First, we know from our prior analysis that nominal dollar displays don’t display or reflect the impact of inflation, thus distorting the presentation more and more as we go back in time.  For instance, if we converted that $74 billion deficit in 1980 to 2012 dollars, it would be $174 billion; and the amount would be far greater in terms of 2023 dollars.  Also, what appear to be modest deficits in these early years were actually significant at the time: the $74 billion deficit in 1980 actually constituted about 12.5% of total federal spending for that year.

There are at least two real reasons why deficits were modest in some of the early years, particularly the period of 1995 through 2007.  During this period the economy was relatively strong, and thus produced robust tax revenues.  Later, when we examine the metric of federal revenue, we’ll be able to determine the extent to which the strong revenues during this period enabled modest deficits and even Budget surpluses.  Another reason is attributable to control of government.  In the 1994 midterms, President Clinton and the Democrats lost control of both houses of Congress, which continued to the end of Clinton’s term in 2001.  Republicans had the ability to control spending and they exercised it by approving modest increases in spending while eliminating or limiting annual deficits. Then, in the November 2000 elections, George Bush and the Republicans captured the Presidency and both houses of Congress, and this unified control of government lasted until January of 2007 (the Democrats captured control of both house of Congress in the November 2006 midterms).

In only four of the 43 years was there not a deficit.  In fact, since 1960, there have only been six years where there was a budget surplus.  Going back in time, we have had deficits under both Republican and Democrat presidents, under Republican-controlled Congresses, under Democrat-controlled Congresses, and under divided Congresses.  As has been pointed out, Republicans have sometimes enjoyed partial success in limiting deficits and controlling spending (1995-2007, and 2011-16).  Most of the time, however, the country has a serious mismatch between what it spends and what it takes in; and most of the time both sides have accepted and tolerated deficits as part of the status quo.

There are also noticeable ups and downs in annual deficits, and, given our prior analysis of spending, this makes sense.  We know from that analysis that the US experienced a serious recession in 2009, and there was huge spending for stimulus packages.  We also know that in connection with the worldwide Covid-19 pandemic and recession of 2020, there were also huge increases in federal spending in 2020 and 2021.  Clearly, the compelling need to address these extraordinary conditions required the federal government to spend far more than the revenue available.  Also, since the spending increases were temporary, rather than permanent, deficits tended to go down when the extraordinary spending was discontinued. In addition, when we later examine the metric of revenues, we’ll be able to assess the extent to which the weakened and recovering economies during these years produced less tax federal revenue.

If we go further back in time and extend the timeframe for analysis, we can verify that certain events or conditions almost always result in increased federal deficits.  Wars are the first such event.  World War I and II, as well as the Korean conflict, the war in Vietnam, and the various wars in the middle east have all operated to increase federal deficits due to increased spending for defense.  Second, recessions have typically been accompanied by increased deficits due to extraordinary spending for stimulus packages.  We clearly see this in 2008-09, and 2020; but the recessions of 2001, 1992, and the early 1980’s also increased deficits.  Third are national emergencies or worldwide emergencies such as the September 11, 2001 terrorist attacks and the Covid-19 pandemic. Finally, we can affirm that federal deficits tend to increase during times of high inflation (e.g. 1980-83, and 2021-22).

Given our prior analysis, much of what is seen above makes sense.  We know that recessions in the early 1980’s drove up spending, moderated GDP growth, and very probably drove down federal revenue (which we’ll examine in an upcoming post).  The same is true of the recession occurring in 1991.  And we also know that the recession of 2008-09 and the pandemic/recession of 2020 and 2021 had the same effect.  Thus, it shouldn’t be surprising to see percentages above 4% of GDP in the early 1980’s and early 1990’s.  It’s also understandable that percentages would soar in the range of 7-10% of GDP in connection with the 2009 recession, and to the range of 12-15% with the pandemic/recession of 2020 and 2021.  The 2009 recession was the worst recession since the Great Depression, and the 2020 recession/pandemic involved multi-trillion dollar stimulus packages in 2020 and 2021.

Further, the relatively low percentages in the period of the mid-to-late 1990’s and up to 2008 are explained by the relatively strong economy (strong GDP) during this time.

What this graph therefore suggests is that while deficits are still the rule, rather than the exception, under ordinary conditions (times without recessions, wars, national emergencies, etc.), it’s typical for deficits to be in the range of 2-4% of GDP. 

What probably jumps out most about this display is the relentless and substantial increase in the total national debt.  It goes up every year.  In fact, the average annual rate of increase is an eye-popping 8.68%.  Clearly there is a bigger jump in 2009, coinciding with the major recession; and there is a visibly bigger jump in 2020, coinciding with the Covid-19 pandemic and the recession.  These jumps make sense, given our prior analysis of the effect of recessions and emergencies/pandemics.

If we extend the timeframe of the analysis, we’ll see familiar patterns.  Total federal debt tends to increase substantially during times of war, recession, and national or worldwide emergencies (such as Covid-19). The country has had annual deficits almost every year (all but 4), and these deficits accumulate into a huge sum.  During this period we’ve had several recessions (1982-82, 1991, 2001, 2008-09, and 2020), at least three wars (Gulf War, Iraq, Afghanistan) and at least two major emergencies (the terrorist attacks of 9-11 and Covid-19).  In this context, it’s also worth noting that – unlike most state and local governments – the federal government is not required to establish and maintain a budget reserve to assist in times of extraordinary conditions.   

The total federal debt went up during every President’s term, regardless of whether the President’s political party controlled both houses of Congress.  Almost always the rate of increase was substantial; and in only one period was the rate of increase somewhat gradual (1995-2001).

In the first 11 years (1980-1991), debt as a percent of GDP climbed steadily from about 30% to 60%.  Then for about 17 years (1991-2007), the percentage was relatively stable, around 60% of GDP.  Then, in connection with the major recession of 2008-09, the percentage jumped quickly to 80% and then to around 100% of GDP by 2011.  It stayed at around this level until the Covid-19 pandemic/recession of 2020, when it shot up to 120% or more of GDP.  

While we’ve seen that the total federal debt has increased relentlessly in terms of nominal dollars, when we look through the lens of percentage of GDP, we see that for extended periods of time the debt seems to be growing at the same rate that GDP is expanding.  However, when exceptional circumstances occur (war, recession, pandemic, emergency, etc.), debt accumulates faster than GDP growth, thus raising the percentage.  Getting the percentage back down again appears to be an arduous task. When we go back further in time, this conclusion is validated, especially with respect to such extraordinary conditions as World War I, the Great Recession, and World War II.  Thus, only as the economy grows (GDP expands), does the does the percentage come down, provided the country continues to enjoy periods without extraordinary conditions.