Since the beginning of last century, and despite two world wars and the Great Depression, the federal government managed to maintain fiscal balance, give or take a few billion dollars. Then in 1980, the deficit nearly doubled over the previous year, from roughly $41 billion to $74 billion. Two years later, the deficit hit $128 billion, after which it grew steadily, reaching $290 billion in 1992, the last year of Bush I’s term. It then fell to $21 billion in 1997; and from 1998 to 2001 the country enjoyed a budget surplus. During the Bush II regime, federal budgets resumed their deficit ways, until the Great Recession. That’s when deficits soared, hitting $1.4 trillion in 2009, the first year of Obama’s presidency. The deficits have fallen steadily since. Last year, the government spent $439 billion more than it took in, still much higher than the post-Carter average.
If we look at receipts and outlays, we find that spending has steadily climbed, but since Reagan, receipts have trailed significantly.
Now let’s add in GDP.
Economic output also grew with receipts and spending. But, again, receipts fell precipitately relative to GDP beginning in 1980 and fell more dramatically with the Great Recession.
Trying to interpret this data may be tantamount to reading tea leaves, especially from the perspective of yours truly. I can always speculate, however.
With Reagan, we know, came victory of the lower-taxes crowd, which had always pushed for reduced marginal rates. Unfortunately for all of us, the lower tax rates had no appreciable effect on economic growth. They did result in smaller federal receipts, as critics warned.
We also know that the financial sector expanded greatly over the last few decades while manufacturing plummeted. Trade agreements picked new sets of winners and losers, with the Rest of Us finding ourselves in the latter category. Meanwhile, union participation rates continued to fall from their peaks in the mid-50s.
Also of note, and no doubt related, the nation’s Gini index, a measure of inequality, began to rise during the late-1970s.
Whatever events and forces that conspired to produce the relative halcyon days of the post-war period, roughly 1950 to 1975, are no longer in play. This is not my father’s economy.