Monday, July 26, 2010

Recessions & Deficits: Then & Now

This morning's Wall Street Journal provided a sobering comparison of the US government's approach to the last two major recessions.

Under Ronald Reagan, the deficits following the Carter-era recessions were:

1982 4%
1983 6%
1984 5%
1985 5%
1986 5%
1987 3%

In contrast, the recent, current and projected deficits for this administration, from OMB sources, are:

2009 10%
2010 10%
2011 9%
2010 6%

Of course, the recent projections for future years are, if history is a reasonable guide, lowball estimates. Thus, the rough average of the current administration's deficits are/will be easily twice that of the Reagan years.

The Journal editorial notes,

"The 1981-82 recession was comparable in severity to the one Mr. Obama inherited and reached similar heights of unemployment. The deficits that resulted from that recession were the source of huge political consternation, with Democrats, the press corps and even some senior Reagan aides insisting that only a huge tax increase could save the country from ruin."

Remember David Stockman's infamous trip to the woodshed?

But Reagan didn't raise taxes, he lowered them. The resulting economic boom, derided by those parties which the editorial described as consternated, fueled US growth and government revenues for the following 15 years.

Now, however, we have much higher tax rates, being increased at the margin and by whole new taxes, accompanied by the largest amounts of federal spending ever seen outside of WWI and WWII.

As the Journal editorial concludes, it's a revealing comparison from the experimental lab of prior and current OMB-sourced deficit scorecards.

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