Which Party is Worse on the Deficit, Continued: Historical Evidence

Megan McArdle Nov 1 2010, 8:48 AM ET

Naturally saying that neither party is particularly credible on the deficit right now has drawn a lot of angry people out of the woodwork to say that I am ignoring the clear evidence that Democrats/Republicans are better. Well, I've looked at the evidence, and to me it's not that clear.

To start with: Republicans? Have you seen the Reagan deficits? If you want to argue that a GOP congress paired with a Democratic president offers the best possibility of deficit reduction--well hey, I'm all ears. But a GOP president with GOP congress didn't work out so well for our debt load under Bush. Then there's the current crop who, other than Paul Ryan, say crazy things about cutting taxes without naming any credible cuts they'd make to spending. Seriously. This is an impossible sell.

As for Democrats . . . well, where to start? I'm not even going to touch the booming cottage industry in charts "proving" that the economy is teh awesome under Democrats, and total suckage under Republicans. As social science goes, this doesn't--you have possible reverse causality, a time series of non-independent variables where the degree of dependence is not known, a business cycle that may or may not affect who is elected, a variable lag on the policies that could conceivably affect the deficit/economy/whatever, and a tiny sample size.

Even leaving aside this sort of graphical gimcrackery and looking at the one thing we can sort of reasonably assess--major policy initiatives--we're going to be stuck with only a handful of presidencies to examine. Analysis that reaches past 1980 isn't really analyzing anything that could even be stretched to call a coherent set of policies--what does Nixon of the wage-and-price controls and the Vietnam drawdown, have in common with George W. Bush, that he doesn't with William Jefferson Clinton? He had more in common with FDR than with either more modern president. The Republican label just doesn't mean the same thing pre-and-post Reagan; nor did the D label mean the same thing in 1950 as it did in 1992.

Unfortunately, if you only look at folks whose policies are arguably somewhat consistent--Clinton and Obama, Bush, Bush and Reagan--you have essentially a tiny sample.

But that's what we've got--there's no way to expand it--so it will have to do. I don't think it tells the story that the liberals in my comment section believe, which is that Dems are uniformly good, and GOP is uniformly bad. That story has a certain problem, which you might call George Herbert Walker Bush.

Bush I passed a massive tax hike, including a 10% surtax on top incomes. The Omnibus Budget Reconciliation Act made enormous inroads in the deficit:

Omnibus Budget Reconciliation Act of 1990

Reduced spending by $281 billion and increased revenues by $255 billion over FY1991-FY1995.
This act included the Budget Enforcement Act of 1990, which included discretionary spending caps and PAYGO controls on direct spending and revenue.

Compare this to Clinton's initial foray into deficit reduction:

Omnibus Budget Reconciliation Act of 1993

Reduced spending by $145 billion and increased revenues by $241 billion over FY1994-FY1998.
This bill included the Clinton-era top rates on income taxes of 39.6 percent and 36 percent.

As you can see, the Bush deficit reduction package is very competitive, though it included some temporary deduction phaseouts that boosted the tax take. On the other hand, Clinton got to enjoy the fruits of the 1991 and 1993 base-closing commissions in the wake of the end of the Cold War, so I'm not inclined to dock him all that much for this.

Bush's actions on the deficit helped cost him the election. I'd call him a Hero of Deficit Reduction, First Class--without him, Clinton's surpluses would never have been possible.
Looking at our small group of post-1980 presidents, we have two GOP presidents who increased the deficit, one GOP president who took major steps to close it, one Democratic president who took steps to close it. The "Dems good, GOP bad" has another problem, of course: Barack Obama., the Democratic president who has set spending records as revenue collapsed. Maybe he's planning a secret surprise where he balances the deficit in 2014. But there's not really all that much evidence for this proposition, beyond the fond hopes of those making it.

So while, yes, we have one more "bad Republican" than "bad Democrat", that's out of a group of five--not particularly compelling evidence.

Of course, you can start introducing "special circumstances" for Obama--but in that case, you also have to allow them for Bush II, who had the deficit down to a pretty trivial 1% of GDP before the crisis hit, and you should probably dock Clinton for a stock market bubble and the enormous windfall of the cold war ending . . . and at that point we're way off what many Democrats seem to believe is a simple, obvious case that Democrats are better on the deficit, and into hours and hours of special pleading.

My personal guess is that the best combination for the deficit is a Democratic president and a GOP congress--the GOP won't spend, and the Democrat won't let them cut taxes. Probably the worst combo is a GOP president and a Democratic congress, since a fractious congress is easily bought off with new spending, allowing the president to get the tax policies he wants. Between all GOP and all Democrat, I'm less sure--the historical record of the most recent two instances was pretty dreadful.

But these are really just wild guesses, probably over-influenced by the fact that I began my adult life during the Clinton administration. And even if we had better data, there would always be the possibility that changes one or both parties would render it useless. Imagine trying to extrapolate Dubya from Eisenhower.