Obama’s Audacious Economic Experiment Failed

Record shattering deficits and debt have not delivered the promised prosperity

President Obama made an astounding claim in his recent pivot-to-the-economy speech at Northwestern University 

The deficits have come down at almost a record pace, and they’re now manageable.

The government’s fiscal year ended September 30 and the Treasury Department issued it’s final report for the fiscal year last week.  The 2014 deficit was “only” $483,350,000,000.  A time traveler from past decades would be shocked to learn that this figure is an improvement from the Obama Administration’s first five years.top-ten-deficitsAs the chart shows, the 2014 deficit can be seen as good news only after the Obama Administration deliberately ran the five largest annual deficits in all of the US Government’s 223 year history.

During Obama’s first Presidential campaign he characterized the Bush deficits as “irresponsible” and “unpatriotic.”  But now he calls the 2014 deficit, larger than all but one of Bush’s (and only 5% less than that one) “manageable.”  Apparently he hopes we’ll be persuaded that concern about deficits is now behind us and it’s time to crank up the spending machine again.

Is a $483 Billion deficit “manageable”?  One wonders what that word means in this context.  The government has “managed” this deficit as it has all previous deficits:  It borrowed more.

Treasury Secretary Jacob (Jack) Lew issued a more enthusiastic statement, hoping to divert attention from ISIS  and Ebola to some “good news.”

The President’s policies and a strengthening U.S. economy have resulted in a reduction of the U.S. budget deficit of approximately two-thirds — the fastest sustained deficit reduction since World War II.

Yes, the deficit has fallen 66% in five years.  But that’s not even close to the fastest deficit reduction since World War II.  Some examples of more rapid deficit reduction:

  • in one year, from 1953 to 1954 the deficit fell 82%
  • In two years, from 1972 to 1974 the deficit fell 74%
  • In four years from 1993 to 1997 the deficit fell by 91%
  • In three years, from 1962 to 1965 the deficit declined at the rate of 80%.

Before the Obama Administration, the all time deficit high water mark was World War II.  But that huge increase in debt was to pay for the largest war mobilization in human history.   Thirteen percent of the US population served in the military, compared to less than one percent today.  Most of America’s manufacturing plants and employees were diverted from  cars and consumer goods to guns, tanks, aircraft and other war supplies, all paid for by the government.

But, as soon as the war ended Congress cut spending by more than two thirds.

The Obama deficits weren’t for war.  They were sold as the road to economic recovery, job creation and prosperity, based on a theory known as Keynesian economics, that government deficits “stimulate” the economy.  Did the Obama deficit surge validate the theory?  To answer, we just happen to have another chart.Spending-VS-GDP-5yearsPresident Bush began and Obama completed a 24% spending increase, six times the average over the past 60 years. 

What did this massive spending and borrowing surge buy?  The weakest post-recession economy since the government began issuing quarterly GDP reports in 1947. 

How do Keynesian theorists such as New York Times columnist Paul Krugman explain this seeming contradiction between theory and results?  Astoundingly, they say Obama’s mistake was that he didn’t borrow and spend enough!

Then there’s the Keynesian claim that deficits generate more jobs.  We don’t have a chart for that but here’s a back-of-the-envelop analysis:

The recession officially ended in June, 2009.  Since then the total federal debt (sum of all deficits for 220 years) has increased by $6.3 trillion.  Over the same period employers report jobs increased by 8.5 million.   What if we give Keynesian deficit spending credit for EVERY new job?  In that case government debt has gone up $741,000 for each additional job.  If Keynesian theorists claim deficit spending created half the new jobs the debt increase would be almost $1.5 million for each job!

Interest on this additional debt is now costing taxpayers about $22,000 per year per job.  Every year.  Eighty to ninety percent of the new jobs pay less than $40,000 per year meaning they generate less than $6,000 per year in payroll tax and less than $3,000 per year in federal income tax. 

In a rational world the failure of this experiment in deficit spending would relegate Keynesian theory to history’s dustbin.  Let’s hope the election of GOP Congressional majorities marked the beginning of a house cleaning, to rid us once and for all of politicians who enact laws, prohibitions and mandates based upon this loony economic theory.

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