Just Who Did Increase the Debt?

By Chip Jarred

http://www.facebook.com/chipjarred

9/23/2011


On Facebook. a friend of mine posted the following graphic, which asks, and claims to answer, the question “Who Increased the Debt?”:



Since the image was posted with no link, I can’t verify the source with certainty; however, I did find a blog which refers to it.


    http://ronworkman.com/post/8973822347


The blog suggests that the source is House Minority Leader Nancy Pelosi’s Flickr page,


    http://www.flickr.com/photos/speakerpelosi/5684032538/in/photostream/


and that it was replaced a few days later by this chart:


I will have to defer to the blogger regarding this change in the chart, since I have no way to verify it other than to observe that it is indeed different from the one my friend posted.


Even a casual knowledge of the recent U.S. national debt issues with which Congress has (finally) begun to wrestle would suggest that something is wrong with this data, so I decided to do some fact checking, by gathering data directly from governmental sources and then applying a bit of math, but “mathephobes” ought not tremble. By “math”, I mean arithmetic, because really this is grade school stuff, and I will explain it, along with a couple of essential economic terms.  In the table below, the annual Gross Domestic Product (GDP) data comes from the U.S. Department of Commerce Bureau of Economic Analysis website


http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1


and the annual national debt numbers come from the Department of the Treasury


http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm


Gross Domestic Product is a measure of a nation’s economic productivity.  You can think of it as analogous to income in your personal finances.  The national debt, at least with respect to this paper, is the total debt accumulated by the federal government.  Other definitions used in different contexts might include state and local government debts, and even certain debt owed by the private sector, but those clearly have nothing to do with any given presidential administration.  Right away, we see one possible problem with these graphics, since they refer to “public debt” which I take to mean the same thing as my definition of national debt, but since the graphic does not define it, it could mean something different.  If so, then no further analysis would be necessary, since that would compare administrations based on irrelevant data.  We would immediately conclude that the chart is deceptive, at best.  Therefore, I give the definition of “public debt” the benefit of the doubt.  


Annual GDP and national debt data give me everything I need to assess the above charts. That said, a skeptical reader can (and should) download this data himself and run the numbers independently.  I begin the data in 1980, because President Reagan’s first term began in 1981, and a previous year’s data is necessary in change calculations.  Additionally, I make no effort to do this analysis for the current year, 2011, since final numbers are not available.


Now for the raw data, and a few basic calculations, which I will explain:

The GDP column is the raw data obtained from the U.S. Dept. of Commerce website referenced above. 


The National Debt column is the raw data obtained from the U.S. Department of the Treasury website, with two slight modifications.  The actual source data is stated to the penny, except that the years 1975-1985 were rounded to millions, for reasons that weren’t explained on the website.  I dropped data prior to 1980 as irrelevant in the assessment of my friend’s Facebook posting, and expressed the data in billions of dollars so that it would be on the same scale as the GDP numbers.


The first Change in Debt column is an absolute value of change in national debt, calculated simply by taking the national debt value for the year in question and subtracting the value for the previous year.  Note:  as a result of accounting smoke and mirrors employed by Congress involving a distinction between on-budget and off-budget items, this does not equal the total deficit.  The chart being evaluated, however, refers to debt, not deficit, so change in debt is what we want.


The next column expresses an simple percentage change in the national debt, calculated exactly as you learned in third grade:



where  and  are successive values for x, the national debt in this case, and y is the percentage change in x.  This number would be negative had the national debt ever decreased during this period, but as you can see, it hasn’t.  In fact, the last time the national debt decreased was in 1898.


 http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo2.htm


The next column is the national debt expressed a percentage of GDP, a ratio economists often use because it puts numbers like national debt in perspective relative to the economy.  This percentage is simply the national debt for a given year divided by the GDP for that same year (times 100, of course, to express it as a percentage).  The idea is same as you might evaluate your personal debt.  If you owe $10,000, and your annual income is only $25,000 then your debt represents 40% of your annual income, which is a lot… a whole lot.  On the other hand, if have the same $10,000 debt but your annual income is $250,000, then your debt represents 4% of your annual income, which isn’t bad at all.  Note the disturbing fact that in 2010 the national debt is 93% of GDP!


The last column is the change in national debt expressed as a percentage of GDP.  This is the value from the fourth column for a given year (absolute change in the debt) divided by the second column (GDP) for the same year, times 100.  This is a measure of how increases in debt measure up to against national output.  It’s a similar idea to the previous column, but applied to the changes in debt rather than the total debt.


We can already begin to see problems with my friend’s Facebook post.  The simple percentage changes in national debt under Bush were between 2% and 9%, except for his last year in office, during which it was 11%,  mainly thanks to the automotive and financial industry bail-outs,  policies that Obama continued.  Meanwhile Obama’s increases in the national debt (using the same calculation) are 16% in his first year, and 12% in his second year.  As a percentage of GDP, the differences are just as pronounced.  George W. Bush’s increases (2001-2008) are between 1% and 7%, which includes the bail-outs, while Obama’s (2009-2010) are 14% and 11% for his first two years respectively.  Note that in his first year, Obama’s increase of the debt in terms of GDP was twice that of Bush’s largest increase.


So what’s going on with my friend’s chart? 

Is it a lie?  Well, yes and no, but mostly yes.  Using the official data I’ve been analyzing, I’ll group it so that I’m collecting all of the data for a each President during the years in question in the same way my friend’s chart is organized. 

I dropped the column for the national debt as a percentage of GDP.   Mainly it’s just to make the table fit on the page, and since my charts refer to changes in debt, we don’t need that column.  


The GDP column now represents the accumulated GDP over an entire Presidency.  It is obtained by summing the annual GDP numbers for the years each president was in office, except that the GDP for carter represents only his last year in office. 


The National Debt column now contains the total national debt from the last year of a given administration.  We don’t need to sum anything for this number, because national debt is already cumulative.


The change numbers are calculated, just as they were before, but now represent the change over an entire administration’s years in the White House.


We can immediately see that none of the percentages match up with my friend’s chart, or it’s updated version.   If reader has the slightest doubt that these numbers are correctly calculated, they can (and should) be done independently.   Either the data or calculations being used in the charts are wrong.  However, my numbers and the charts’ do have one thing in common.  Both appear tell the same qualitative story regarding the relative size of debt increases under the various administrations.  Taken as an absolute percentage change, Reagan’s was in fact the largest, followed by George W. Bush, followed by George H. W. Bush, followed by Bill Clinton followed by Barack Obama.    However, Democrats shouldn’t rush to declare a victory on fiscal responsibility based on this, because there are serious - and I mean serious - problems with it.


Changes in debt relative to GDP are a better measure of how problematic the added debt is, just as it would be to examine your own personal debt relative to your income, rather than as an absolute number.  Looking at the data this way (last column) exposes the first of these serious problems.  The debt increases relative to GDP under Obama are the largest, and are twice that of the second runner up, George H. W. Bush.  


Another serious problem is inherent to this method of grouping the data in the first place.  Presidents Reagan, Clinton and George W. Bush were in office for two terms.  President George H. W. Bush was in office for one term, meanwhile President Obama’s data is for just half a term.   We’re not comparing similar lengths of time.   Comparing numbers like this is a bit like comparing the price of a gallon of milk to the price of a pint of milk.    It just doesn’t make sense.  Of course the gallon of milk will tend to cost more… it’s more milk.  If you want to make such comparisons, you have to do something to normalize the data according to some common unit of measure.  In the milk example, you’d divide the price of the gallon by the number of ounces in a gallon to get a price per ounce, and then do the same for the pint.  Then the comparison is meaningful.  


Additionally, if one goes back to our first table, it’s pretty clear that while the debt was increased substantially during the Reagan years, those were mostly years of significant economic growth.  In other words, we could afford it.   The Clinton-era increases in debt were comparable to the Reagan-era increases, but with an even stronger economy.  Notice the accumulated Clinton GDP is more than twice that of Reagan’s.   Interestingly the total GDP during the George W. Bush years was about as much more than Clinton’s as Clinton’s was more than Reagan’s.  If we look at the final year of each administration, the total debt at the end of Reagan’s administration was 51% of GDP.  At the end of Clinton’s, it was 57%.  In other words, very little change.  At the end of George W. Bush’s administration it was 70%.  That’s an increasingly significant economic burden due to debt, but only two years into the Obama administration, it bolted up to 93% of GDP!


Of course, we can’t blame or credit any President exclusively for the national debt.  We have to take into account Congress as well, and that’s an analysis I may do sometime in the near future, but off-hand we can remember that Reagan mostly dealt with a Democratic controlled Congress, except for two years of a Republican Senate.  Clinton mostly had a Republican controlled Congress.  Bush had a Republican Congress.  For the two years in question, Obama had a Democratic Congress.  


Another thing to look at is what the money was spent on.  During the Reagan years it was largely spent on national defense.  Remember SDI (Star Wars)?  Was that a good use of money?  That’s a value judgment, but it does seem to have played an important role in the collapse of the Soviet Union.  It’s easy to forget in 2011 how serious the Cold War was, and it can be reasonably argued that winning it was worth it.   Under Clinton there are large expenditures for environmental protection and regulation.  There was midnight basketball for inner-city kids?  Was it worth it?  Again it’s a value judgment.  For Bush, obviously Afghanistan and Iraq were the major expenses until the final year, when they bailed out major industries that were about to fail.  Was it worth it?  So far in Obama’s term it has been more bail-outs and then “economic stimulus,” and of course, the widely unpopular Healthcare Affordability Act.   Was it worth it?   Do you want four more years of it?  These are questions you have to answer for yourself.