Even More On the Deficit's Origin

Paul Krugman Conscience of a Liberal October 19, 2010

I’ve thought of another way to present the data on GDP, spending by all levels of government, and taxes. Let’s look at trends in GDP, spending, and revenues over two periods — one designed to capture “normal” growth, the other the economic crisis.

For the first period, I look at trends from the business cycle peak in the first quarter of 2001 to the peak in the last quarter of 2007. This is a standard way of measuring economic trends, by the way, since business cycle peaks presumably measure the economy’s output at or near capacity. And yes, this means that I wrote this post in a fit of peaks.

For the second period, I use the quarters since that 2007 peak.

So here’s what you get:

During the pre-crisis period, spending grew slightly faster than GDP — that’s Medicare plus the Bush wars — while revenue grew more slowly, presumably reflecting tax cuts.

What happened after the crisis? Spending continued to grow at roughly the same rate — a bulge in safety net programs, offset by budget-slashing at the state and local level. GDP stalled — which is why the ratio of spending to GDP rose. And revenue plunged, leading to big deficits.

But I’m sure that the usual suspects will find ways to keep believing that it’s all about runaway spending.

Paul Krugman is an Op-Ed columnist for The New York Times.

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OK, they knew what JFK meant.

October 19

China Raises Rates

And proves my point.

October 18 //

Just Call Him Bernanke-sama

We've seen this movie.

October 18 //

Even More On The Origins of the Deficit

It's still about revenue.

October 18 //

We’re Not China

Quantitative easing is not currency manipulation.

From the Opinion Blogs Freakonomics Now's the Time to Buy That Island

The recession has apparently put a real dent in the market for islands, The Seattle Times reports.

Dot Earth Energy Action Amid Climate Discord

Conserving energy is seen as a smart choice even in places with few climate concerns.

And proves my point.

October 18

Just Call Him Bernanke-sama

We've seen this movie.

October 18 //

Even More On The Origins of the Deficit

It's still about revenue.

October 18 //

We’re Not China

Quantitative easing is not currency manipulation.

From the Opinion Blogs Freakonomics Now's the Time to Buy That Island

The recession has apparently put a real dent in the market for islands, The Seattle Times reports.

Dot Earth Energy Action Amid Climate Discord

Conserving energy is seen as a smart choice even in places with few climate concerns.

We've seen this movie.

October 18

Even More On The Origins of the Deficit

It's still about revenue.

October 18 //

We’re Not China

Quantitative easing is not currency manipulation.

From the Opinion Blogs Freakonomics Now's the Time to Buy That Island

The recession has apparently put a real dent in the market for islands, The Seattle Times reports.

Dot Earth Energy Action Amid Climate Discord

Conserving energy is seen as a smart choice even in places with few climate concerns.

It's still about revenue.

October 18

We’re Not China

Quantitative easing is not currency manipulation.

From the Opinion Blogs Freakonomics Now's the Time to Buy That Island

The recession has apparently put a real dent in the market for islands, The Seattle Times reports.

Dot Earth Energy Action Amid Climate Discord

Conserving energy is seen as a smart choice even in places with few climate concerns.

Quantitative easing is not currency manipulation.

The recession has apparently put a real dent in the market for islands, The Seattle Times reports.

Conserving energy is seen as a smart choice even in places with few climate concerns.

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Even More On the Deficit's Origin

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