Bumpier deficits, smoother ride

August 18th, 2015 at 11:43 am

I just love these graphs! (Can you say that about graphs you made?? We–RK and I–were only able to make them because my formidable co-author Richard Kogan dug up data on deficits as a share of GDP going back the beginning of the nation!)

Over at Vox. Basically, these figures are pictures of what I called optimal fiscal policy here.

UPDATE: Someone pointed out that we neglected to provide sources for Richard’s data. Here ’tis:

  1. Deficits through 1900 are from TABLE Ea584–587 Federal government finances – revenue, expenditure, and debt: 1789–1939 [Historical Statistics of the United States, Millennial Online Edition, Cambridge University Press, 2014] http://hsus.cambridge.org/HSUSWeb/HSUSEntryServlet
  2. Deficits from 1901 on are from OMB Historical Tables 1.1, https://www.whitehouse.gov/omb/budget/Historicals/
  3. GDP growth rates are derived from Louis D. Johnston and Samuel H. Williamson, “What Was the U.S. GDP Then?” MeasuringWorth, through 1929. http://www.measuringworth.com/usgdp/
  4. GDP growth rate are derived from OMB Historical Table 10.1 from 1950 on, https://www.whitehouse.gov/omb/budget/Historicals/

Our use of sources 3 and 4 is explained in more detail, and over the entire period 1792-1930, in Appendix 1 of this CBPP analysis.


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4 comments in reply to "Bumpier deficits, smoother ride"

  1. Len Charlap says:

    You may be interested in the following paper:

    Balanced Budgets and Depressions

    Thayer, Frederick C.,The American Journal of Economics and Sociology , Vol. 55, No. 2

    Since 1791, the earliest data available, the national debt has been increased in 112 years, decreased in 93 years. 57 of those balanced-budget, debt-reduction years have been concentrated in six sustained periods of varying length. Also since 1791, there have been six significant economic depressions among the innumerable “business cycles.” Each sustained period of budget-balancing was immediately followed by a significant depression. There are as yet no exceptions to this historical pattern.

    This is the record of six depressions:

    1. 1817-21: in five years, the national debt was reduced by 29 percent, to $90 million. A depression began in 1819.

    2. 1823-36: in 14 years, the debt was reduced by 99.7 percent, to $38,000. A depression began in 1837.

    3. 1852-57: in six years, the debt was reduced by 59 percent, to $28.7 million. A depression began in 1857.

    4. 1867-73: in seven years, the debt was reduced by 27 percent, to $2.2 billion. A depression began in 1873.

    5. 1880-93: in 14 years, the debt was reduced by 57 percent, to $1 billion. A depression began in 1893.

    6. 1920-30: in 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.

    There has been no sustained period of budget-balancing since 1920-30, and no new depression, the longest such period in our history.

    The question is whether this consistent pattern of balance the budget-reduce the national debt-have a big depression is anything other than a set of coincidences. According to economic myths, none of these sequences should have occurred at all. How on earth, for example, could we virtually wipe out the national debt in the mid-1830s, then fall immediately into one of the six recognized collapses in our history? Those who write about the desirability of reducing the national debt frequently praise Andrew Jackson for his vigorous pursuit of such a goal, but do not mention “depression” in the same breath. It is helpful to the maintenance of economic myth to say little about depressions in textbooks, thus making it easy to avoid looking at connections considered impossible anyway.

    The mutual finger-pointing now underway is aimed at the 1996 elections, Democrats and Republicans each blaming the other for the agreed disaster of high deficits and debt. Yet the deficits of the 1930s and recent years were trivial, relative to GNP, when compared with the wartime deficits of the 1940s that ended the Great Depression. Federal deficits in World War II ranged from 20 to 31 percent of Gross National Product. For a few years, the national debt was greater than GNP, the only such period in U.S. history.

    The national debt is now less than 70 percent of Gross National Product (GNP), much below the 130 percent debt of the late 1940s, and a debt that remained higher than today’s debt until the mid-1950s. According to economic myths, that wartime spending should have made things worse, not better.

    Those who look closely, therefore, will see some obvious intellectual dishonesty at work. It is dishonest to avoid looking at depressions and wars when discussing the evils of deficits and debt, and to propagandize by using absolute levels of deficits and debt when only relative comparisons are valid. It is dishonest to write textbooks in which there is no mention of what Herbert Hoover, Franklin Roosevelt, and noted financier, Bernard Baruch, had to say in the early 1930s about causes of the Great Depression. The belief at that time, even if rejected by economists, was that “overproduction,” “excessive” and “destructive” competition were to blame. To be sure, nobody has suggested that government underspending can massively contribute to big depressions, even though this is only the flip side of overproduction. Put another way, if the market for consumer goods cannot do the job, there is every reason to turn to the production of public goods, always in short supply anyway.

    The tragicomedy of economics is easily displayed. If someone borrows money to build a brewery, the money is officially listed as “investment” in national income accounts. If government borrows money to build a bridge that is needed by the brewery, these funds are not listed as “investment” because the bridge is considered “waste.” To think that this sort of logic undergirds public policy is to experience pure fright. Economics, of course, is not the only “discipline” that fills the world with unsupportable myth, but it is among the leaders.

    [Frederick C. Thayer is a Visiting Professor of Public Administration, George Washington University, Washington, DC 20036 and Professor Emeritus, Public and International Affairs, University of Pittsburgh.]

  2. Marko says:

    In the eight recessions from the one in 1954 to the 2001 recession , the fiscal impulse went positive a couple to several quarters before the private credit impulse , every time. Real gdp growth went positive ( i.e. above the trend line ) about the same time as the private credit impulse turned positive or shortly thereafter ( 1980 double dip a partial exception , due to the intentionally high interest rates which suppressed the follow-on private credit impulse ). In other words , fiscal stimulus leads us out of recessions – always has , always will , unless we choose not to use it. ( When private debt loads become excessive , like now , the “second phase” impulse is inoperable , but that’s another story.)

    Notice when the lines cross the zero line in an upward direction. Real gdp is black , fiscal is green , private credit is red. Trend real gdp growth is set at 3.7 % Y-O-Y for 1953-1978 and at 2.7% for 1979-2006.



    1979-2006 :


    It doesn’t get any clearer than this , yet economists will pretend to argue about whether fiscal policy does anything for decades to come. The entire field is one bad , sad joke. The problem is not just Romer’s “mathiness” , it’s “The Big Lie” and all its money-grubbing proponents. It’s time for people to start saying so , explicitly. Romer has barely dipped his pinky into the real ocean of truth-telling we need to start hearing from honest economists , however few there might be.