Paul Krugman: Where’s all that spending we keep hearing about? [Archive]

Skeptic Ginger

13th October 2010, 09:18 PM

Point, Counter-Point?

http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=233From your piece, (which is the only bit in the flurry of rhetoric that actually had a point):Today’s war-like deficits are being run at a time when the US is heavily reliant on foreign lenders, not least its rising strategic rival China (which holds 11 per cent of US Treasuries in public hands); at a time when economies are open, so American stimulus can end up benefiting Chinese exporters; and at a time when there is much under-utilised capacity, so that deflation is a bigger threat than inflation."War-like deficits"? Has this idiot been in a cave for 10 years?

Earth to bizarre blogger: The vast majority of the US deficits are due to a poorly run war. We invaded a country at the whim of "the decider" influenced by a bunch of living-in-the-past hawks who don't get it that the US cannot bully its way to success any longer.

What one has to look at economically is, why hasn't that war spending created a robust economy? It may have at first. But since the production machine in this war was not Rosie the Riveter, and the profits were not returned to the American public but were siphoned off by Bush/Cheney cronies who benefitted from Rumsfeld's idea of privatizing the remaining part of the war machine, that of the boots on the ground, and the billions pumped into the industrial war machine went to more and more international corporations rather than American war machine producers, the bubble eventually burst.

The sub-prime loan rip-off also played its part, and I don't mean to dismiss this aspect of our current economic situation.

What is infuriating today is the usual inability of the Democrats to stand up for their ideas and ideals and to communicate such facts as what Krugman is referring to, information regarding the economy is being totally distorted by the Republican and right wing talking point machine and once again the progressive arm of the Democratic Party has been unable to communicate the facts to the public.

stevea

13th October 2010, 10:39 PM

Why cite a secondary source suds101 ?

The Federal reserve flow of funds report (see page 2) reports the annualized rate of growth of debt of various sources.
http://www.federalreserve.gov/releases/z1/current/z1r-1.pdf
So Federal debt is currently growing at a 24% per year rate. ((The only time that private investment flow of funds has been so low is the great depression)).

Bush Surplus/Deficit Fiscal Years 2001-2008 (billions of dollars)
Congressional Budget Office (CBO) Statistics
2001 128.2
2002 -157.8
2003 -377.6
2004 -412.7
2005 -318.3
2006 -248.2
2007 -160.7
2008 -454.8
TARP -750.0
Total -2751.9

Obama Budget Deficit FY 2009/10*
Office of Management and Budget (OMB) Statistics
2010 -1750
2011 -1117
Total -2867

So Obama will have racked up more debt in 2010&2011 than Bush2 did in 8 years - and everyone rational acknowledges that Bush2 spent like a drunken monkey.

You can argue that deficit and spending are two different things, and that revenues declined too. That is true, but even so - spending will have increased by 9% in 2010 over the record 2009 figures, even when EXCLUDING excluding TARP, the FNMA/FREDDIEMAC expenses(bailout) and FDIC expenses.

Krugman is a clownish partisan, and has been so for many years.

stevea

14th October 2010, 01:37 AM

Earth to bizarre blogger: The vast majority of the US deficits are due to a poorly run war.

'scuse me !! Is make-believe some new form of argumentation, or is it still a fallacy ? In the classic manner of argument we might instead examine the evidence;

http://www.gpoaccess.gov/usbudget/fy10/pdf/hist.pdf (see pp 54...)
The entire defense cost in in 1999-2000 (Clinton) was around $288B or 16.5% of outlays. The peak defense budget to date is Obama's 2010 budget at $713B or ... 19.9% of outlays. We can only fairly attribute (19.9-16.5%) 3.4% of outlays to war. Over the same years human resources costs (SS, medicare ...) increased from 62% to over 65% of outlays (~3X the total defense budget, ~15X the war cost). The actual added cost of war ($425B peak) is far less than the costs of social security payments alone.

An alternative analysis - the cost of recent wars (~$1.1Trl) is far less than the increase total deficit, from Clinton 2000 to Obama 2010 ($10.1Trl increase). But 4.4Trl of the increased $10.1Trl deficit is under Obama's watch, and he can only take a debit for 2 years of an 8.5 year war.

No - war is not the primary cause of the deficit tho' I freely admit it is a wasteful economic tragedy responsible for about 9%-10% of the increased deficit. We could have funded ~9X Iraq/Iran extravaganzas for the cost of the increased deficit and about 4X of the 9X increased deficit occurred since Obama took charge.

Since you only understand things from the political perspective Ginger let me say this. If you want to line-up fiscal criminals of the state for a firing squad, then currently Bush2 goes in front, and Obama behind. That order reverses ~July 2011.

What one has to look at economically is, why hasn't that war spending created a robust economy?

Ignoring the gross immortality of the statement for a moment ... How could any war EVER create a robust economy ? Such nonsense. Only the fools who refuse to consider alternative uses of resources can believe that that wasteful warfare is ever an economic advantage. Hint: if you can't get past the economic "bakery paradox", then you flunk any econ analysis.
http://www2.ljworld.com/weblogs/liberty_one/2010/mar/15/economic-myths-the-broken-window-fallacy/
This paradox has been around since at least the 1930s, and perhaps 80% of the population simply doesn't understand that you MUST consider alternative uses of capital (and other resources) even in the most simplistic situations.

If that argument was sensible then to achieve economic "robustness" we'd simply need to take half of the USA GDP production and dump it in the ocean (saves a lot of lives and heartache too). Half-wit thinking based on incomplete analysis..

It may have at first. But since the production machine in this war was not Rosie the Riveter, and the profits were not returned to the American public but were siphoned off by Bush/Cheney cronies who benefitted from Rumsfeld's idea

"Rosie the Riveter", "Bush/Cheney cronies", "[siphoned off] profits [] not returned to the [] public]" (note anti-biz paranoia), "Rumsfeld's idea" - It's clear that you only think in hackneyed ideologue cliches and their associated biases and are incapable of addressing ideas except through the distorted lens of your prejudiced political views. Why exactly do you care if an idea comes from Rumsfeld, Karl Rove, Obama, Axelrod, Adolf Hitler or Mother Theresa ? It's the content of the idea and not it's source that counts; so F- on logic (and no other grade matters much).

The sub-prime loan rip-off also played its part, and I don't mean to dismiss this aspect of our current economic situation.

Exactly WHO was ripped-off in your odd POV ?
A/ Does the mean-ol' bank "rip-off" an individual when they offer an extravagant loan with onerous repayment terms ? (you get extra kookoo-nut paranoia points by blaming banks and/or greed).
B/ Does the homeowner rip-off the bank when they accept the loan that they clearly cannot repay and also sign papers alleging incorrect payee income levels ? (if not, why not?).
C/ Does AIG "rip-off" the investment community when they expect historic mortgage repayment rates based on reasonable evidence ?
D/ Do the pension funds and foreign investment banks "rip-off" their investors when they invest according to AIG risk estimates, without considering other systemic risks, and also create insurance relationships to reduce risk incompletely ?
E/ Are USA taxpayers "ripped-off" when their buffoonish government needlessly underwrite the incompletely covered risk assessment at D/ and also underwrite the bad assessment at C/ ? Then later we create new taxpayer funded pools to fund the fiscally incompetent citizens at B/ ? (Yoohoo - free money - let's bail-out everyone who made a bad decision with money, forcibly taken from those who scrupulously avoided such risks !)

I think the rip-off perps are at B/ and E/. And we ought not rescue people from themselves (unless they ae mentally incompetent to create contracts). The politicians who want to rescue big-league investors and investment institutions who failed to assess risks, using public money need institutionalization too.

What is infuriating today is the usual inability of the Democrats to stand up for their ideas and ideals and to communicate such facts as what Krugman is referring to, information regarding the economy is being totally distorted by the Republican and right wing talking point machine and once again the progressive arm of the Democratic Party has been unable to communicate the facts to the public.

Yeah - as opposed to Obama/Axelrod 's blatent slander about the chamber of commerce funding while ignoring the even-worse illegal alien, involuntary and foreign funding of union political contributions and the potential of illegal alien voting ? If by "facts" you mean "partisan baloney" - then I might agree. Nope - Obama has the bully-pulpit but it's amateur-hour at the Whitehouse and he lacks the ability to use it except via the lamest Chicago-style deep-dish partisan assault on reason.

Frankly - it's a great time to be an independent. I can pwn you partisans of either flavor while barely lifting a finger. Fish in a barrel. Such a lame set of arguments, Ginger. Try again.

Francesca R

14th October 2010, 05:26 AM

I can't wait to hear the attempted rebuttals.The OMB reports Federal (= "central") government spending at 24.7% of US GDP in 2009, and (estimated) 25.4% in 2010. That is up from a 19.5% average in 2000-08. The figures are in Table 1.1 (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/hist01z2.xls) (.xls) (downloadable from here (http://www.whitehouse.gov/omb/budget/Historicals/))

The CBO also reports 24.7% of GDP for 2009, but estimates 23.7% for 2010. Figures in Table 1-2 (http://www.cbo.gov/ftpdocs/117xx/doc11705/BudgetProjections.xls) (.xls) (downloadable from here (http://www.cbo.gov/doc.cfm?index=11705))

(The term "off budget" in these data refers to the Social Security Trust Fund and the USPS . . . and therefore does not include what is elsewhere called "financial intervention", such as debt guarantees, equity injections into firms etc. The latter do not appear at all in these figures.)

Paul Krugman admits there was a large expansion in spending. And if you include state and local (= "municipal") government, spending is bigger than that; according to the OECD it was 41.5% of GDP in 2009--see annex table 25 from here (http://www.oecd.org/document/61/0,3343,en_2649_34573_2483901_1_1_1_1,00.html). Krugman, however, argues that it is not "expansion of government" because the bulk of it is fiscal stabilisers (http://en.wikipedia.org/wiki/Automatic_stabilizer) (known in the US as entitlements) which are (i) non-discretionary, (ii) don't tend to lead to increased federal employment, projects, etc, and (iii) caused almost completely by the economic cycle.

Non-US governments typically have larger automatic stabilisers than the US, particularly in Europe. However they also have different labour market rules and practices which have--through the recession--resulted in lower layoffs. These two things offset each other: larger stabilisers tend to cause a sharper rise in central government spending in a recession, but labour-hoarding by the private sector slows/reduces the rise in unemployment such that the private sector effectively internalises part of what otherwise would become a central government liability.

Government spending caused by the economic cycle cannot be dismissed as glibly as Paul Krugman would like to blog it IMO, but it is probably correct not to regard it as "expansion of government" in the form of a discretionary grab of a larger slice of the economic pie. Krugman the blogger rarely gives a balanced view, IMO, which is unfortunate because Krugman the Princeton economist did.

Of course, cyclically adjusted (="structural") deficits have long been estimated by governments themselves and the OECD. The latter reports the structural US general government (includes municipal) deficit in 2009 as -9% of GDP (Annex table 28 (http://www.oecd.org/document/61/0,3343,en_2649_34573_2483901_1_1_1_1,00.html)). That is over-and-above what is due to recession, and it has blown out substantially from the 2000-08 average.

daenku32

14th October 2010, 07:10 AM

Nice try.

http://www.cbo.gov/doc.cfm?index=11936

Estimated fiscal outlays for fiscal 2010 are coming at $67 billion less than in fiscal 2009. Spending has actually gone down.

Once you consider total public spending nation wide, as Krugman states, the drop is even greater. So the government has not significantly increased spending.

Krugman posted a follow up on that GDP % argument. The short of it is that GDP has contracted significantly. If you want to follow the line of argument that we should only look at GDP % figures, then you would have to conclude that massive increase in real government spending during years of large GDP expansion could not be considered "growing the size of government".

Francesca R

14th October 2010, 07:21 AM

Estimated fiscal outlays for fiscal 2010 are coming at $67 billion less than in fiscal 2009. Spending has actually gone down.As is also reported in my CBO link.

Krugman posted a follow up on that GDP % argument. The short of it is that GDP has contracted significantly. If you want to follow the line of argument that we should only look at GDP % figures, then you would have to conclude that massive increase in real government spending during years of large GDP expansion could not be considered "growing the size of government".Which would be a reasonable conclusion, as I also agreed. I have also gone further than that in saying that the increase in 2009-10 as a % of GDP should not really be regarded as growing the size of government if it is all cyclical, though the OECD data suggests it is not.

lomiller

14th October 2010, 07:21 AM

So Obama will have racked up more debt in 2010&2011 than Bush2 did in 8 years - and everyone rational acknowledges that Bush2 spent like a drunken monkey.

It would help if you used the right years when you added up your numbers.

The Bush budgets cover 2002-2009. The 2001 budget was drawn up by Clinton in early 2000, and passed by congress in last 2000, while Bush didn’t take office until the beginning of 2001. Same story in 2009, while Obama was elected at the end of 2008 he didn’t take office until early 2009 by which time the 2009 Budget was already passed. Bush’s 2009 budget resulted in the largest budget deficit in US history. 2010 and 2011 are progressively smaller deficits.

It would also help if you stuck to topic. The primary cause for the deficit sin all three years is the drop in revenue resulting from the deep recession following the 2008 financial crisis. Deficit numbers in isolation tell you nothing useful about spending. This should be obvious to anyone with more then a 6th grade education.

You can argue that deficit and spending are two different things, and that revenues declined too. That is true, but even so - spending will have increased by 9% in 2010 over the record 2009 figures, even when EXCLUDING excluding TARP, the FNMA/FREDDIEMAC expenses(bailout) and FDIC expenses.

Apples to oranges comparison. The Obama budget of 2010 included a lot of spending that was carried over from 2009 but never put in the budget. For example none of the ~1 trillion $ Bush spent in Iraq and Afghanistan ever appeared in the budget whereas Obama included does include it in his budget.

Actual program spending increases modestly under Obama but little of that is discretionary. Most of the spending increase that does occurs is in mandatory programs like Social security and Medicare/Medicaid that the President has no legal authority to cut or restrict.

Francesca R

14th October 2010, 08:53 AM

The primary cause for the deficit sin all three years Thought you were a Krugian/Keynesian . . .

Francesca R

14th October 2010, 08:55 AM

Article on fiscal stabilisers (http://www.voxeu.org/index.php?q=node/5529) (Vox is kind of a journal that thinks its a blog, or a blog that thinks its a journal)

Increasing taxes and transfers would lead to higher automatic stabilisers, but economic distortions would also increase. Moreover, while automatic stabilisers do help to cushion transitory income shocks, they may delay inevitable adjustment in the presence of permanent shocks.

daenku32

14th October 2010, 09:01 AM

There hasn't been an increase in taxes or transfers.

Francesca R

14th October 2010, 09:04 AM

Neither the article nor anyone else is saying there has been.

In cash terms, there has--of course--been a reduction in tax receipts and an increase in transfer outlays.

Dorian Gray

14th October 2010, 09:16 AM

Why cite a secondary source suds101 ?

The Federal reserve flow of funds report (see page 2) reports the annualized rate of growth of debt of various sources.
http://www.federalreserve.gov/releases/z1/current/z1r-1.pdf
So Federal debt is currently growing at a 24% per year rate. ((The only time that private investment flow of funds has been so low is the great depression)).

So Obama will have racked up more debt in 2010&2011 than Bush2 did in 8 years - and everyone rational acknowledges that Bush2 spent like a drunken monkey.

You can argue that deficit and spending are two different things, and that revenues declined too. That is true, but even so - spending will have increased by 9% in 2010 over the record 2009 figures, even when EXCLUDING excluding TARP, the FNMA/FREDDIEMAC expenses(bailout) and FDIC expenses.

Krugman is a clownish partisan, and has been so for many years.
Whoa, hold on there - you do realize you're comparing Bush's ACTUAL data to PROJECTED data on Obama, right? 2010 isn't over yet, and 2011 is not even here, Mr. Pot. And what happened to 2009?

Skeptic Ginger

14th October 2010, 07:46 PM

'scuse me !! Is make-believe some new form of argumentation, or is it still a fallacy ? In the classic manner of argument we might instead examine the evidence;

http://www.gpoaccess.gov/usbudget/fy10/pdf/hist.pdf (see pp 54...)
The entire defense cost in in 1999-2000 (Clinton) was around $288B or 16.5% of outlays. The peak defense budget to date is Obama's 2010 budget at $713B or ... 19.9% of outlays. We can only fairly attribute (19.9-16.5%) 3.4% of outlays to war. Over the same years human resources costs (SS, medicare ...) increased from 62% to over 65% of outlays (~3X the total defense budget, ~15X the war cost). The actual added cost of war ($425B peak) is far less than the costs of social security payments alone.

An alternative analysis - the cost of recent wars (~$1.1Trl) is far less than the increase total deficit, from Clinton 2000 to Obama 2010 ($10.1Trl increase). But 4.4Trl of the increased $10.1Trl deficit is under Obama's watch, and he can only take a debit for 2 years of an 8.5 year war.

No - war is not the primary cause of the deficit tho' I freely admit it is a wasteful economic tragedy responsible for about 9%-10% of the increased deficit. We could have funded ~9X Iraq/Iran extravaganzas for the cost of the increased deficit and about 4X of the 9X increased deficit occurred since Obama took charge.

Since you only understand things from the political perspective Ginger let me say this. If you want to line-up fiscal criminals of the state for a firing squad, then currently Bush2 goes in front, and Obama behind. That order reverses ~July 2011.Come again? Total Cost of Wars Since 2001 (http://www.costofwar.com/) What comes after trillion? I believe that is quadrillion with a Q.

Explain your premise that Clinton ran a surplus and Bush changed that to a deficit. Where are you claiming the money went? All to tax cuts?

Dorian Gray

15th October 2010, 02:29 PM

Not all, but:
http://www.cbpp.org/images/cms/9-27-06tax-f1.jpg

TraneWreck

15th October 2010, 02:41 PM

The OMB reports Federal (= "central") government spending at 24.7% of US GDP in 2009, and (estimated) 25.4% in 2010. That is up from a 19.5% average in 2000-08. The figures are in Table 1.1 (http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/hist01z2.xls) (.xls) (downloadable from here (http://www.whitehouse.gov/omb/budget/Historicals/))

[...]

Of course, cyclically adjusted (="structural") deficits have long been estimated by governments themselves and the OECD. The latter reports the structural US general government (includes municipal) deficit in 2009 as -9% of GDP (Annex table 28 (http://www.oecd.org/document/61/0,3343,en_2649_34573_2483901_1_1_1_1,00.html)). That is over-and-above what is due to recession, and it has blown out substantially from the 2000-08 average.

You're making the very mistake Krugman was pointing out:

http://krugman.blogs.nytimes.com/2010/10/12/special-bulletin-fractions-have-denominators/

Spending is not going up very rapidly. It's increasing about like it has been over the past decade.

Spending as a percentage of GDP is going up rapidly because the fiscal crisis caused the GDP to drop.

As Krugman says, fractions have denominators.

And, as you said, most of the increase in spending is a result of automatic stabilizers:

http://krugman.blogs.nytimes.com/2010/10/15/big-spender-update/

It just isn't the case that Obama has caused run away government spending.

Francesca R

15th October 2010, 11:09 PM

You're making the very mistake Krugman was pointing outWhat mistake? There is no mistake in what you quoted.

The US has a large structural fiscal deficit, according to internationally recognised estimates (see earlier post and data). That means adjusted for whether GDP is above or below its potential, which is taking care of the "denominator" issue.

The reasons why countries end up in that situation include excessive government spending even during periods of strong growth, high spending on current consumption over time relative to spending on public capital ("supply"), and (as may now be the case) if potential GDP growth falls because of the unique nature of the US downturn. (There are of course a whole bunch of other reasons)

Spending is not going up very rapidly. It's increasing about like it has been over the past decade. . . . which is rapidly. Too rapidly relative to the tax collected anyway. Hence your structural deficit. (The same has been true in the UK).

It just isn't the case that Obama has caused run away government spending.You seem to think this is about partisan political theatre. That's your mistake (and Krugman's)

Skeptic Ginger

16th October 2010, 03:54 PM

Not all, but:
http://www.cbpp.org/images/cms/9-27-06tax-f1.jpgOK, I retract "vast majority" in the context of my post and replace it with "large proportion", maybe.

The fact Bush gave away free ponies (unpaid for tax cuts) made things worse, not better. I am not on the side of more money to the rich trickles down. I think that is a fantasy. I say more money to the poor and middle class creates demand and that creates jobs, not the other way around.

But how is that pie determined? The war and entitlements, etc. are money spent. The tax cuts are money not collected. Putting both in one pie is confusing. If you start with Clinton's budget as the baseline, then one can see how the pie is figured. Those are the things which differ.

But what is the total being spent on defense? That 48% in tax cuts represents some expenditure we don't have the money to pay for.

I can't believe the number of different pie charts (http://www.google.com/images?hl=en&expIds=17259,26637,26657,26792,27103,52764&sugexp=ldymls&xhr=t&q=federal+budget+pie+chart&cp=14&um=1&ie=UTF-8&source=univ&ei=KSu6TIuwFY30swPp7pCKDw&sa=X&oi=image_result_group&ct=title&resnum=3&sqi=2&ved=0CDIQsAQwAg&biw=1533&bih=1189) that Googling "federal budget pie chart" returns.

It would appear it is hard to actually see how much Bush's big mistake has cost us.

Considering the poor send their sons and daughters to fight and die in the wars, it would seem the least the rich can do is pay a bit more in taxes to fund the wars. ;)

Skeptic Ginger

16th October 2010, 03:57 PM

....
You seem to think this is about partisan political theatre. That's your mistake (and Krugman's)Or yours for not recognizing that is exactly what this is about. But then you have the disadvantage of not being here in the US seeing the big lies about the economy unfold.

Francesca R

16th October 2010, 11:07 PM

Or yours for not recognizing that is exactly what this is about.What you seem to be saying with that is: "If one party/president does something, then I will agree with it no matter what in order to support them. If the other party/president does the same thing, then I will disagree with it no matter what in order to oppose them".

If that is what it is about to you, your philosophy is flawed (to put it mildly)

But then you have the disadvantage of not being here in the US seeing the big lies about the economy unfold.I am in the US plenty (six times this year). But one doesn't need to be. Rather, it is more common that those in the US don't find it so easy to see outside.

Dorian Gray

17th October 2010, 08:20 AM

OK, I retract "vast majority" in the context of my post and replace it with "large proportion", maybe.

The fact Bush gave away free ponies (unpaid for tax cuts) made things worse, not better. I am not on the side of more money to the rich trickles down. I think that is a fantasy. I say more money to the poor and middle class creates demand and that creates jobs, not the other way around.

But how is that pie determined? The war and entitlements, etc. are money spent. The tax cuts are money not collected. Putting both in one pie is confusing. If you start with Clinton's budget as the baseline, then one can see how the pie is figured. Those are the things which differ.

But what is the total being spent on defense? That 48% in tax cuts represents some expenditure we don't have the money to pay for.

I can't believe the number of different pie charts (http://www.google.com/images?hl=en&expIds=17259,26637,26657,26792,27103,52764&sugexp=ldymls&xhr=t&q=federal+budget+pie+chart&cp=14&um=1&ie=UTF-8&source=univ&ei=KSu6TIuwFY30swPp7pCKDw&sa=X&oi=image_result_group&ct=title&resnum=3&sqi=2&ved=0CDIQsAQwAg&biw=1533&bih=1189) that Googling "federal budget pie chart" returns.

It would appear it is hard to actually see how much Bush's big mistake has cost us.

Considering the poor send their sons and daughters to fight and die in the wars, it would seem the least the rich can do is pay a bit more in taxes to fund the wars. ;)Confusing? How?
This is not hard to understand. The tax cuts are simply figured as collected from the people like all the other taxes, and then "spent" by giving them back to the people, in the form of checks. You probably got one, remember?

CaptainManacles

17th October 2010, 10:37 AM

Why would this columnist need a rebuttal?

I'm paraphrasing here, but the column read like this: "The economy is still in the toilet, but we haven't been increasing the size of government, except for the massive amount of increase in the size of government, but for some reason those things don't count, because that's not what critics of big government are talking about when they talk about big government (even though it is). They are designed to save us in exactly these sorts of situations, but for some reason those programs aren't working at all, but that doesn't mean those programs don't work *hand waving*"

I don't see how anyone could be fooled so easily but such transparent nonsense. It's almost a brilliant argument for libertarianism. The exact things that are suppose to help you in these situations obviously don't, even things that moderates would normally support.

I've been through unemployment, and you know what kind of jobs the government run unemployment services "found" for me? Scams. Every single "job" they found for me turned out to be a scam. Went to a private organization that does the same thing, found me the highest paying job I'd ever had, working in exactly the field I wanted to. Meanwhile, the government still takes a chunk off my paycheck to pay for that wreck of an organization, and to make sure I have a "lifeline" in case I'm fired, even though I'd have a larger lifeline if that money just went into the bank, and I wouldn't have to go to a resume writing seminar before I'm allowed to spend it.

Skeptic Ginger

17th October 2010, 11:24 AM

What you seem to be saying with that is: "If one party/president does something, then I will agree with it no matter what in order to support them. If the other party/president does the same thing, then I will disagree with it no matter what in order to oppose them".

If that is what it is about to you, your philosophy is flawed (to put it mildly)

I am in the US plenty (six times this year). But one doesn't need to be. Rather, it is more common that those in the US don't find it so easy to see outside.That's a lot of straw there. I have consistently said the economy needs customers. The poor and middle class need enough money to spend and when too much wealth is shifted into too few hands you run out of customers. All the cheaper goods in the world are not going to stimulate the economy as long as there are too few customers.

It's not a communist or socialist philosophy, despite the fact the right wing including many Libertarians like to dismiss the facts with this falsehood. It's not even really enough of a Democratic Party philosophy. They focus too much, IMO, on just saying they are for the interests of the middle class and the Democrats don't, IMO, promote the message that is good for everyone.

You talk about philosophy and ideology as if you weren't one of the biggest supply side dogmatists on the forum.

The Tea Party 'outrage' in this country started before Obama was in office more than a couple months, and certainly before he had time to do the things he's been accused of. The claims he and the Democrats have spent outrageous amounts of 'stimulus' money, and increased the deficit by trillions is no more than an image the right wing in this country is promoting by a massive propaganda campaign.

Both parties in this country of course, promote an image more than reality in all the campaigns I've been old enough to pay attention to. The fake image the Republicans have promoted is that they are for small government and responsible spending. The federal deficit soared under Reagan, not many people noticed. They thought, like you often do, that prosperity and growing the wealth would take care of it. It didn't. It took a Democratic president to get spending and revenue into balance.

Then we got another huge spender, free pony president and with the support of a monolithic Congress, we ended up with an economic house of cards built on sand. Regulations that weren't gutted went unenforced. And of course, as history has shown time and time again, corruption festers when you let it. Free ponies were given out while spending increased. The economy caved in as Ponzi schemes are prone to do.

Supply side economics as a perpetual mantra doesn't even make sense, let alone work according to the historical evidence. Your fantasy is that wealth is simply created, and never shifted. That is absurd. How can you supply side dogmatists not recognize it is consumers we are currently lacking? You act like that is impossible and never occurs.

As for being in the US therefore getting what the campaign rhetoric is all about, why is it then you don't talk about the facts here instead of the right wing promoted propaganda image?

Do you talk about the failure of the unrestrained free market in real estate loans? Do you talk about the corruption of the large financial institutions going to bed with the accountants that set their asset ratings? (Arthur Anderson and Enron for example, and the practice didn't even end when they were caught.) Or do you call that, "created wealth"? :rolleyes:

Have you noted the sabotaging by the Republican Party in this country of any meaningful economic reforms? Notice how they sabotaged the legislation on the health care reform then blamed the Democratic Party and Obama for what was passed as if that has somehow threatened capitalism in this country? It's not based on any evidence or fact, it's just a propaganda lie. Death panels? Puhleeese.

If you weren't the dogmatist you are, you could discuss these facts. But it is you who changes the argument to a straw man ad hom about my philosophy.

Skeptic Ginger

17th October 2010, 11:30 AM

Confusing? How?
This is not hard to understand. The tax cuts are simply figured as collected from the people like all the other taxes, and then "spent" by giving them back to the people, in the form of checks. You probably got one, remember?

It's confusing because it doesn't include what numbers they are representing there. Like I asked, is it changes from Clinton's baseline? Is it some average? How do you put SOME spending and SOME revenue on the same pie chart and say these are the things responsible for the deficit? The deficit is the result of ALL spending and ALL revenue. How is that pie chart anything but arbitrary unless you add the rest of the information like, these are the things which changed from when the budget was balanced?

If you add an explanation, it would make sense, but not without one.

Francesca R

17th October 2010, 01:27 PM

[ . . . ]Good gracious me! What happened there? Did I trip the unprocessed waste dump lever somehow?

Clumsy retreat noted.

TraneWreck

18th October 2010, 11:55 AM

What mistake? There is no mistake in what you quoted.

You're using spending as a percent of GDP to make the problem seem worse than it is:

"...government spending at 24.7% of US GDP in 2009, and (estimated) 25.4% in 2010. That is up from a 19.5% average in 2000-08..."

The US has a large structural fiscal deficit, according to internationally recognised estimates (see earlier post and data). That means adjusted for whether GDP is above or below its potential, which is taking care of the "denominator" issue.

I'm once again looking at the data you cited. It's surpluses or deficits as a percentage of GDP. I see nothing to indicate that it's adjusted based on potential. When calculating the numbers in 1994, did they use actual GDP or some projection? It looks to me like they just used the actual GDP. I see no adjustment, but I might be reading it wrong.

If you notice, the deficit drops precipitously with only a minor lowering in spending as a percent of GDP. That's because of a predicted recovery of the economy and the resulting increase in receipts.

The reasons why countries end up in that situation include excessive government spending even during periods of strong growth, high spending on current consumption over time relative to spending on public capital ("supply"), and (as may now be the case) if potential GDP growth falls because of the unique nature of the US downturn. (There are of course a whole bunch of other reasons)

. . . which is rapidly. Too rapidly relative to the tax collected anyway. Hence your structural deficit. (The same has been true in the UK).

But taxes collected are a reflection of the underlying financial crisis. People make less money, they pay less in taxes.

Notice that in table 1-1 our spending as a percent of GDP is not that much higher than it was during the 80's, but our reciepts are really low. Projections of the stabilization over the next decade involve about twice the increase in receipts as we see decrease in spending. The deficit falls from 10% down to a very manageable 2-3% without significant spending cuts.

You seem to think this is about partisan political theatre. That's your mistake (and Krugman's)

Right, no one is to blame, just nature taking its course. It's not like unfunded liabilites such as the tax cuts, two wars, and medicare part D are the problem, it's just a good old fashioned bipartisan blame fest.

Sometimes partisans argue for their side no matter what the facts say, sometimes people join a side because the facts are their favor. Any partisanship I display with respect to economics derives from the latter condition.

lomiller

18th October 2010, 12:58 PM

What mistake? There is no mistake in what you quoted.

The US has a large structural fiscal deficit, according to internationally recognised estimates (see earlier post and data). That means adjusted for whether GDP is above or below its potential, which is taking care of the "denominator" issue.

The reasons why countries end up in that situation include excessive government spending even during periods of strong growth, high spending on current consumption over time relative to spending on public capital ("supply"), and (as may now be the case) if potential GDP growth falls because of the unique nature of the US downturn. (There are of course a whole bunch of other reasons)

. . . which is rapidly. Too rapidly relative to the tax collected anyway. Hence your structural deficit. (The same has been true in the UK).

You seem to think this is about partisan political theatre. That's your mistake (and Krugman's)

Keep in mind the political context of what Krugman is saying. You have Fox News repeating 24/7 that not only is the current US deficit all structural but that it’s all created by spending increases made by Obama. No one is suggesting the US has no structural deficit, but the sources of that structural deficit are well documented and have little to do with anything the current administration is doing nor does it have anything to do with whether more stimulus needs to be applied, which is what Krugman was writing about.

The biggest single contributor to the current US structural deficit is the Bush tax cuts from 2002/2003. Before these tax cuts the US had no short term structural deficits. It did, and still does, have looming problems in Social Security and Medicaid/Medicare but these are not the source of the current deficit nor are they something the people who are yelling about the current deficit want to cut.

Francesca R

18th October 2010, 01:20 PM

You're using spending as a percent of GDP to make the problem seem worse than it isNo, I am using spending as a % of GDP to show spending as a % of GDP.

I'm once again looking at the data you cited. It's surpluses or deficits as a percentage of GDP. I see nothing to indicate that it's adjusted based on potential.Annex Table 28 in the OECD World Economic Outlook data is cyclically adjusted general government balance. That is federal, state and county for the US (and the equivalent in other countries). It is a persistent and growing deficit from 2001 onwards. Read the notes (http://www.oecd.org/document/25/0,3343,en_2649_34109_33702745_1_1_1_1,00.html#t_28 ) on calculation.

Definition: The budget balance can be decomposed into a cyclical and a non-cyclical component. The decomposition is aimed at separating cyclical influences on the budget balances resulting from the divergence between actual and potential output (the output gap), from those which are non-cyclical. Changes in the latter can be seen as a cause rather than an effect of output fluctuations and may be interpreted as indicative of discretionary policy adjustments.
.
But taxes collected are a reflection of the underlying financial crisis. People make less money, they pay less in taxes.I was referring (as were you in what I responded to) to "the past decade" in which there was no financial crisis/recession before 2008. The US' non-cyclical rate of spending has been too rapid relative to the amount of taxes it raises in general.

Right, no one is to blame, just nature taking its course.Well, no, successive (R and D) US governments are "to blame" if you view it as a bad thing. It's the "It's Bush!" / "No it's Obama!" which is a tad dishonest IMO.

Sometimes partisans argue for their side no matter what the facts say, sometimes people join a side because the facts are their favor. Any partisanship I display with respect to economics derives from the latter condition.Yeah, right. . . . others can be the judge of that, I think, rather than you.

drkitten

18th October 2010, 01:21 PM

Keep in mind the political context of what Krugman is saying. You have Fox News repeating 24/7 that not only is the current US deficit all structural but that it’s all created by spending increases made by Obama. No one is suggesting the US has no structural deficit, but the sources of that structural deficit are well documented and have little to do with anything the current administration is doing nor does it have anything to do with whether more stimulus needs to be applied, which is what Krugman was writing about.

The biggest single contributor to the current US structural deficit is the Bush tax cuts from 2002/2003. Before these tax cuts the US had no short term structural deficits. It did, and still does, have looming problems in Social Security and Medicaid/Medicare but these are not the source of the current deficit nor are they something the people who are yelling about the current deficit want to cut.

To be fair.... and I can't believe I'm about to defend the FOX news crowd, it doesn't matter where the current US "structural deficit" came from. Unless you have a time machine in your pocket, we have to deal with the issues in the here-and-now and don't have the luxury of going back to 2002 to fix things.

The question to hand is, given that Bush and Co. spent the United States into a hole, what's the best way to get out of it. My opinion of the best way to get out of a hole would be to "buy a ladder," which means ignoring the short-term structural problems of the US economy.

Others apparently prefer to wait for the ladder fairy to drive up in her Magic Panel Truck of Scrumptiousness.

Francesca R

18th October 2010, 01:27 PM

Keep in mind the political contextYes I am aware of your talking heads. I am afraid it does not inspire me to take up arms to bat for one side over the other, in disregard of the merits that I see.

No one is suggesting the US has no structural deficit, but the sources of that structural deficit are well documented and have little to do with anything the current administration is doing nor does it have anything to do with whether more stimulus needs to be applied
On the contrary. There is where all the spending (we keep hearing about) is.

The biggest single contributor to the current US structural deficit is the Bush tax cuts from 2002/2003.Depends on your value preference I think. Some people would say it was spending, not tax cuts. Whatever, the deficit has been around, and structural, for almost a decade and it has grown persistently. I doubt that you will have an administration in the next decade that will increase taxes, which suggests to me that to eliminate the structural deficit, spending has to fall. (It is not actually necessary to eliminate it of course, but maybe it is necessary to stabilise it)

TraneWreck

18th October 2010, 02:02 PM

No, I am using spending as a % of GDP to show spending as a % of GDP.

Right, which is misleading because of the denominator. Under the projections you cited, the deficit is back under 3% of GDP in about 5 years. That's because spending isn't the major issue, it's the fiscal crisis and related recession.

Annex Table 28 in the OECD World Economic Outlook data is cyclically adjusted general government balance. That is federal, state and county for the US (and the equivalent in other countries). It is a persistent and growing deficit from 2001 onwards. Read the notes (http://www.oecd.org/document/25/0,3343,en_2649_34109_33702745_1_1_1_1,00.html#t_28 ) on calculation.

Looks to me like it goes up in the early 00's, drops in 2006, then coincidentally, I'm sure, explodes in 2008. Just another result of the fiscal crisis and recession. I'm not certain what you're trying to argue. The increased numbers have everything to do with the drop in production, not some increase in spending. Things go back to normal on all the projections you've offered because output increase.

I was referring (as were you in what I responded to) to "the past decade" in which there was no financial crisis/recession before 2008. The US' non-cyclical rate of spending has been too rapid relative to the amount of taxes it raises in general.

Not really. It looks about the same as it did in the 80's and early 90's, except for 2008-present, A.K.A. the worst financial crash since the Great Depression.

Well, no, successive (R and D) US governments are "to blame" if you view it as a bad thing. It's the "It's Bush!" / "No it's Obama!" which is a tad dishonest IMO.

About 3% of the deficit is composed of Obama plans:

http://voices.washingtonpost.com/ezra-klein/2009/06/your_deficit_in_charts.html

Notice how large Bush policies and the extension of Bush policies make up in comparison. Also notice that the Recession itself is about a third of the problem.

Now, some of those Bush policies were needed, TARP, but most of that graph is tax cuts, Medicare part D, and the wars. Whose fault is that?

Unless we identify who made the bad decissions, we end up making the same mistakes over and over.

Yeah, right. . . . others can be the judge of that, I think, rather than you.

Well, they can judge the quality of my facts. I question their ability to properly define my motivations, however.

lomiller

18th October 2010, 03:06 PM

Yes I am aware of your talking heads. I am afraid it does not inspire me to take up arms to bat for one side over the other, in disregard of the merits that I see.

I’m actually Canadian, but those same channels are still part of our cable service so political debates in the US tend to be in our face every bit as much as they would be on the other side of the border. Since a lot of the policy ideas, both bad and good, tend to leak over the border it makes sense to pay attention to the policy ideas of both sides.
The reason you should pay attention to this in the current debate is that many, perhaps most, of the positions being advanced by the right in the US are completely detached from any form of reality.

On the contrary. There is where all the spending (we keep hearing about) is.

Depends on your value preference I think. Some people would say it was spending, not tax cuts. Whatever, the deficit has been around, and structural, for almost a decade and it has grown persistently. I doubt that you will have an administration in the next decade that will increase taxes, which suggests to me that to eliminate the structural deficit, spending has to fall. (It is not actually necessary to eliminate it of course, but maybe it is necessary to stabilise it)
In theory, yes you could address the US structural deficits via spending cuts but then you get into what people are willing to cut. The reality is that when you look at where the money is going no one on either side of the political isle wants to cut any of it and actually cutting any of it is political suicide.
Keep in mind that the US President has no authority to even propose cuts to 2/3 of the US budget that falls under the category of mandatory spending. That’s covered by existing laws and can only be cut by Congress repealing or altering the law. The remaining 1/3 of the US budget is dominated by military spending which again is supported by the vast majority of voters, particularly the ones who want “spending cuts not tax increases”.

With those off the table you would need to eliminate every other department in the US government to fix the structural deficit via tax cuts. So while it’s a popular meme for the US right, the notion of “spending less” doesn’t even come remotely close to reflecting realty. Even if you only look at the people who say they are in favour of spending cuts there is absolutely zero prospect of getting them to agree on the types of cuts these same people are the most vocal supporters of the things that would need to be cut.

Skeptic Ginger

18th October 2010, 08:34 PM

Good gracious me! What happened there? Did I trip the unprocessed waste dump lever somehow?

Clumsy retreat noted.
If you haven't figured it out, it was the wrongly headed dismissing of my ideas and opinions as mindless party line towing.

Temporary peace treaty duly noted.

Skeptic Ginger

18th October 2010, 08:43 PM

To be fair.... and I can't believe I'm about to defend the FOX news crowd, it doesn't matter where the current US "structural deficit" came from. Unless you have a time machine in your pocket, we have to deal with the issues in the here-and-now and don't have the luxury of going back to 2002 to fix things.

The question to hand is, given that Bush and Co. spent the United States into a hole, what's the best way to get out of it. My opinion of the best way to get out of a hole would be to "buy a ladder," which means ignoring the short-term structural problems of the US economy.

Others apparently prefer to wait for the ladder fairy to drive up in her Magic Panel Truck of Scrumptiousness.Did the Fox News people actually say spending on a metaphorical 'ladder' would stimulate the economy? Or did your agreement with the Fox folks only go so far as, "stop talking blame and start talking solution"?

If only the right wing would actually heed that advice and stop trying to exploit the situation politically by wrongly blaming Obama.

The problem with the right wing propaganda campaign as I see it is, the problem right now is lack of consumer spending, not overtaxation to pay interest on the dept caused by the deficit. We need to stimulate spending, including direct spending on infrastructure by the federal government.

Francesca R

19th October 2010, 12:12 AM

Right, which is misleading because of the denominator. [ . . . ]Kindly stop saying the data is misleading merely because it does not accord with some preferred political slant. It is what it is and it is not a mistake.

Under the projections you cited, the deficit is back under 3% of GDP in about 5 years. That's because spending isn't the major issue, it's the fiscal crisis and related recession.Incorrect, the narrowest it gets in 2015 is -3.9% on White House projections. (You can even navigate to a super-long range forecast here (http://www.whitehouse.gov/omb/budget/Supplemental) where it widens out again after that, never to return) To stabilise debt/GDP, it is not enough if the narrowest the deficit gets is -3.9%, presumably when output is above trend.

I'm not certain what you're trying to argue.The US has a structural problem with its budget. You can say taxes are too low if that suits you, but many academics think taxes cannot fix it. Either way, the combination of tax and spending is not sustainable, and will never be on current long term plans. Hence the plans need to change (or . . . be outlined in the first place)

The increased numbers have everything to do with the drop in production, not some increase in spending. Things go back to normal on all the projections you've offered because output increaseIncorrect, as above. A persistent deficit even during economic expansions means that it blows out rather wide once the expansion comes to an end. If you have an interest in the economics of this issue, I have little idea why you would say it is some temporary departure from "normal".

Unless we identify who made the bad decissions, we end up making the same mistakes over and over.Perhaps it would be more fruitful to simply identify what the "bad" decisions were.

Francesca R

19th October 2010, 01:43 AM

The reason you should pay attention to this [ . . . ]As I said, I am familiar with the talking heads. Also with what they say.

many, perhaps most, of the positions being advanced by the right in the US are completely detached from any form of reality.Indeed, but the right does not have a lock on that. Krugman's blogged views--as I have said--are rarely balanced IMO. Neither are those emanating from the Heritage Foundation. I follow both, plus others that I prefer (over either of them).

In theory, yes you could address the US structural deficits via spending cuts but then you get into what people are willing to cut. The reality is that when you look at where the money is going no one on either side of the political isle wants to cut any of it and actually cutting any of it is political suicide.Correct. Nobody wants to cut, and nobody want to tax either. So presumably nothing happens until the stakes are raised. In that situation it is valid to point out that there is a fiscal problem.

Keep in mind that the US President has no authority to even propose cuts to 2/3 of the US budget that falls under the category of mandatory spending. That’s covered by existing laws and can only be cut by Congress repealing or altering the law. The remaining 1/3 of the US budget is dominated by military spending which again is supported by the vast majority of voters, particularly the ones who want “spending cuts not tax increases”.Correct again, the much vaunted checks and balances of the political process create a rather adverse "pincer movement" with public finance, that makes this a larger issue for the US than it might be elsewhere.

So while it’s a popular meme for the US right, the notion of “spending less” doesn’t even come remotely close to reflecting realty.Well long term, spending less is, actually, likely to be the solution.

TraneWreck

19th October 2010, 06:26 AM

Kindly stop saying the data is misleading merely because it does not accord with some preferred political slant. It is what it is and it is not a mistake.

That's a silly thing to say. If you want to make an argument about government spending, you're using the wrong statistics. They're terribly misleading and the sort of thing one would advance when making a non-serious, partisan argument.

Deficit as a percent of GDP over the last decade reveals little about spending and quite a bit about what happens in a serious fiscal crisis and recession.

Incorrect, the narrowest it gets in 2015 is -3.9% on White House projections. (You can even navigate to a super-long range forecast here (http://www.whitehouse.gov/omb/budget/Supplemental) where it widens out again after that, never to return) To stabilise debt/GDP, it is not enough if the narrowest the deficit gets is -3.9%, presumably when output is above trend.

I'm looking at table 1-2 from above. It goes under 3 in a few years. Which statistics do you prefer we use? I'm just going off the stuff you've offered.

The US has a structural problem with its budget. You can say taxes are too low if that suits you, but many academics think taxes cannot fix it. Either way, the combination of tax and spending is not sustainable, and will never be on current long term plans. Hence the plans need to change (or . . . be outlined in the first place)

Sure, there's a problem, it's just not a very big one. If proper stimulus were used to reinvigorate the economy, the Bush tax cuts were allowed to expire, and our foreign wars brought to a close, we really wouldn't have much left to do.

The biggest long term issue is Medicare, but that's a feature of our overall health care problems. We tried to reform that system and the people who claimed to care the most about the deficit and debt did everything they could to avoid a sensible, cheaper system. Thus, we have a decent compromise of a bill that didn't save nearly as much money as it could have.

But that's no one's fault. We can't be partisan.

Incorrect, as above. A persistent deficit even during economic expansions means that it blows out rather wide once the expansion comes to an end. If you have an interest in the economics of this issue, I have little idea why you would say it is some temporary departure from "normal".

Because that's what the long-term statistics show. There was little difference between our debt from 2001 to 2008 and that of the early 80's or late 80's to 1994.

But I will agree with you that terrible deficit decisions were made while the economy was expanding in the 2002-2006 years. Keynesian policies say that money should be saved during expansions so it can be used as stimulus during economic crises. Instead, we had the Bush tax cuts, two unfunded wars, and medicare part D, interestingly the largest contributing factors to the deficit other than the recession itself.

Perhaps it would be more fruitful to simply identify what the "bad" decisions were.

Have I not done that? Here they are again: Bush tax cuts, Medicare part D, two unfunded wars.

Take those decisions off the table and we live in a different universe in so far as the deficit is concerned.

Compare that to Obama policies, like health care reform, where great care was taken to off-set the spending components of the bill with revenue increasing measures to cut the deficit.

But we can't be partisan. It was just a random occurrence that the responsible fiscal policies originated from the democrats while the budget destroying policies were passed by republicans.

lomiller

19th October 2010, 07:47 AM

The US has a structural problem with its budget. You can say taxes are too low if that suits you, but many academics think taxes cannot fix it. Either way, the combination of tax and spending is not sustainable, and will never be on current long term plans. Hence the plans need to change (or . . . be outlined in the first place)

The increases being discussed would return the US to the same tax rates as the highly prosperous 1990’s. In all likelihood the people saying this is “unsustainable” would say the same for any tax rate above zero.

The solution to the US budget deficit really isn’t that hard. Return tax rates to the levels of the mid 90’s, tweak social security benefits and premiums, cut military spending by 15% and move towards a single payer healthcare system. The real issue is that the people who politically favour “spending cuts” oppose most or all of these measures.

This is, however, a completely separate problem from what should be done now to get the US economy going which is what the OP and article in referecnes are aimed at.

TraneWreck

19th October 2010, 07:52 AM

The increases being discussed would return the US to the same tax rates as the highly prosperous 1990’s. In all likelihood the people saying this is “unsustainable” would say the same for any tax rate above zero.

The solution to the US budget deficit really isn’t that hard. Return tax rates to the levels of the mid 90’s, tweak social security benefits and premiums, cut military spending by 15% and move towards a single payer healthcare system. The real issue is that the people who politically favour “spending cuts” oppose most or all of these measures.

This is, however, a completely separate problem from what should be done now to get the US economy going which is what the OP and article in referecnes are aimed at.

Yep, that's pretty much it.

Just as a way to illustrate what the world would be like if the Bush tax cuts expired, we're talking about a 3% increase in the top marginal bracket, or income above 250,000.

That means if your yearly income is 300,000, your taxes increase by $1500, a little over a hundred bucks a month.

OH NO!!!

Seems like a small request given the gravity of our situation.

Francesca R

19th October 2010, 09:07 AM

Deficit as a percent of GDP over the last decade reveals little about spending and quite a bit about what happens in a serious fiscal crisis and recession.Rejected; you appear to have avoided the pointed reference to the cyclically-adjusted deficit. I have already acknowledged in post 7 that the expansion in the current government balance between 2007-09 was overwhelmingly due to automatic stabilisers. The structural deficit is different. Also (please refer to post 7 again) it is likely that potential output in the US has fallen as a result of the construction/housing bust, which turns some of the cyclical deficit non-cyclical.

I'm looking at table 1-2 from above. It goes under 3 in a few years. Which statistics do you prefer we use? I'm just going off the stuff you've offered.I was referring to table 1.1 from the OMB. The CBO numbers are less bad for some reason. OECD projections are worse than both. The OMB also projects further ahead and shows no long term convergence of the deficit. And again, "going under 3%" is not much of a fix. Keynes did not say borrow at all points in the cycle.

Sure, there's a problem, it's just not a very big one. If proper stimulus were used to reinvigorate the economy, the Bush tax cuts were allowed to expire, and our foreign wars brought to a close, we really wouldn't have much left to do.Presumably you will agree that it becomes bigger then if (as is likely) the tax cuts do not expire, miltary spending continues and health and social security liabilities remain unaddressed. Augmenting the 2009 stimulus doesn't do a lot for the structural deficit.

Because that's what the long-term statistics show. There was little difference between our debt from 2001 to 2008 and that of the early 80's or late 80's to 1994.That implicitly assumes the US can grow out of its fiscal difficulties because it did before. Several arguments (non-partisan) caution against such an assumption. See Reinhart & Rogoff 2008 (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.156.3561&rep=rep1&type=pdf), 2008 (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.168.2438&rep=rep1&type=pdf), 2009 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1329274)(gated) and 2010 (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.169.2259&rep=rep1&type=pdf). Relying on what happened in the 1980s is wishful thinking at best, and not exactly guaranteed to get you to first base.

But I will agree with you that terrible deficit decisions were made while the economy was expanding in the 2002-2006 years. Keynesian policies say that money should be saved during expansions so it can be used as stimulus during economic crises. Instead, we had the Bush tax cuts, two unfunded wars, and medicare part D, interestingly the largest contributing factors to the deficit other than the recession itself.
Agreed.

Compare that to Obama policies, like health care reform, where great care was taken to off-set the spending components of the bill with revenue increasing measures as to cut the deficit.The projected deficit impact of health reform was IMO substantially watered down by the broken political process that almost gave it still-birth. On top of that, rather little has been done on negative home equity resolution (one of the things probably making unemployment sticky) and the stimulus that has been enacted has been heavy on current consumption (which borrows future consumption forward) but was light on long term incentives (the like of which might augment potential growth). And tax rises on income and capital (not that they seem likely to happen) are widely believed to be the least efficient (that is, most negative for growth) compared to VAT.

TraneWreck

19th October 2010, 10:12 AM

Alright, I feel like I have a better understanding of your position now. I don't think we disagree on all that much.

Rejected; you appear to have avoided the pointed reference to the cyclically-adjusted deficit. I have already acknowledged in post 7 that the expansion in the current government balance between 2007-09 was overwhelmingly due to automatic stabilisers. The structural deficit is different. Also (please refer to post 7 again) it is likely that potential output in the US has fallen as a result of the construction/housing bust, which turns some of the cyclical deficit non-cyclical.

I was referring to table 1.1 from the OMB. The CBO numbers are less bad for some reason. OECD projections are worse than both. The OMB also projects further ahead and shows no long term convergence of the deficit. And again, "going under 3%" is not much of a fix. Keynes did not say borrow at all points in the cycle.

I agree with you that some structural elements of the government need to change. My only argument, and in all fairness, this appears to be directed more at the "Beltway Conventional Wisdom" position than the one you are expressing, is that the structural changes need not be as drastic as the doomsday folks claim.

Basically what happens is that every time a democrat is in office, these deficit hawks come swooping in, using the debt as an excuse to dismantle the social safety net. Right now they point to the "explosion" in spending, using spending as a percentage of GDP, claiming that we're about to go off some kind of cliff.

Yet the 10-year bond rates are below 3%, meaning the government can borrow at a rate below growth. If we want a good economy in 2080, Paul Ryan's "roadmap" balances the budget at that date, it would be better to borrow a ton of money at 3% in the short term, invest in our school system, and rely on an educated population to deal with whatever's happening in 2080.

Once our economy has stabilized, the deficit and debt can be dealt with by mild spending cuts coupled with reasonable tax increases. There is no cause to run around like chickens with our heads cut off raising the age for medicare and social security or otherwise destroying the system.

Presumably you will agree that it becomes bigger then if (as is likely) the tax cuts do not expire, miltary spending continues and health and social security liabilities remain unaddressed. Augmenting the 2009 stimulus doesn't do a lot for the structural deficit.

But it would drastically improve the receipt portion of the equation.

That implicitly assumes the US can grow out of its fiscal difficulties because it did before. Several arguments (non-partisan) caution against such an assumption. See Reinhart & Rogoff 2008 (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.156.3561&rep=rep1&type=pdf), 2008 (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.168.2438&rep=rep1&type=pdf), 2009 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1329274)(gated) and 2010 (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.169.2259&rep=rep1&type=pdf). Relying on what happened in the 1980s is wishful thinking at best, and not exactly guaranteed to get you to first base.

We've always grown out of our problems before. That's how we got rid of our WWII debt. There is more historical precedent support the growth argument than the idea that will we perpetually stagnate.

Though stagnation a la Japan is infinitely more likely without stimulus.

The projected deficit impact of health reform was IMO substantially watered down by the broken political process that almost gave it still-birth. On top of that, rather little has been done on negative home equity resolution (one of the things probably making unemployment sticky) and the stimulus that has been enacted has been heavy on current consumption (which borrows future consumption forward) but was light on long term incentives (the like of which might augment potential growth). And tax rises on income and capital (not that they seem likely to happen) are widely believed to be the least efficient (that is, most negative for growth) compared to VAT.

I agree with this for the most part. I'm even open to modified ways of tax collecting, though I can't really say anything intelligent about VAT.

The real danger to our nation is not the debt or deficit, it's the senate. We essentially have a non-functioning government incapable of responding to problems.