Coming Soon to a Town Near You: The Big Inflation

budget-chart-8830025This chart (hat tip, Power Line) shows the deficit as a percentage of GDP, with a projection for 2009 that includes expenditures under TARP I, TARP II and the Stimulator Pork Package. The most obvious thing is that we’re headed for a deficit over twice as large as under Ronald Reagan, but we hear nary a peep from the media about “mortgaging our children’s future” and “deficits as far as the eye can see.”

For Republicans, complaining about liberal bias is like complaining about the weather: It’s futile and we know it, but sometimes it’s just so aggravating you can’t restrain yourself.

The larger point, however, is that this chart demonstrates that there are two, and only two ways to grow out of a deficit. One was Ronald Reagan’s way: cut marginal tax rates for high income earners and business and grow your way out. That way is illustrated by the upward trend that begins in 1983, when tax rate reductions in the top income brackets went into effect, and continued into the 90s, as the economy reaped the fruits of innovation and entrepreneurial activity those cuts unleashed. Obama has explicitly ruled out taking this path, as it represents to his mind the “failed policies of the past.”

There’s a second way to get rid of a deficit, though , and this appears to be the path Obama and his advisors have decided to follow. That’s illustrated by the years 1976 to 1979, under Jimmy Carter. It’s not easy to see on this table, but in those years the deficit went from 4.2% to 1.6% of GDP, and it was all thanks to inflation. Obama was very young then, and he may not remember, but the 1970s were not good times. That’s when The United States almost became Argentina.

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