Charts of the Day: The origin of the debt crisis

posted at 10:01 am on January 22, 2013 by Ed Morrissey

Republicans blame Barack Obama for the national-debt explosion, and for good reason; about a third of the existing national debt has accrued in his four years in office.  Democrats blame George W. Bush for it, as deficits returned during his eight years after a momentary respite under Bill Clinton and a (briefly) fiscal-conservative Republican Congress.  A few Democrats still blame Ronald Reagan, whose defense spending supposedly first delivered big deficit spending.

However, a new study from the St. Louis Fed argues that the problem began farther back — in 1970, when the federal government began to implement benefit programs that decoupled spending decisions from revenue (via Kevin Glass):

The U.S. national debt now exceeds 100 percent of gross domestic product. Given that a significant amount of this debt is the result of governmental efforts to mitigate the effects of the financial crisis, the recession, and the anemic recovery, it is tempting to think that the debt problem is a recent phenomenon. This article shows that the United States was on a collision course with a major debt problem for nearly four decades before the financial crisis. In particular, the debt problem began around 1970 when the government decided to significantly increase spending without a corresponding increase in revenue. The analysis suggests that the debt problem cannot be permanently resolved without creating a mechanism to prevent the government from running persistent deficits in the future.

The report has plenty of data and analysis, but this chart shows the problem most clearly.  It tracks broad classes of spending over the last sixty-three years and demonstrates what exactly drives the debt and deficit crisis:

First, let’s point out that defense spending isn’t driving this crisis.  We used to spend an amount equal to 10% of GDP on national defense (as we ramped up our involvement in Viet Nam) without tipping over into massive deficits.  In terms of GDP, Reagan’s increased defense spending was below the pre-Viet Nam norm, and not much of a spike, either.  Entitlement spending rose more, faster, and longer than defense spending did during the Reagan term.  By the time Bill Clinton took office, both SSM and OPI (Other Payments to Individuals) outstripped defense spending, and the difference has only become greater in the last three or four years of this graph.

Couple that with this chart, which should be familiar in concept to anyone paying attention to the issues:

Are we having a revenue problem, in terms of percentage of GDP? Yes, although that’s more linked to the Great Recession and lack of growth in the nearly four years of recovery since it ended.  However, the deficit problem is clearly more related to spending, not revenue, and that problem has grown worse even in an economic stall.

The problem is where to solve that problem.  The report shows where attention must be directed:

We are already working downward, relative to overall spending, on discretionary spending.  We need to change the trajectory of mandatory spending — which means that entitlement reform is a must if we are to fix our five-decade decoupling of spending from revenue.

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I blame the American people for disinterest and neglect.

Bmore on January 22, 2013 at 10:04 AM

Those are all well and good, but how do we get more rights to tans-gender catdogs and high def cell phones to the needy? Also, Republicans did it.
-Leftist.

Gatsu on January 22, 2013 at 10:06 AM

As it turns out self governance is hard.

Bmore on January 22, 2013 at 10:07 AM

However, a new study from the St. Louis Fed argues that the problem began farther back — in 1970, when the federal government began to implement benefit programs that decoupled spending decisions from revenue

In other words, LBJ’s Great Society which Nixon ramped up during his Presidency is a big reason we’re in our current mess. Good luck rolling any of that back under Obama.

Doughboy on January 22, 2013 at 10:08 AM

Libtards don’t understand how to read your graphs Ed. Please provide a brief tutorial for them, leaving out big words and math concepts.

NOMOBO on January 22, 2013 at 10:10 AM

The third rail will remain without adjustment.

Bmore on January 22, 2013 at 10:11 AM

“Mandatory”. That would be the problem.

I seem to recall that cuts in defense spending were to be mandatory.
Guess not.

tomg51 on January 22, 2013 at 10:11 AM

The way to adjust mandatory spending is to cut or just get rid of it all together.

Bmore on January 22, 2013 at 10:12 AM

This will not be well received.

Bmore on January 22, 2013 at 10:13 AM

can someone explain to me how this debt crisis will manifest itself?

How come interest rates/inflation are so low given all this borrowing/printing?

commodore on January 22, 2013 at 10:14 AM

“The origins of the debt crisis”

Politicians?

Mimzey on January 22, 2013 at 10:17 AM

Ah, The Great Society

CrazyGene on January 22, 2013 at 10:21 AM

“The origins of the debt crisis”

Politicians?

Mimzey on January 22, 2013 at 10:17 AM

Politicians and the gimmie constituents they encourage, and the gimmie constituents that encourage politicans.

Vicious cycle and all… :-/

Gatsu on January 22, 2013 at 10:22 AM

If nothing is done, then it will all come crashing down. Perhaps at that point all those ‘low information voters’ will realize THEY were the problem all along.

GarandFan on January 22, 2013 at 10:23 AM

ED,

Thank you kindly for bumping “athiest feeevah’s” thread.

Very much appreciated.

Eph on January 22, 2013 at 10:26 AM

This is way too complicated for the Garage Sale Organizer in Chief…

hillsoftx on January 22, 2013 at 10:26 AM

can someone explain to me how this debt crisis will manifest itself?

How come interest rates/inflation are so low given all this borrowing/printing?

commodore on January 22, 2013 at 10:14 AM

If you live in an urban setting, when you go to the supermarket and there is nothing on the shelves and there are marauding bands of people pushing shopping carts full of food down the street…you might want to start considering that there is going to be a problem.

belad on January 22, 2013 at 10:26 AM

Can We get some graphs that have colors that are different enough to be able to be distinguishable for those of us that can’t tell the difference between “Mauve” and “Purple”

Defenestratus on January 22, 2013 at 10:28 AM

Time for the GOP to “starve the beast”. (Would that be the deficit, spending, or Obama?)

Tater Salad on January 22, 2013 at 10:32 AM

Time for the GOP to “starve the beast”.

Tater Salad on January 22, 2013 at 10:32 AM

I will not have the First Lady referred to so rudely.

Archivarix on January 22, 2013 at 10:37 AM

If only the rich would have been required to pay “their fair share” 4 decades ago. Then all would be well today….right! /

Deano1952 on January 22, 2013 at 10:37 AM

can someone explain to me how this debt crisis will manifest itself?

How come interest rates/inflation are so low given all this borrowing/printing?

commodore on January 22, 2013 at 10:14 AM

Interest rates are low because the Fed is artificially depressing them.inflation, although not yet extreme, is creeping up steadily. Just go to the grocery store, gas station, or pharmacy. The Fed, however, in their effort to keep interest rates down, is drastically increasing the money supply. (ie printing money). When the money supply is high enough and our debt instruments become unpopular due to low intrinsic value, our economy will become stagnant and inflation will skyrocket.

Look up stagflation under Jimmah Carter. The big difference is the Fed was not involved and the economy was not yet so global, so there was no buffer. Thankfully, we quickly got Reagan to fix .things

NOMOBO on January 22, 2013 at 10:40 AM

Collapse the system and rebuild it closer to the heart’s desire. It will come down to who does the rebuilding.

tdarrington on January 22, 2013 at 10:40 AM

If you live in an urban setting, when you go to the supermarket and there is nothing on the shelves and there are marauding bands of people pushing shopping carts full of food down the street…you might want to start considering that there is going to be a problem.

belad on January 22, 2013 at 10:26 AM

Lately I’m convinced that being a member of a gang will put you in an advantageous position to cope with the calamity guaranteed by this administration.

Deano1952 on January 22, 2013 at 10:43 AM

Deficits became a persistent problem when Nixon decoupled us from the gold window, shielding us from any punitive reactions to our deficit spending. We did suffer from inflation, until we learned/were able to offshore our manufacturing to Third World countries.

That being said, this entire article is somewhat misleading, because it lumps all revenue into one category, while breaking out the spending into different categories.

For most of this period, the entitlement programs were in surplus, as the payroll taxes dedicated to those programs vastly exceeded expenditures. Of course, those revenues were spent on discretionary programs and now must be borrowed again to satisfy future obligations, but facts are facts. The discretionary side of the budget was in greater deficit during the post WWII period than these charts show and the difference was hidden by an accounting trick. Even during the so-called Clinton surplus, the total national debt grew, as money was “borrowed” from the SS/Medicare “trust funds” to patch up the deficits on the discretionary side.

The entitlement “trust funds” will be exhausted in 20 years or so; that is an issue in and of itself. But technically, it is discretionary spending, including defense, that is the true driver of our current debt problem, and from where the cuts will have to come.

Mr. Arkadin on January 22, 2013 at 10:48 AM

Can We get some graphs that have colors that are different enough to be able to be distinguishable for those of us that can’t tell the difference between “Mauve” and “Purple”

Defenestratus on January 22, 2013 at 10:28 AM

Indeed. Chart as presented is nearly useless due to the color scheme.

Difficultas_Est_Imperium on January 22, 2013 at 10:48 AM

…for libs…that’s just doodling on a piece of paper…means nothing.

KOOLAID2 on January 22, 2013 at 10:50 AM

NOMOBO on January 22, 2013 at 10:40 AM

Nice description.

Would you also agree that swollen corporate treasuries (due to uncertainty what teh one will ever do) suppress the demand for dollars and contribute to low interest rates?

freedomfirst on January 22, 2013 at 10:53 AM

Fix it? Ummm, we’re well past the point of return for that ladies and gents. And even if it was possible, who’s going to set the policy necessary to fix it? Obama? Did anybody listen to his collectivist jerk off speech yesterday? I think we all know where we are headed. We can lose all the fancy charts.

Zetterson on January 22, 2013 at 11:04 AM

Clear that “emotionalism” (taking care of everybody from cradle to grave)slowly replaced common sense…easy to do when you can just keep printing money…

Tim Zank on January 22, 2013 at 11:04 AM

Deficits became a persistent problem when Nixon decoupled us from the gold window,

Yes, I think it was Zero Hedge that had a chart on the debt that mushroomed after 1971, when we left the gold standard.

Something tells me that 1970 spending spree and the 1971 gold standard are connected, and the result is not good.

PattyJ on January 22, 2013 at 11:06 AM

We are already working downward, relative to overall spending, on discretionary spending. We need to change the trajectory of mandatory spending — which means that entitlement reform is a must if we are to fix our five-decade decoupling of spending from revenue.

Whoa, slow down. That last chart is based on a percentage of total spending. Discretionary may be going down as a perecntage of total spending, but in real dollars (and I suspect as a percentage of GDP) we are losing that battle too.

oconp88 on January 22, 2013 at 11:32 AM

Well, my takeaways if I’m reading these charts correctly:

1. Whoever made these charts is colorblind. Is it the gray one or the other gray one?

2. We currently spend more on debt service than the military. And the only thing keeping debt service down is the stupid-low interest rates that make a savings account so attractive (cough).

3. No matter the taxation you ain’t getting more than 21% MAX of GDP as income.

WitchDoctor on January 22, 2013 at 11:37 AM

Did anybody listen to his collectivist jerk off speech yesterday?
Zetterson on January 22, 2013 at 11:04 AM

I for one did not, but I’d bet a lot of true believers did.

Difficultas_Est_Imperium on January 22, 2013 at 11:40 AM

Your bill sir.

Bmore on January 22, 2013 at 11:41 AM

Too late to “fix” the economy. The only way to do so would be to significantly cut back the scope of government. That ain’t gonna happen. Too many people, more than a majority now, are dependent in some way on a government check. And most of those aren’t going to vote to have that jepordized.

No, we are past the point of no return. Now is the time to prepare for the inevitable collapse. Let’s be the ones in the position to pick up the pieces and rebuild.

Ace ODale on January 22, 2013 at 11:43 AM

When you ask a guy like Krugman, or Warren Buffett, why deficits don’t matter, the ultimate answer is that the U.S. government can always print money.

When you respond by saying that that will result in massive inflation, they answer, where is the inflation? Show me. The consumer price index is flat.

They are, of course, being dishonest.

Other sovereign countries print money, they get price inflation. We don’t, because our currency, the dollar, is the world’s reserve currency. All these export led economies, like China, are paid in dollars. Normally all these dollars floating around would cause the “price” of the dollar to plummet, but the central banks of the export economies manipulate the currency ratio to keep their export prices low and their economies afloat. The dollars get “parked”. Meanwhile, their artificially high currencies lead to high domestic inflation and credit bubbles. The U.S. exports inflation.

But not entirely. Those dollars have to be “parked” somewhere. In dollar denominated assets. That’s where the domestic U.S. inflation appears, as Austrian theory would predict. As demand for dollar denominated assets increases, their price increases. The shakiness of the world economy has lessened the appetite for investment risk, and for commodities, so “safe” assets, particularly U.S. treasuries, are in high demand. That is why interest rates are so low.

When that bubble bursts, we are in big trouble.

Mr. Arkadin on January 22, 2013 at 11:56 AM

Just make all spending mandatory, that way we won’t have any arguments about cutting.

Since its all mandatory.

Complex problem, simple solution.

BobMbx on January 22, 2013 at 12:05 PM

That is why interest rates are so low.

When that bubble bursts, we are in big trouble.

Mr. Arkadin on January 22, 2013 at 11:56 AM

Part of the low rates has to fall on the decrease availability of the U.S Treasuries as the FED buys half of them or more.

astonerii on January 22, 2013 at 12:12 PM

I can’t believe that everyone here is missing the liberal view of the budget problems. Over and over again, to them it was the “off-budget” wars and tax cuts that caused this debt and deficits, not that math and charts show otherwise.

You all have to remember, math is hard for liberals. Just blame wars and tax cuts and you will fight right in with all the liberals.

Ronaldusmax on January 22, 2013 at 12:44 PM

I love this breakout of the top 5 major categories. However, I’d like to see it supplemented with the relative funding for each category. In particular, I’d like to see SSI and Medicare separated out since they supposedly have their own revenue stream. This has been muddied up ever since they started mixing the money buckets and you can’t have a rational conversation about the budget when it’s like this.

gregbert on January 22, 2013 at 12:44 PM

If nothing is done, then it will all come crashing down. Perhaps at that point all those ‘low information voters’ will realize THEY were the problem all along.

No one ever sees himself as a low information voter. The lower the information, the less he sees. It’s always those other people who are at fault.

hachiban on January 22, 2013 at 1:10 PM

Part of the low rates has to fall on the decrease availability of the U.S Treasuries as the FED buys half of them or more.

“…or more.” The Fed is now buying 90 percent of our debt. By keeping bond prices artificially high, they keep interest rates artificially low. Maybe they can keep this up for a few more years, but the four main central banks are all “printing” like there is no tomorrow–and they may be right. World debt to world GDP is now at 350 percent. We have never been close to this before–especially during peace time. So, look for war time to raise its ugly head, because none of this sh*t is getting paid back.

PD Quig on January 22, 2013 at 1:46 PM

The private sector is generally more incompetent than the public sector.

crr6 on June 12, 2010 at 12:08 PM

Del Dolemonte on January 22, 2013 at 2:14 PM

The private sector is generally more incompetent than the public sector.

Ha-ha.

Ha-ha, Ha-ha, Ha-ha, Ha-ha, Ha-ha, Ha-ha, Ha-ha!!!!!

BWAH-HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHHHAHAHAH!!!!!!!!!!!!!!!!!

AHHHHHHHHHHHHHHHHHHH!!!!!!!!!!!!!!!

Ah….Oh, God, take me now… Whew!

What f*cking morons we’re dealing here, Lord.

PD Quig on January 22, 2013 at 3:03 PM

PD Quig on January 22, 2013 at 3:03 PM

Heh!

avagreen on January 22, 2013 at 3:53 PM

Had Democrats passed a budget for FY 2011 that kept outlays (spending) to the same $ totals as Bush and the Republicans had in the FY 2004 buget just seven years earlier, there would have been a SURPLUS in FY 2011!

It’s true.

Revenues in FY 2011 were $2.30 Trillion
Outlays in FY 2004 were $2.29 Trillion

(Check the numbers yourself…Budget numbers directly from the White House Office of Management and Budget)

Instead, FY 2011 actual outlays were over 57% bigger than FY 2004 outlays… an increase of $1.31 Trillion to a total of $3.60 Trillion.

And that $1.31 Trillion Democrat increase in spending meant that instead of having a $0.01 Trillion surplus in FY 2011, we had a $1.30 Trillion deficit.

Why did outlays increase more than 57% between FY 2004 and FY 2011?

Things like TARP and “Stimulus” were supposed to be one-time hits in FY 2009, but those “temporary” increases in spending never went away. It’s like paying for a new TARP and a new “Stimulus” each and every year!

ITguy on January 22, 2013 at 3:56 PM

I’ve been trying to vote for the fiscally responsible candidate. Which one is that again?

Trainwreck on January 22, 2013 at 9:38 PM