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Deficits don’t reflect a crisis of American character

By Ezra Klein,

Graph: Ezra Klein; Data: Federal budget There are many good points in David Brooks’s encomium to the life and work of James Q. Wilson, but permit me a quick quibble.

”Every generation has an incentive to spend on itself, but none ran up huge deficits until the current one,” Brooks writes. His point is that the growing federal debt is superficially attributable to higher spending and, more profoundly, is a reflection of changes in the national character. But that’s not what the numbers show. Rather, they show that the growing federal debt is attributable to tax cuts that began in the 1980s and, in the future, to the aging of the population and the ceaseless advance of medical technology.

Current deficits reflect the aftermath of a generational financial crisis. They show an economy saving itself, not a generation spending on itself. So let’s go back to 2005, a few years before the recession hit. Gross federal debt was 63.5 percent of GDP. Ten years before that, in 1995, it was 67 percent of GDP. In 1991, the year before Bill Clinton took office, it was 60.7 percent of GDP.

Start with that: For the last two decades, debt has been around what it was in the immediate run-up to the crisis. So there’s been no major change to structural deficits in the last 20 years, and thus, no evident change in the national character.

It’s true that gross federal debt was below 60 percent from about 1960 to 1990. That was partly due to a remarkable period of growth, and a disturbing run of inflation (which reduces the real value of debt). Debt began to rise in the 1980s, and not because we began to spend more on ourselves. Spending went from 21.7 percent of GDP in 1980 to 21.9 percent in 1990. Rather, the major change was on the tax side: Revenues fell from 19 percent of GDP to 18 percent of GDP.

So perhaps a more accurate way to make Brooks’s point is that every generation has an incentive to cut taxes on itself, but none ran up huge deficits doing so until Ronald Reagan. But that was a previous generation.

Then this generation did the same thing under George W. Bush, of course. Spending rose from 18.6 percent in 2000 to 19.6 percent in 2007, largely due to expenditures related to Sept. 11 and the wars. But the bigger change was, again, on the tax side: Revenues fell from 20.6 percent in 2000 to 18.5 percent in 2007. (I’ve stopped at 2007 because 2008 reflects the financial crisis. But the story is the same if you include 2008.) If we permit the Bush tax cuts to expire at the end of this year, we will have solved most of our deficit problem, though perhaps at the cost of our recovery.

That said, we do have a spending problem in the coming years. But it’s not driven by greed, or moral failure, or even new spending decisions. Discretionary spending, in fact, is set to fall to its lowest level since the 1950s. Rather, our projected deficits are driven by the population getting older and the health care sector innovating new and more expensive treatments. Those trends pose budgetary problems that we have to deal with, but they don’t say anything in particular about our national character, or the moral fiber of this generation.

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