Partisan Interpretations of U.S. Debt

The Economist offers some interesting takes on the politics of debt:

…Whenever Republicans accuse Mr Obama of fiscal profligacy, Democrats have three easy answers. The first is to accuse them of hypocrisy—why did conservatives not speak up when Mr Bush was splurging red ink? The second is to blame all fiscal problems on Mr Bush. The third is to argue that although Mr Obama’s deficit is large, it is a needed and temporary response to an emergency. In this deep recession only the government can prop up demand and fend off economic disaster.

Yet budget hawks are far from reassured. Bad as the deficit was under Mr Bush, it will quadruple this year, from $459 billion in 2008 to $1.85 trillion (from 3.2% of GDP to 13.1%), according to the non-partisan Congressional Budget Office (CBO). Mr Obama vows to halve it within four years, but that will still leave it bigger than the deficits for which he once lashed Mr Bush. Mr Obama’s aides hint that he will get tough when the time is right, but he is reluctant to break campaign promises of tax cuts for all but the rich just yet. The CBO reckons the deficit will still be running at more than $1 trillion a year in 2019 (see chart). It estimates that the accumulated debt will have hit almost $19 trillion by then. Yet it was only last October (see picture above) that it breached $10 trillion, requiring an extra digit to be added to the famous debt clock off Times Square.

All such projections are tentative, of course. The bank bail-out could cost less than expected. Health-care reform could cost more. Congress seems determined that a proposed cap-and-trade system for carbon emissions, which Mr Obama was counting on to raise hundreds of billions of dollars, will raise only a fraction of that. A faster-than-expected economic recovery could restore the national balance sheet to something resembling health. A sluggish one could rip it to shreds.

…So far, there is little sign that Republican attacks on Democratic profligacy have had much bite, says Stuart Rothenberg, a political analyst. But he thinks that the longer they are out of power, the more their message will resonate. The Democrats have only a brief chance to show they are serious about putting America’s finances in order. The bond market will punish them if they fail, and the voters will follow suit.