Saturday, January 22, 2011

The Deficit:
A History Lesson

On Friday, January 21st, 2011, Chris Matthews had John Feehery and Steve McMahon on Hardball to discuss a variety of political issues during the segment, “The Strategists.” Towards the end of the discussion, (at 5 minutes 20 seconds) Matthews asks Feehery if the Republicans would oppose a project similar to Kennedy's space program should Obama propose one. Feehery replied, “Eisenhower gave Kennedy a surplus to work with so he could say, 'let's go to the moon.' That's a great message, no doubt about it, but Kennedy had the money to do it.” Matthews replied, “What surpluses are you talking about? Eisenhower didn't have any surpluses.” Matthews later said, “Truman had surpluses, Eisenhower didn't.” Feehery answered, “Look at his last budget actually Chris, look it up.” So I decided to see who was right, Matthews or Feehery.

Truman was president from 1945- 1953. Eisenhower was president from 1953-1961. (Source: McGraw-Hill Presidential Timeline) The website has compiled information on the US federal budget for all years since the beginning of George Washington's second term in 1792. Here is the graph from that website that shows the US budget deficit as a percent of GDP (the size of the economy) from 1945-1961.

As you can see, both Truman and Eisenhower had surpluses. Specifically, Eisenhower had surpluses in 1956, 1957, and 1960. So that begs the question, were Truman and Eisenhower the only post World War Two presidents to have surpluses? Here is the graph showing deficit spending a a percentage of GDP from 1945 to 2010.

As you can see, the only other president to run a notable surplus was Bill Clinton. There was a surplus for Fiscal Year 1969, but it is completely overwhelmed by the deficits surrounding it.

Here is what deficit spending as a percentage of GDP looks like over all of American History.

The largest spikes in the graph are the civil war (1861-1865), World War I (1917-1918), World War II (1939-1945) and the Great Recession (2007-Present).

Ironically, the example Feehery uses to show Eisenhower's ability to balance the budget was a deficit year. Kennedy's first year, FY 1961, was determined by Eisenhower's final budget. It was a small deficit, 3.5 billion dollars, but a deficit nonetheless.

But on the larger question of whether Eisenhower had any surpluses, Feehery is correct and Matthews is wrong. Both Truman and Eisenhower had surplus years. The United States was undoubtedly in better fiscal shape in 1961, when Kennedy announced the goal of going to the moon, than we are today. That being said, it is totally understandable why both Matthews and Feehery would fumble the budget numbers of an administration that took place 50 years ago. Neither man had the numbers in front of him as neither thought they would need them. However, I am going to send this analysis to Chris Matthews and ask for a correction.  

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