Show me the money!

So, this image shows, from 1981-2012, how much money our government has spent versus how much money it has taken in. Anyone else notice a problem here? First of all, let's be clear about one thing. The Clinton era appears to have brought in more money than it paid out, which was true as long as you continue to raid the social security "trust fund" (not that that really exists anyway). However, if you remove social security from this chart, the Clinton era surpluses disappear and all the rest of them look even worse than they do now.

However, let's ignore that for the purposes of this post. So, how did each President do in regards to the budget and spending overall. Well, technically, all of them failed because not a single one of them managed to spend less than was brought in throughout their Presidency. This chart is in percent to GDP in order to be a more accurate representation of reality since the total numbers we generally talk about tend to get lost in the discussion. What does this chart show.

First, it clearly shows that Reagan increased spending during his first several years. This was largely on defense and (for those of you who didn't live during this time) was for the purposes of trying to outspend the Soviets to try to force them to keep up with us. It also shows, that in 1983 when the economy was pretty bad and tax revenues dipped, Reagan cut spending. Now, it did bump up some after that, but by the time he left office, it was significantly lower than what he'd inherited. Of course, he was having to work with a Democratic majority in the House (the Republicans had the Senate), so both parties deserve some credit and blame here, but Reagan had ideals that the budget had to be reigned in and the government had to be smaller. He had to compromise with the opposition on many things, but did, I believe, start a trend. However, Reagan's average still has him spending 4.2 percent above GDP over his 8 years. An improvement for sure, but not enough. Of course, much of this spending was on defense, which eventually ended up bankrupting the Soviets in their efforts to keep up, so you take the good with the bad I guess.

Next was Bush I. We'll all remember the no new taxes pledge that was quickly violated. It is of note that revenues went down each of his 4 years in office while spending went up. You could attribute much of that spending to the Gulf War in the early 90s, but considering the large tax increase that was put in place by the Democratic Congress (the Democrats regained the Senate so had a majority in both houses as of 1988) that Bush then signed into law, you'd have expected a different result. Instead, revenues decreased. For those who look at Keynesian economics and scoff, this outcome is entirely consistent and expected. There is a fine line between the amount you can tax and increase revenue and the amount you can tax that decreases revenue because of decreased production in the economy. Keynesians ignore this principle, but it is a valid one, often overused by Republicans to justify tax cuts, but still a valid principle. Now, to be fair, there was a recession at the end of Bush's term which likely cost him the election and would have certainly decreased revenues as well. However, even with the decreased revenue and increased spending, the Bush I years still did better as an average than did Reagan, spending only 4 percent more GDP. I think this is largely because he only had 4 years by which to compare. The trend during his Presidency suggests that he would have fared much worse than Reagan if extrapolated out to 8 years.

Then came Clinton. He campaigned on his ability to reign in spending which won over many independent voters. He then went on to prove he could do it. He decreased spending as a percent of GDP every year he was in office while revenues rose. This is generally how things are supposed to work. Right now, we know that his policies created the dotcom bubble and generated more deficit spending on the part of average citizens than ever before, but those policies continued into the Bush II years. Plus, since the Republican "revolution" of 1994 swept the majorities of both Houses for the first time in 45 years, Clinton had to work with a Republican Congress to enact almost anything. Therefore, as with Reagan, the Republicans and Democrats must share the credit as well as some of the blame for what happened in the 90s. So, give credit where credit is due. The 90s was this generations equivalent to the 20s. Still, Clinton, over his 8 years, still managed to average .8 percent greater spending than revenues. Headed down the right path, but he needed more time I guess?

At any rate, Bush II took power and everything changed. We slipped into a recession, we cut taxes (probably more than we needed to), 9/11 happened...a pretty bad hand to have been dealt if you ask me. Still, spending and revenues were relatively stable in the first year. It was only after the tax cuts, 9/11, two wars and massive federal expansions in Medicare and with Homeland Security and TSA did the spending start to balloon. All this while revenues had dropped because of tax cuts and a recession. The tax cuts were supposed to help the recession and some evidence suggests they helped a little, but that isn't the point. Revenues dropped significantly. Republicans did abandon the principles that had won them elections in the 90s. Specifically, smaller government and less spending. They achieved neither of these goals during the Bush years. Is it any wonder the electorate turned on them in 2006. That said, Bush's spending was remarkably consistent during his Presidency. The Democrats took over Congress in 2006 so from that point on they have to share in the credit/blame. Amazingly, it seemed that the Democrats were on the right track, cutting spending in 2007, but then the economy tanked (which had been predicted by many but ignored by politicians). It was at that point that Bush's spending went up...this was the Bush stimulus plan which stimulated nothing. The Bush Republicans embraced Keynsianism along with the Democrats while the rest of us (some Democrats, many Republicans, and a LOT of independents) shouted NO. Amazingly, Bush's average was only 2 percent above revenues but this was largely due to what had been achieved during the Clinton years. Even so, Bush's spending was still significantly less than the amount of spending that took place during Reagan's first 3 years in office.

When Obama came in to office, he had a Democratic majority in both houses, which continued until the 2010 elections gave the House back to Republicans. This means he had 2 budget cycles where you can't blame anyone but Democrats. So, what happened. The first thing you'll notice is that spending jumped from about 21 percent of GDP in Bush's last year to nearly 26 percent of GDP in Obama's first year. That is all on the Democrats and it is all a result of two fallacious beliefs. One, that the New Deal worked (several studies have recently shown this to be nothing but a myth) and two, that Keynesian economics works. The fact that they never have worked for a prolonged time anywhere in the world seems to be lost on them. So, I believe Democrats are sincere in what they are doing, they are just sorely mistaken in the principles they are using to guide their actions. Now, 2010-2012 are nothing more than estimates, but I submit that 2010 is a pretty good estimate. The reason it has to be estimated is two fold. One, the 2010-2011 budget year isn't complete and so the exact numbers aren't yet known, but two, the Democrats didn't bother to pass a budget in 2010, so we are working off last year's budget with a few changes thrown in. The fact is that we aren't bringing in anymore than 2.5 trillion in revenues, so 3 trillion dollar budgets are irresponsible. We can also note that the President's budget for 2011 is 3.7 trillion dollars. This doesn't do anything to cut spending in reality. Additionally, the spending increase in Obama's first year alone turned back every bit of progress we'd made since Reagan took office because for the first time since 1983, the spending of GDP was above 24 percent. Again, this is all on Obama and the Democrats. The Republicans never spent this much when they were in power, even fighting 2 wars. We justify this spending with arguments the government must spend us out of recession using a keynesian approach. This has resulted in artificially low interest rates, increased printing of money, deficit spending beyond anything we've seen since world war II and the need to increase the national debt limit for the second time in 2 years, even though this President himself rightfully declared on the floor of Congress in 2006 that having to raise the national debt ceiling was an indication of a failure of leadership. Therefore, it is no wonder the voters kicked the Democrats out of the House in 2010. They can see, just as much as Obama could in 2006, that we have a failure of leadership. They can also see that this spending is unsustainable and will bankrupt us. Just this year, social security lost money for the first time in its history. This was several years before that was supposed to happen. Federal spending isn't going to make things better, it is going to drag everyone down with it. Sure, every President is guilty of this as demonstrated in this graph, but the current administration has exponentially compounded the problem.