Our Diamond-Shaped Recession: Lasting, but Not Forever

Via Greg Mankiw, here's a good morning graph to get you going. It's jolting enough to shake the clouds out of your eyes and alarming enough to trigger some adrenaline-fueled focus:



In case you can't read the print, this is the Congressional Budget Office look at government spending and revenues, looking back 50 years and projecting 10 years forward. The diamond-shaped deficit that sticks out is, obviously, us.

Two points stick out to me about this graph. This first is that our deficit is going to be a double-whammy. As a percentage of GDP, revenues are projected at 50-year lows and spending is quite clearly at a 50-year high. A look at the numbers behind the CBO's expected recovery suggest that it doesn't expect much from our post-recession bump. The Real GDP increase is slated at around a 4%, less than we enjoyed during the early 1980s, when it recovered by a 7% margin in 1984. Also, it projects that we won't see unemployment get back to 2007 levels (4.6%) for at least the next ten years. Gulp.

Second, and this might just be academic, check out what happens in the 1990s. As a percentage of GDP, spending cascaded while revenues shot up, both in ways that were totally unsustainable. What a strange, happy little blip that was, and pity the fools who thought we could extend those lines 20 years into the future. Remember this? Sad.