Seeing is Believing

My good friend, a died-in-the-wool conservative, contested an earlier post, The Absurdity of Conservative Economics, arguing that stimulus spending doesn't work because we never reduce spending after increasing it to stimulate the economy. Really?!

There is a legitimate debate about so-called deficit spending and Keynesian Economics, and whether in the long term it helps or hurts economic growth, but there is no debate about whether federal spending is ever reduced after increases -- maybe I misunderstood him. He's old and I'm older. But here's the picture that's worth a thousand words.

Outlays, Receipts & Deficits as % of GDP

The data were downloaded from the Office of Management and Budget and then opened using an Apple Works spreadsheet program. Clearly, the outlays as a percent of GDP during WWII greatly exceeded receipts and deficits grew larger. After the war, federal spending dropped dramatically and deficits shrunk. You can see the same pattern throughout the chart, although far less dramatically.

It's also interesting to note that our current deficit problems started in George W. Bush's first term in 2001 and grew worse until he left office. Under the Obama Administration, outlays and receipts are converging and deficits are shrinking -- another fact that my friend and his conservative golf buddies at the country club are loath to recognize (there were three Democrats at the country club, but two of them died and the other one disappeared mysteriously after birdieing the 8th hole and causing a 'redistribution of wealth' among the foursome (JK)).

The contraction during the Great Recession precipitated by Bush's economic policies and an under-regulated financial industry is the largest decline since quarterly data became available in 1947. Cumulatively, real GDP fell by 4.3% during the recession. The steep drop in economic activity caused by the recession makes it imperative that more work is done to raise economic growth and speed job creation.

Republicans say they're focused on creating jobs, but actions speak louder than words. They manufactured two debt crises in the last two and a half years. In the first one they managed to get an across-the-board cut -- the sequester -- causing all kinds of chaos (which they then tried to reverse with selective appropriations). In the second they got basically nothing (except some $3b for a dam project in Mitch McConnell's state of Kentucky).

But they'll be back for more cuts, both in spending and taxes, as well as "fixes" to the Affordable Care Act. Everything they do will hurt the economy -- count on it!