You know the old joke about the comedians’ convention? They all know the same jokes so they don’t tell them, they just give them numbers. So they stand up and say “19!…8!” cracking each other up (then a new guy yells “6!” and nobody laughs…what’s wrong, he asks…it’s your delivery, they say).
Well, perhaps it would be more efficient to just number the most critical arguments made here at OTE and instead of posting blogs every time they come up somewhere, I could just post the number.
This particular one would get a lot of use. In a WSJ editorial today, they go after the President for the increase in the budget deficit over his watch. When the President correctly points to the actual factors behind the increase in deficit, they accuse President Obama of “…conveniently forget[ing] a little event in February 2009 known as the “stimulus” that increased spending by a mere $830 billion above the normal baseline.”
It’s of course true that the stimulus (no quotes necessary, WSJ–it was real…and it worked) led to higher deficit spending when it was in place. That’s the point. In order to offset the private sector contraction, the public sector needs to TEMPORARILY ramp up economic activity, and it must do so with borrowed money (to raise taxes or cut spending to pay for stimulus would be to reverse its impact).
But the key word is “temporary.” As seen in the figure below (or figure 1 in the link above), it’s not the stuff that gets in and out of the system that hurts you, deficit-wise. It’s the stuff that stays in and isn’t paid for, like the Bush tax cuts, which continue to be the big story re what’s driving the medium-term budget deficit.
The figure shows Recovery Act spending as a share of GDP, 2009-2019. It doesn’t go to zero because there are interest costs in the out years. I’m not claiming that stimulus is a free lunch. But I’m very much claiming it’s not what’s driving the budget deficit going forward.
Sources: CBPP (h/t: KR), CBO
In fact, as long as we’re being honest, if it were me, I’d say we could use another dose of temporary, deficit-increasing stimulus, particularly targeted at ending (or at least slowing) the layoffs in the public sector. Call that point 16a/7b.