One thing about this whole economic stimulus postponement is that there are still people out there worried about footing the bill for the necessary investment programs needed to beat the current recession. Though a majority on the left have bought into the reasonable idea of short-term deficit spending to beat a recession followed by a longer term approach to a balanced budget and paying down the debt. But there are folks (Tom Brokaw among them) who seem to think that between the financial rescue bill and any moderate stimulus that may come down the pike before Jan. 20, the new administration’s fiscal hands will be tied. Not so! Yesterday, I saw a briefing by John Irons of EPI, and here are some of his graphs for our edification.
The above graph charts deficits from 1955 to 2008. Note: The deficit in 1992 was much larger, as a percentage of GDP, than the deficit that Obama will inherit. Not even to mention the Reagan deficits of the nineteen eighties.
This graph shows a more relevant measure, the federal debt held by the public as a share of the overall economy. (The future numbers are just estimates). The current debt level is below the average of the last 65 years and the average of the 1990s. An increase in debt would not create an unstable economic situation.
This last graph doesn’t really have much to do with our argument but I think it’s interesting to track the tax revenue from corporations as opposed to other revenue streams. Social insurance taxes clearly provide more revenue than corporate taxes, which seems more than a little regressive.
Anyways, Irons says that between current spending levels, the financial rescue bill, and a weakening economy, a deficit of 5 percent of GDP is possible in 2009. But part of this deficit comes from the struggling economy (he estimates $370 billion), and we can expect to gain back a good part of our investments from the rescue bill. Ultimately, given that debt levels are at historical norms and that we can expect to see two to three years of weakness in the labor market, Irons concludes that, “the current fiscal situation should not be seen as a critical barrier to expanded investments in the economy.”
Whew!
--Tim Fernholz
