How Does the Current Deficit Compare to Past Deficits?

Question: How does the current deficit compare to past deficits as related to the economy as a whole? Is this really a historically large deficit when adjusted for inflation? How different is it really, especially when you consider huge executive salaries/bonuses, average home prices and prices in general?

Paul Solman: Well, if you used executive pay as your benchmark, I guess almost nothing is historically large at this point. I mean, Steven Schwartzman of the Blackstone Group was the highest paid executive of 2008 (not a great year for the rest of us, I might add), at $700+ million. The GDP of the United States was something like $14 trillion. That’s 0.005 percent, if I’m doing the numbers right. In any case, a seemingly modest percentage, what with all those zeroes.

But compare Schwartzman’s haul to the highest paid executive of 1978, to pick a yesteryear at random.

According to Business Week, the winner was Norton Simon at $2 million, in a year when the Dow Jones average was 805; average worker pay, $10,592; U.S. GDP, $2.3 trillion. Simon’s pay, as a percentage of GDP? One fiftieth the size of Schwartzman’s, adjusted for GDP.

(Another way to look at it: Adjust by GDP, and Simon’s pay package would be roughly $13 million today. Adjust by the Dow, more like $25 million. Adjust by average pay, below $10 million.)

Now let’s look at the budget deficit in 1978. It was $32 billion, a mere 1.4 percent of GDP. This year’s deficit is a whopping 11 percent. But if it had kept pace with executive pay at the top, the deficit would be more like 80 percent of GDP — somewhere in the neighborhood of ELEVEN trillion dollars.

As for the historical trend, see the nice chart here. You’ll see that deficits, as a percentage of GDP, spiked to nearly 30 percent during World War II. But then, we quickly went into surplus when the war ended. By historical standards, deficits were high in the Reagan years and again under George W. Bush. They are higher today. And projected to remain so in the years ahead.