Since the Field Guide last discussed the dramatic decline of the US budget deficit, the non-partisan Congressional Budget Office came in with its revised numbers for Fiscal Year 2014, which ended September 30th. According to CBO, the deficit for FY 2014 shrank to $486 billion, or 2.8% of GDP. Because the US economy grows, on average, at a rate of about 3% per year, deficits smaller than that can be sustained forever. The US fiscal crisis is over.
The turnaround of the nation’s finances under the Obama Administration has been remarkable. FY 2009, which began while Obama was yet Illinois’ junior senator, had a budget deficit of 9.8% of GDP – the highest since World War II. Under Obama, that figure has fallen every year, to at last slip below 3%. FY 2014’s deficit is in fact slightly smaller than the average of the past 40 years.
If conservatives were thoughtful by nature, they might be scratching their heads. According to their dogma, Obama’s increased taxes on the wealthy, and the ACA’s expanded social insurance for the poor, should have led to mounting deficits and economic stagnation. That’s what they’ve been predicting for the past 6 years – along with hyperinflation. But the fact that reality has returned the precise opposite of conservative predictions – decreasing deficits, economic growth, increasing employment and below-average inflation – has not caused conservatives to reconsider their beliefs.
Responding to facts, after all, is only something that rational people do. Conservatives in the end are dogmatists whose beliefs are fundamentally religious in nature – they dont care a whit about reality. This is how conservatives can continue clinging to the discredited notion that tax cuts pay for themselves, and that social insurance is a black hole of waste and inefficiency. Despite being wrong again and again, they are unable to learn and move on.
Shortly after Reagan came to office in 1981, he got through his signature legislative initiative: slashing taxes on the wealthy, while affording smaller tax cuts to everyone else. The nation’s finances never recovered. Though the economy rebounded – as was expected, following the sharp recession of the early 80s – deficits remained unsustainably high until Reagan left office in 1989, and were still averaging nearly 4% of GDP during the Bush years that immediately followed. To fully grasp the significance of Reagan’s policy failure, it helps to appreciate that the Carter’s administration never ran a budget deficit greater than 3% of GDP, despite a poor economy.
Clinton came to power as the unReagan: he raised taxes on the wealthy (without a single GOP vote in Congress), while also increasing government spending on stimulus programs that typically help middle income families. With conservatives predicting gloom and doom, the US economy responded with its longest sustained expansion in history, while the deficit shrank to zero.
You’d think this experience would be the slam-dunk/death-knell of Voodoo Economics – if, after all, tax cuts demonstrably worsen deficits, while tax increases shrink them to nothing, while coinciding with unsurpassed economic growth, how could conservatives persist in their folly? But the charm of conservatives is their inability to learn from experience, no matter how obvious or unequivocal its lessons. And thus Bush Duh continued with the same conservative foolishness, cutting taxes on the rich, which gave away the nation’s hard-won surplus, replacing it with deficits stretching far into the future, culminating in a lackluster economy and the nation’s worst fiscal straits in more than 60 years.
Under Obama, the US has expanded its social safety nets and raised taxes on the wealthy, while lowering the deficit and growing the economy. In other words: it’s the same old story – and if conservatives in the Party of Duh had any connection to reality, they wouldnt be surprised at all.
The Field Guide is off mid-week for Veterans’/Armistice/Decoration Day – we’ll return with new material on Friday.