Politics

Created 2/21/1996
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Where the Deficit Came From

J. Bradford DeLong
U.C. Berkeley

"Presidential" or "Congressional" Deficits?

The graph above shows year-by-year in the 1980s what the deficit would have been had Congress passed the President's budget and its spending proposals unchanged, and what the actual deficit was. The difference--the net revisions to Presidential spending proposals made by Congress--are the small black rectangles.
It is not the case that we ran large deficits in the 1980s because Congress busted the President's proposed spending cuts.
Instead, we ran large deficits because Presidents proposed high spending and high deficits-and Congress was unwilling to bite the bullet: unwilling to do more than make marginal adjustments at the edge of Presidential aggregate revenue and spending proposals.

Republican Overoptimism About Deficits:

In 1981 the Reagan Administration forecast that adoption of its economic program would reduce the then $60 billion deficit to zero within three years. Instead, in three years the deficit was nearly $200 billion.
In 1982 the Reagan Administration forecast that continuation of its economic program would reduce the deficit to less than $80 billion within three years. Instead, in three years the deficit was $220 billion.
The 1983 forecast was the closest the Reagan Administration came to an accurate track of the future deficit. But its prime mover--CEA chairman Martin Feldstein--was frozen out by White House aides because of his insistence that the Administration live up to its rhetoric and cut the deficit.
In 1985 the Reagan Administration once again forecast that the deficit was shrinking, and by fiscal 1990 would be less than $100 billion. Once more it was a lousy forecast.
As the previous page showed, the excessive optimism seen about deficits did not arise because Congress refused to go along with Presidential plans to cut spending in the 1980s--but because the then-Administration had an interest in minimizing the seriousness of the deficit problem by highballing the economic forecast.

Created 2/21/1996
Go to Brad DeLong's Home Page

Associate Professor of Economics Brad De Long, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/