Dean Baker notes that press coverage of a “record” deficit projection is based on measuring the deficit in terms of nominal dollars. You can do that if you want, of course, but there’s no good reason to use this metric. Measuring by nominal dollars will give you the result that deficits always tend to get bigger over time (because of inflation) and also that larger, richer countries tend to run bigger deficits than smaller, poorer ones. Those, however, aren’t the kind of results you want if you’re looking for meaningful information about the state of public finance. For that, you need to turn to the deficit-to-GDP ratio. Historical chart below:
Dean observes that “the 2009 deficit will be equal to about 3.3 percent of GDP,” similar to the deficits earlier in the Bush administration and to the deficits ran in the mid-1970s. The real “record” deficits hit in the 1980s and early 1990s were substantially larger than today’s deficits.