Sunday, February 19, 2012
I offer this chart in the hope of clarifying the ongoing controversy over how much federal debt was accumulated during past presidencies. Each bar represents the Federal debt burden at the beginning and end of each presidency, and the bars are added together in cumulative fashion. As should be readily apparent, in his first four years of office Obama will have added considerably more to our federal debt burden that any post-war president. (The Federal debt burden reached an all-time high of more than 100% of GDP at the height of WW II, then declined steadily through the early 1970s.)
Lest I be criticized as too partisan, I note that Clinton achieved the largest reduction in our debt burden of any president since the 1950s.
My assumptions: For Federal debt I use the amount of debt held by the public, not total debt (which includes debt the federal government owes to itself, e.g., to social security). I have compared federal debt outstanding to nominal GDP at the end of each calendar quarter immediately following a president's assumption of office: thus, Bush II starts in Mar. '01 and ends in Mar. '09. I do this in order to give a new president a month or two to get his feet on the ground, and to credit outgoing presidents with the policies they set in motion before they left. Also, this allows me to use data which is only available on a quarterly basis. I reject the notion that an incoming president must necessarily shoulder the policy burdens of the outgoing president, and in this regard I note that there have been several sizable reversals in the chart above (e.g., Clinton inherited a rising debt burden but managed to reverse that in significant fashion, while Bush II did just the opposite). Finally, I consider debt outstanding as a % of GDP to be the best measure of our national debt burden, since it adjusts for growth in the economy and inflation.
In order to project the federal debt burden as of Mar. '13, I assume that the federal deficit in the 15 months prior will be an annualized $1.2 trillion, and that nominal GDP will grow by an annualized 5%. I believe these are conservative assumptions for the purpose of this analysis; the OMB is projecting a higher deficit and there are many analysts projecting slower GDP growth. A bigger deficit and slower GDP growth would obviously result in a much larger increase in the debt burden than shown here.
Finally, I note that Obama's contribution to our debt burden during his first term is likely to be about 25.6% of GDP, while the next biggest post-war contribution came during two terms of Bush II (15.3%). If Obama wins a second term and the economy and fiscal policies evolve along the lines currently projected by OMB, Obama could end up adding more to our debt burden that all past presidents combined, and almost as much as was taken on to fight WW II—a highly dubious distinction, needless to say.
The chart above gives some long-term perspective on debt burdens and interest rates. Note how there is no evidence at all that higher debt burdens lead to higher interest rates, or vice versa (if anything, the correlation appears to be negative). The same can be said for Japan, where the government's debt burden is well in excess of 100% of GDP, yet interest rates are even lower than in the U.S.
Posted by Scott Grannis at 4:29 PM