Budgets: Obama vs Reagan

By Spencer

The web is full of comments on the CBO projections of the Obama budget.

So I though a slightly different analysis might be appreciated.

Most bloggers are comparing the Obama budget to the Bush budget.

But I suspect a comparison to the Reagan budget would be more meaningful in that both Obama and Reagan began their administrations with similar sized recessions while the Bush recession was much less severe.

The main difference between the Reagan and the Obama budgets is that Obama is spending very large sums on bailing out the banks. If the bank bailouts are backed out of the Obama budget the recession deficits in the first years under Obama and Reagan are about the same.

Most importantly, after the bank bailouts end in 2010 the Reagan and Obama budgets are almost exactly the same size in relationship to the economy. Revenues in both cases are 17.9% of GDP while outlays and the deficits defer by only about a quarter of a percentage point of GDP — well within any reasonable margin of error. Maybe most importantly, according to OMB in the out years of the Obama budget the deficit falls to under 3% of GDP, a goal Reagan did not achieve.

Remember, Reagan proved that deficits do not matter.

So the key question is what is the important differences between the Obama and Reagan budget that I seem to be missing. At least according to such people as Larry Kudlow or Greg Mankiw