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June 19, 2003

Bush's Fiscal Mismanagement

But it's actually far worse than it looks when you put it in historical perspective. Many people know that you have to adjust annual deficits for inflation to compare deficits year to year, which might seem to make Dubya's deficits bad but not outlandish (at least not compared to his Dad). But you also have to recognize that inflation also effects the total value of the debt, not just the deficits. Inflation cuts the real amount owed by the federal government on past borrowing, which means that in times of high inflation, even large real deficits are offset by real cuts in the total value of the debt. Conversely, running deficits in times of very low inflation means that the real cost of the debt escalates much faster.

Which is what Bush is doing right now.

What this means is that when you look at the history of the public debt, the United States had a large increase in federal debt to pay for World War II, then basically did not increase public debt significantly until the 1980s. Let me repeat-- in real terms, public debt did not significantly increase from the end of World War II until the beginning of the 1980s.

Under Reagan and Bush Senior, real debt exploded for the first time since World War II. Clinton's administration saw the most significant decrease in public debt in the whole post-war period.

As this chart shows, the US by 2000 was just beginning to recover from the irresponsible binge in public borrowing that Reagan and Bush Senior had engaged in.

I don't have a graph with the real increases in debt due to Dubya's tax giveaways to the wealthy, but with almost zero inflation, it's an almost pure billion for billion increase in real debt.

See here for more historical graphs and here for more explanation on the role of inflation in real debt. (Go to pg. 436 under "the government as debtor" section).

Posted by Nathan at June 19, 2003 04:05 PM

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