We Are Forever Indebted, Mr. Obama

A friend of mine posted the following graphic to her FB page along with the comment, “Know the facts. The data  is [sic] from Treasury. Thanks for the wars, GOP….not.”

As my loyal readers know, I am a total numbers geek. When I looked at the numbers above, they looked inherently misleading to me so I went to the data source to see if I could figure out the real story. I posted a few comments to her FB page and then thought to myself, “Hey, self, there’s a blog entry in them thar hills.” So, let’s have some fun with numbers.

My friend makes the point that facts are important.  Indeed they are – so let’s look at some relevant ones. The amount of federal debt is important as is the growth of federal debt, but only in the context of the size of the US economy. Think about this in terms of individuals. For example, it’s probably OK for Mitt Romney to have $10,000 in credit card debt, but probably not OK for a family of 4 living on $50K per year, right? So it is with the US economy. Thus, what matters most is not the absolute level of debt, but debt as a percent of gross domestic product (GDP). More on this in a moment, but also important to acknowledge that percentage growth rates are much higher when the base is lower (simple math) so a smaller increase in actual debt will appear as a larger percent increase when the base is lower (as it was in the 1980s vs. today).

So, let’s look at debt to GDP ratios. When Reagan left office, having laid the ground work to win the Cold War (I mused as to whether my friend would have preferred we still be in that war),  Debt/GDP was 52.6%. When Clinton left office it was 57.7%. When Georege W. Bush left office it was 74.1%, which is why you’ll never hear me defend his domestic policies. He spent like a democrat – a drunken democrat. That said, he may have also laid the groundwork for a new order in the Middle East. The jury is out on that and a topic for another blog. But, wait, hold onto your hat. In 3 short years, Obama has taken debt/GDP to 100%. That’s right, for the first time since 1947, when we were engaged in WW II, the United States federal debt is equal to the size of the entire US economy and a much bigger economy it is now than it was in 1947.

Is there more? As Al Pacino said in Scent of a Woman, “I’m just gettin’ warmed up.” The amount of debt a president accumulates is, of course, also related to how long he’s in office. It took GWB 8 years to increase the debt by 115%. Obama’s 41% increase (I have no idea where the author of the chart above got 16%; the data source shows 41%) has happened in just 3 years. GWB’s average annual increase was 11.1%, Obama’s is 13.8%. Put more mathematically, the compound annual growth rate (CAGR) in debt under Bush was 8.3% and has been 12.2% under Obama. Let’s hope these numbers convince voters that it would be scary indeed to give Obama a 2nd term, but if he does win in 2012 and if he just keeps up his current pace of debt growth (12.2% p.a.), he will have increased the debt by 151% in 8 years, compared to just 115% for GWB. Suddenly the chart above starts to look very different. It looks like this.


Looks very different, huh?



While this would put Obama at the same order of magnitude in terms total debt growth as Reagan, Obama’s continued anemic GDP growth would put him a (very ugly) league of his own on debt/GDP growth. One of my friend’s FB friends responded (as so many liberals have in the last few years) with something to the effect of, “But, wait, Obama inherited a disastrous economy.” Yes, and I agree that every president is dealt a hand not of their own choosing. Reagan’s awful hand was dealt by Carter and his performance and numbers above are, at least in part, a reflection of that hand. Obama was also undoubtedly dealt a tough hand. That’s where the similarities end. Obama fashioned an approach to growing the economy based on huge government spending and stimulus. If it had worked, I probably wouldn’t be writing this blog and we wouldn’t even be having a discussion about the 2012 election.  If it had worked, strong GDP growth would have kept Obama’s debt/GDP ratio down. But, it didn’t work. It was a catastrophe and growth has been at a tectonic pace, unlike the very strong growth by Reagan’s third year in office.

Again, let’s look at the numbers.  GDP grew a pathetic 5% total (not per annum) in Obama’s first 3 years in office. GDP grew 23% in Reagan’s first three years in office. If you apply Reagan’s years 1-3 growth rate to the GDP Obama inherited (in other words, suppose Obama’s GDP growth had mirrored Reagan’s at this point in his first term), Obama’s Debt/GDP would be 85% today instead of 100%. Still higher than any president since WW II, but moving in the right direction. But, Obama increased the numerator in debt/GDP while doing very little to help the denominator. Reagan increased the numerator in his successful effort to win the Cold War, but also instituted policies that led to meteoric growth in the denominator.

The 2012 election should be a referendum on these differences.

About Bruce Robertson

Bruce Robertson is an amateur writer and professional provocateur
This entry was posted in Uncategorized. Bookmark the permalink.

6 Responses to We Are Forever Indebted, Mr. Obama

  1. Joe Spivack says:

    Great post, Bruce – unfortunately I’m not optimistic that anyone out there will be able to make the case effectively enough in 2012.

  2. Bonnie Miller says:

    Thx, Bruce….sharing!

  3. Dan Grabois says:

    I’m not sure about any of these numbers. All I can tell you is, when your blog post showed up in my inbox, I opened it up, and across the top it said “Mail thinks this is junk.” Pretty funny! One question for you: do you think the creation of and then popping of the housing bubble had any impact on these numbers? Also, is it possible that the cyclical nature of economic ups and downs accounts for some of Reagan’s good stats, some of Clinton’s good stats, and even some of Bush’s bad stats? And, if so, and we are in an unusually deep hole because of the coincidence of the housing bubble’s bursting with a cyclical downturn, then is it possible that Obama is facing a different sort of situation calling for a different response? One thing is certain: you’d have to be nuts to want to be the president right now.

  4. Pingback: 15% and the Big Buffett Lie | Bruce's Blog (til I come up with a catchier name)

  5. Robert Endries says:

    Care to swing around and update this?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s