP, not 3.2% as McConnell and Cornyn claims. Furthermore, this deficit was not on the back of a recession and high unemployment. In fact, every Republican president since Nixon has increased the US Federal debt throughout their term.

Source: US Office of Management and Budget through Wikipedia.

How come the party that is touting less government spending and austerity is doing exactly opposite?

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