Barack and Joe: Obama's Keynesian Vision

See also: Barack and Joe: Taxation, Barack and Joe: Social Justice

As Obama explained it to Joe the Plumber, here's how our economy works:

[M]y attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody. If you've got a plumbing business, you're gonna be better off if you've got a whole bunch of customers who can afford to hire you. And right now, everybody's so pinched that business is bad for everybody.  And I think when you spread the wealth around, it's good for everybody.

Or to translate, "You should thank me for taking your money, Joe."

Now, over the last 3 years, Obama has not in fact re-distributed Joe's wealth (such as it is).  Taxes on Joe haven't gone up. Instead, Obama (albeit, somewhat reluctantly) dodged the tax issue.  But he did transfer a lot of wealth to his political clients and the "folks." How did he do that?  By spending like crazy and running up a huge deficit.  Now he calls for shared sacrifice to fix that problem -- the deficit problem.  And so -- here comes the punch line -- we've finally gotten back to Joe: it's time for "shared sacrifice."  In this case, shared sacrifice means Obama's political clients will take a little less, and Joe, finally, will start paying more taxes.

Is that a fair understanding of what has happened?

There's a question that's been nagging at me -- especially when Obama complains that he's being blamed for not fixing something Bush broke -- usually there's some story about a car and ditch thrown in here. I think they think that is "wisdom" -- or maybe they just think that the best way to talk to us dummies is with stories about cars. The question is -- is this awful budget/deficit mess all really Obama's fault?

The data

Once again, I just wanted to find some reliable, non-manipulated data. So -- there's an OMB table that summarizes pretty nicely our current situation -- you can get it here: To get information on entitlements, you also need this table.

Note that all these numbers are in constant 2005 dollars -- the first table provides the deflator/inflator. So when I say that Obama's share of the deficit is $3.7 trillion that's in 2005 dollars. In current dollars it is probably close to the $4 trillion commonly discussed.

Here's what I get out of the numbers provided by (Obama's) OMB.

The raw numbers

Total deficit for Bush (8 years) = $1.6 trillion; total deficit for Obama (3 years) = $3.7 trillion.

How much of this was discretionary spending?  That is, how much was new, "Obama" spending, as opposed to money already promised by someone else? Obama discretionary spending (I'm including military in discretionary --- I don't think that distorts the overall concept of what's going on) was up a lot relative to the Bush average. It accounted for $1 trillion in increased spending over those three years. But it was up only $160 billion (annually) relative to 2008 -- amounting to $.5 trillion over 3 years.

The arguments on both sides of this question are pretty obvious and not worth rehearsing. I would ask, though, is the Democrat Congress of 2007-8 not to be held accountable? Bush sent up lower numbers.

A dramatic dip in receipts

A bigger part of the problem was the decrease in receipts. Receipts were $2.6 trillion in 2007; they averaged $2.2 trillion in 2009-11. That's $1.5 trillion in shortfall right there. $240 billion of the dip in receipts in 2009 was Obama-style "tax cuts" (the $800 checks; cash for clunker houses, etc.) that amounted to little more than transfer payments.

And the rest is entitlements

The rest of it (that is, spending and the deficit) is mandatory (entitlement) spending. Mandatory spending was $1.6 trillion in (for instance) 2007; it averaged around $2 trillion for the three years 2009-11. How much of that is Medicare Part D? But again -- does Bush get full credit for Part D? The Democrats wanted that too, right?

Obama's Keynesian dice throw

I went through all of this, because these deficits seem to be the fruit of Obama's vision of "spreading the wealth." Much of Obama's deficits were run up to provide money and jobs to the "other folks" -- to people other than Joe.

Bottom line: Obama increased (significantly) discretionary spending (and "tax spending" -- the $800 checks) at a time of declining revenues and increased entitlement obligations. This was a Keynesian gamble, and it failed. If it had worked, that is if Keynesianism made sense in this context, we would be in the midst of a recovery that would be erasing the deficit problem (see, e.g., Reagan). It didn't; it seems to have made things worse.

Does that make the $3.7 trillion deficit (over 3 years) "Obama's" relative to Bush's $1.6 trillion? Kind of. The real joker here is -- where is the recovery? Is there a story that excuses Obama for that -- that problems that pre-dated the Obama Presidency created costs that Obama had to deal with? I have an almost theological bias against that notion. I would say the failure to clean out (via foreclosures, etc.) the real estate market, the car industry and a million other non-economic, purge-preventing "investments" is to blame for the weakness.

I don't really think there is any sound analysis supporting the notion that the problems of September 2008 resulted in 9.2 percent unemployment in June of 2011 -- and as far as the eye can see. I think that that issue is kind of a fork in the road. If you believe that -- if you believe that the current unemployment rate is Bush's fault -- then you think about things in a fundamentally different way than I do. If employment were to suddenly re-robustify (something for which I pray), say, later this year, then -- I'm wrong. But the way it looks now, our main problem is a failed recovery, not the 2008 crisis, and that failure can only, legitimately, be laid at the President's feet. Which is kind of what's happening.

Joe was right and Obama was wrong

Isn't that weird? Obama went to much better schools; what did they teach him there?  It really seems inescapable, at this point, that if the President had supported policies that encouraged Joe, rather than policies that spread the wealth around, we would be in much better shape. Instead, it's: shut up and eat your peas-time.

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