02. February 2015 · Comments Off on Why the National Debt was excluded from the 2015 State of the Union Address · Categories: Economics, Politics · Tags:

In January 2015, President Obama delivered his State of the Union address and during that speech he said that all economic indicators show that this country is better off now than it was when he took office. In the subsequent press conference a reporter asked Press Secretary Paul Earnest if Obama was including the national debt in the set of economic indicators, a question enforced by citing the 70% increase in the national debt since Obama took office.

Obama did say that all economic indicators suggest we are better off now than when he took office. Perhaps it was unfortunate that he didn’t actually explain his exclusion of the national debt as an economic indicator, but then again, he only had so much time to address the entire nation. He can’t spend all that time catering to the less-versed minds of people who don’t understand the exclusion and it makes sense to me that he would leave that task to the press conference.

I’m not that impressed by the way Paul Earnest responded to the question though. I think I would have been more prepared to answer that specific question. First, I would have started by giving the reporter a straight yes or no answer to his very simple question and THEN I would have explained the reason for it. Here’s what my response would have been along with a chart that I would have brought to the conference to make the response as clear as possible.

“No John, he did not include the national debt. He was referring to the economic indicators that reflect the performance of his administration which is after all the topic of his discussion at that point in his speech. The reason why the national debt is excluded from this set of indicators is that it does not necessarily reflect the performance of the current administration… it is instead, a running total of all obligations initiated by all administrations, past and present minus all payments made on those obligations. Now, I understand your point about the 70% increase on the President Obama’s “watch”, indeed when he took office, total debt stood at $10.6 trillion. Since then it has increased by almost $8 trillion, which is roughly 70%. At first glance, you might think the only way $8 trillion can be added to the debt is through additional spending, but it’s not. Roughly half of that $8 trillion comes from a deficit pattern that was set before 2008. In other words, when President Obama took office, he was handed a deficit created by government obligations that far exceeded government revenue. So even if we cut new spending to $0.00, that preexisting gap would continue to pile on debt and the only way to close that gap is to increase revenue by raising taxes or decrease the obligations initiated by the previous administration through a breech of contract. The other half of that $8 trillion does actually come from new spending, but that spending has dropped by two-thirds since 2008, as indicated in the current deficit.”

Now that took 211 words for me to explain… I can see why Obama decided to leave such explanations to the press secretary when so many Americans already do understand this.

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