Real Disposable Income less Change in Debt Obligation

This post looks at disposable income by presidential administration – as usual, there’s a graph and a table. (I wasn’t going to do it, as noted here, but I was convinced otherwise by reader’s comments.)

Disposable personal income data is available from the BEA’s NIPA Table 2.1. It seems to be income of all types, including wage income, rental income, receipts from government, and employer contributions to social security, just to name a few. It subtracts off things like one’s own contributions to social security and personal taxes.

Consider –the government can drive up disposable personal income in any given year simply by cutting taxes (after tax income rises) and/or spending more money (unless the government simply burns the money, government spending is necessarily income for someone). But my fellow Angry Bear PGL is always repeating Milton Friedman’s immortal words: to spend is to tax. If the government runs a deficit, that may boost things in the short run, but it drives up our long term obligations. We need to take that into account somehow.

(As an analogy – if you run up your credit card, you can’t consider your purchases to be income. But if the government runs up its credit card, it is considered income.)

So… the honest way to look at real disposable personal income is to also subtract off the increase in each person’s future tax obligation throughout the year.

So… the graph below shows the real disposable personal income less the change in the Federal Debt per person in 2000 dollars.

The Table below summarizes the results, showing the annual percentage change in the series under each President.

As with a large number of series we’ve looked at already here at Angry Bear, the top 3 slots go to the Democratic administrations, and the bottom 5 go to the Republican administrations. Remind me again why anyone buys into this supply side nonsense.

OK. Now another thing. Call it an editorial comment. This matters. The difference between Republican and Democratic performance is important. Perhaps you’re a devout Republican, and you’re thinking… well, OK, so Republicans don’t do all that well on the economy, but I like Ronnie so I’m gonna vote for Mitt Romney ‘cause he’s just like the Gipper. What harm can it do?

Well, let’s look at Reagan’s performance… he was the best of the Republicans by this (and a number of other measures). Before we begin, note that in 1952, the year before Ike took office, real disposable income less the change in real debt per person in year 2000 dollars was $8,981, as shown in the above graph. In 2006, it was $27,634.

Now, say Reagan’s Republican-best 2.26% annual growth rate had been maintained throughout the entire sample. In that case, by 2006, the real disposable income less the change in real debt per person would be at $30,069. Thus, at the same level debt, we’d have, on average, more real disposable income. Or, we’d have the same real disposable income on average, but less debt. Or, more likely, some combination of the two.

Sounds pretty good, huh? The miracle of compound interest and all that good stuff.

Now what if the growth rate achieved during the JFK/LBJ years – the worst performance by any of the Democrats in the sample – had been maintained throughout the entire period? By 2006, we’d have $45,059. Almost 50% more. In 54 years. Carter, of course, did even better, and Clinton better still; at $55,507 its not enough to lap Reagan, but its coming up on the stretch.

Consider the difference between $27,634 that we actually observed, and $45,059 – what we could have achieved with JFK/LBJ’s annualized rates. That money could have bought real things, and made real people better off. It could have bought food and medicine, extended lives, created jobs. How much better things could be if people voted for candidates that support real growth and fiscal responsibility.


Methodology notes…
Note… data on the Federal Debt was obtained from White House OMB Table 7.1. Because the data is for the end of the fiscal year (which ran through June until 1976, and until September in subsequent years), and the disposable income is provided quarterly, I used 2nd quarter real disposable personal income per capita through 1976 and 3rd quarter thereafter. In addition, I adjusted using the average of 12 consecutive months’ CPI-U CPI-U to compute inflation. To match the other series, the twelve months ended in June for years through 1976, and in September for years thereafter.


I’ve uploaded the series – real disposable income less change in debt obligations per pserson – what a mouthful – into Swivel, as per suggestions by reader Mcwop. If you want my spreadsheets showing the step by step computation, let me know.

FWIW… I’m not happy about this approach. I have to see what it takes to make the spreadsheets downloadable from my own website. My anonimity will be disappearing soon anyway…