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Fabulous picture, but…

Posted By Russ Roberts On August 3, 2011 @ 5:04 pm In Debt and Deficits,Uncategorized | Comments Disabled

James Fallows called this picture [1] which uses numbers from the CBO and the Center on Budget and Policy Priorities, the “chart that should accompany all discussions of the debt ceiling:

[2]

The debt ceiling debate is over for now, but I found this to be a very useful chart. Fallows has some interesting observations but one of his points is that the Bush tax cuts are the “largest single contributor” to the Federal deficit.

That’s one way to look at it. A richer perspective is that during the Bush Administration, the government spent like a drunken sailor while cutting taxes. So while the tax cuts are measured to have decreased revenue by their full amount (I assume that the CBO and CBPP neglect any incentive effects of lower rates), you can’t help but be struck by the magnitude of the spending increases. So another way to interpret the chart is that roughly 2/3 of the increases in deficit in the Bush years came from spending. A lot of spending.

But for me the more interesting (and misleading) aspect of the chart is the “modest” increases in the deficit coming from Obama, a “mere” $1.44 trilion. There’s a pernicious assumption built into that conclusion, that all previous spending is “mandatory.” I put that word in quotes because it is used all the time in a way that has nothing to do with its use in the English language.

(I am reminded of the scene from the Princess Bride when Inigo says “You keep using that word. I do not think it means what you think it means.” Here’s a clip [3].)

Mandatory in English means you have to. Mandatory in Washington-speak means optional but let’s pretend otherwise.

So Obama stays in Iraq, stays in Afghanistan, stays in Guantanamo Bay and opens a war with Libya. What does the chart say? He gets some “Savings” (modest, but real evidently) on defense spending. Notice that the Bush part of the chart includes wars and defense. I assume that any changes in the wars under Obama (and I have no idea if spending has increased or decreased on net) aren’t in the chart because other than Libya, they aren’t new. They aren’t “New Policies.”

So the decision to keep the insanity of Bush’s spending is irrelevant. The chart acts as if Obama is stuck with that. That’s mandatory. It isn’t his. And so the decision to add another $1.44 trillion seems something like small potatoes. But that’s a terrible way to look at it. The same point can be made about the Bush tax cuts. Obama voted to extend them. Why aren’t they part of his fiscal record?

Suppose you take a loan and buy a Lexus. You decide to buy a car for your wife. You keep the Lexus and take out a second loan to buy her a Ferrari. Your wife loses her job, so you’re struggling to make the payments on both cars and your teenaged daughter asks for a car and you buy her an Acura. So what’s the source of your impending bankruptcy? It can’t be the Acura, right? That’s only a small part of your debt!

The chart is misleading on two counts. First, it implies that you can look at Obama’s contribution to the debt independently of what went before. And second, it implies that what went before has nothing to do with Obama. But when you’re living beyond your means and they’re about to take your Ferrari, you don’t buy an Acura, even if it’s a nice car and relatively affordable.

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[1] James Fallows called this picture: http://www.theatlantic.com/politics/archive/2011/07/the-chart-that-should-accompany-all-discussions-of-the-debt-ceiling/242484/

[2] Image: http://cafehayek.com/site/wp-content/uploads/2011/08/24editorial_graph2-popup-thumb-560x622-58477.jpg

[3] Here’s a clip: http://www.youtube.com/watch?v=OHVjs4aobqs&feature=related

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