tag:blogger.com,1999:blog-6926413038778731189.post1452492559984597032..comments2023-10-16T07:13:12.123-05:00Comments on A plain blog about politics: What's a Deficit?Jonathan Bernsteinhttp://www.blogger.com/profile/15931039630306253241noreply@blogger.comBlogger42125tag:blogger.com,1999:blog-6926413038778731189.post-91856775727838365312012-08-14T14:26:50.161-05:002012-08-14T14:26:50.161-05:00I'm still getting a kick out of you lefties as...I'm still getting a kick out of you lefties asking "What's a deficit?"<br /><br />Kids, it's not very hard. You get deficits when Pelosi and Obama ram spending up from Clinton's less than 18% of GDP to Obama's 27% of GDP. <br /><br />Whine and cry about that all you want, and twist the numbers up all you want... but it's the spending, stupid. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-41888206015422757822012-08-14T13:48:44.109-05:002012-08-14T13:48:44.109-05:00The same thought occurred to me, but the data indi...The same thought occurred to me, but the data indicates it is not spending, but simply taxes that is the most important variable: <br /><br />"The three questions tapping expectations about federal spending were all positively related to expectations about the deficit; but the relationship was modest for expected spending on defense and entitlement programs and even more modest for expected spending on domestic programs. Wherever budget deficits come from, in the public mind, they do not seem to come primarily from higher levels of government spending."<br /><br />Plus it's harder to explain why higher taxes would be correlated with greater deficits and not simply more spending without greater deficits. In other words, if people believe the politicians are willing to deficit-spend indefinitely, what would be the point of raising taxes and thus getting more revenue in the first place? They'll spend more than this increased revenue, in the respondents minds, anyway, regardless of the revenue coming in.Steve McFarlanenoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-48649827137114131052012-08-14T09:49:59.066-05:002012-08-14T09:49:59.066-05:00The link between the two, I think actually makes s...The link between the two, I think actually makes sense. I think when tea party folks rail against the deficit they are really fearful that they are going to see higher taxes. They don't really care about the deficit per se, they care that it will increase what they consider the burden on them. Davidhttps://www.blogger.com/profile/16818950100128912685noreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-63606959739386933152012-08-14T02:01:59.027-05:002012-08-14T02:01:59.027-05:00.....that sort of thing does leave an indelible ma...<i>.....that sort of thing does leave an indelible mark.</i><br /><br />Yes, especially on the forehead, from constantly smacking it. ;-) Anyway, I've been out of that game for a long time now and don't miss it.Jeffnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-67415990232099553922012-08-13T21:04:50.010-05:002012-08-13T21:04:50.010-05:00Matt -
The rejoinder is this: even if we don'...Matt -<br /><br />The rejoinder is this: even if we don't fill the treasury with money, we'll find ways to spend it anyway. The notion that increased revenue leads to increased spending underlies the claim, for example, that the Social Security Trust funds were created to no avail, because spending, not savings, rose commensurate with increased FICA revenue. But this is basically impossible to demonstrate. People believe it because they choose to. And believing it's more likely to happen, I guess, is just an assumption about bureaucracy; but viewing it as an iron law of politics is totally bonkers, because of COURSE you can cut spending while you raise taxes, thereby reducing the budget deficit. It's happened! <br /><br /> Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-39382728689052041342012-08-13T19:59:10.718-05:002012-08-13T19:59:10.718-05:00Jonathan:
I mostly agree with your post, but ther...Jonathan:<br /><br />I mostly agree with your post, but there *is* a logical long-term meta explanation that undoes the apparent contradiction/paradox: citizens view the state as incapable of doing anything but overspending against available funds. Therefore, any increase in revenue will quite quickly be matched with new and seemingly vital ways to spend the money. <br /><br />This, of course, is not a new idea. During the first month of so of the republic, one of the Reps --- I think it was Matthew Lyons --- said something to the effect of "if we fill the Treasury with money, ways will undoubtedly be found to spend it." <br /><br />I'm not endorsing that view, but I don't think it's crazy to view government as comparable to the junk filling up your desk drawer, no matter how big of a drawer you buy. Spending programs naturally expand as tax revenue increases?<br /><br />mMatt Glassmanhttp://www.mattglassman.comnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-58862070074918142192012-08-13T19:33:06.939-05:002012-08-13T19:33:06.939-05:00Dragging the discussion back to deficits and Keyne...Dragging the discussion back to deficits and Keynes, I agree (and hardly anyone could disagree) that slowing spending and paying down debt isn't easy to do in good times. That's what the history of the last 40 years tells us.<br /><br />However, how long can the deficit spending go on? We've had stimulus-level spending for 3 years, with not a lot of pullback on the deficit as the debt mounts higher. Keynesian stimulus isn't the only issue we have to worry about here.<br /><br />As for Anon Dude, who deserves all the criticism he's gotten, I have a bit more to add. Spending, like pay rates, can be quite inelastic. The GDP, however, changes quite a bit. We can't change our spending every year to match a defined percentage of our GDP without massive upsurges and declines. That is just plain dumb. (Yes, I mean dumb.)<br /><br />In the 90's, our deficits went down not because of spending cuts, but because of massive economic increases and concomitant increased revenue. Spending isn't what changed. It was revenue. Dude, you were completely wrong in your analysis and you need to learn something about economics.ModeratePolihttps://www.blogger.com/profile/01721945380057992971noreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-75152959384003269592012-08-13T18:44:01.033-05:002012-08-13T18:44:01.033-05:00losses were less painful than the big gains you sh...<i>losses were less painful than the big gains you shoulda had</i><br /><br />The sad thing about that Amazon night was, after the social event, the wife and I were discussing how my frenemy contested my bullish forecast by predicting that Amazon would soon drop to the low-single digits. We're geeks, so in the car ride home there was some discussion of Kahneman and Tversky's famous <a href="http://en.wikipedia.org/wiki/Loss_aversion" rel="nofollow">loss aversion theory</a>, with the application being that a great equity like Amazon dropping to the low teens must be the result of general irrational loss aversion.<br /><br />But the story had a sad ending, cause we knew Kahmenan and Tversky in our minds, but less so in our wallets. You're absolutely right, though - that sort of thing does leave an indelible mark. CSHnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-16753960179518200342012-08-13T17:29:44.123-05:002012-08-13T17:29:44.123-05:00CSH, I had a similar conversation with a friend ab...CSH, I had a similar conversation with a friend about eBay and how it was too late to buy it. This was, IIRC, shortly before the first of five splits in quick succession. Somewhere in all that I did get in on it and made a few bucks, but nothing like what I could have. In general I found that losses were less painful than the big gains you shoulda had. But then, you have to remember that Amazon was trading so low in '02 because everybody and his dog were making the same collective mistake at that moment.Jeffnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-48900923860210343332012-08-13T17:15:22.085-05:002012-08-13T17:15:22.085-05:00Also, Anonymous Dude, federal spending is about 24...Also, Anonymous Dude, federal spending is about 24% of GDP, not 27%. When Obama took office, GDP was in freefall (down more than 8% in the fourth quarter of '08 and more than 6% in the first quarter of '09). Spending is by definition higher as a percentage of GDP when GDP is falling. It also rises further in recessions because more people suddenly qualify for unemployment, Medicaid and food stamps. Those programs were in all in place before Obama and Pelosi. And then there were the bank bailouts, which were a response to the crash and were originally Bush policies. Even including those, federal discretionary spending rose by one and a half percent of GDP from 2008-2010, and has now dropped back by about one percent. So Obama has "rammed up" spending by a whopping 0.6% or so of GDP. You're off by more than an order of magnitude. Dude.Jeffnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-84466597507116588422012-08-13T17:01:12.872-05:002012-08-13T17:01:12.872-05:00Oh, and CGW: your logic was implicitly accepted by...Oh, and CGW: your logic was implicitly accepted by every president between WWII and now, with three exceptions: Reagan, Bush II and Obama. Every other president saw the debt/GDP ratio shrink, even though the debt grew in absolute terms under most of them. Only those 3 grew the debt in real terms. <br /><br />(One can argue about what Obama would like to have happened, but that's what has happened)Matt Jarvisnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-24874840354773968862012-08-13T16:56:50.067-05:002012-08-13T16:56:50.067-05:00It's the spending...you know, on things keepin...It's the spending...you know, on things keeping that GDP going up instead of continuing to go south, as they did in 2009 for the first time since 1960 (as far back as the data I'm looking at go). Oh, and let's use % of GDP as our baseline, since that went down, making any % go up. Oh, and neglect that about half of that "ramming" was done by the GOP under Bush (Iraq? Medicare Part-D? Etc.) And we should ALSO ignore the cutting of revenues (as a % of GDP) going down by about 25% during the Bush years. <br /><br />A deficit exists whenever tax revenues are lower than expenditures. Expenditures HAVE gone up under Obama, and they also went up under Bush. Taxes were lowered under Bush, and they've been lowered under Obama (same rates, plus various tax holidays on SocSec).<br /><br />Spending DID go down (relative to GDP growth) in the 1990s. In that SAME period, revenues (as a share of GDP) went up. No deficit because spending went down AND taxes (effectively, in addition to the absolute levels, which are produced by a combination of tax rates and the way they interact with the economy--progressivity, income distribution, corporate profits, capital gains...all that) went up. <br /><br />For some reason, the valid point of "taxes were higher" is just to be ignored. Yes, spending was lower...the economy was better, so there was less stress on the social safety net. We can have a reasonable debate about whether that should be the case. But why can't we include taxes being higher as part of the discussion?Matt Jarvisnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-11622381064468901722012-08-13T16:49:09.511-05:002012-08-13T16:49:09.511-05:00CSH and Scott - Is it really necessary to pay down...CSH and Scott - Is it really necessary to pay down the debt? Should that be the goal? I assume we will always have national debt, and a large one at that. We're a big country with a big economy. We potentially run into a problem when the debt gets too high relative to our GDP (which indicates our ability to service the debt). Our national debt currently is about the same as our GDP (about $16 trillion). That's a high ratio in the context of our history, though a better ratio than during WWII. GDP has more than doubled in the last 20 years. Let's say GDP doubles again in the next 20 years, to $32 trillion. If in 20 years our debt has grown by 25% to $20 trillion, because we've enjoyed a good patch of economic growth (some surplus years, but more deficit than surplus) in those 20 years, I would consider our fiscal house to be in order. We can probably service that debt pretty easily, even though the raw debt is huge, because the size of our economy is also huge. Am I wrong?cgwhttps://www.blogger.com/profile/10626069163536096203noreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-5193654748130422052012-08-13T16:48:45.872-05:002012-08-13T16:48:45.872-05:00This turned into an interesting conversation, bett...This turned into an interesting conversation, better than I deserved for grumpiness. For what its worth, there is at least one difference between right and left-wing irrationality: at least the left is being irrational given the constraints of American politics; the right is irrational in the face of the constraints of simple logic.<br /><br />After all, Joseph is good campy off-broadway fun, and its obviously lifted from the last few chapters of Genesis, which text seems to have done alright over the millenia. It would seem that Keynes read, and was influenced by, Genesis, and Keynes was a fairly smart fellow.<br /><br />So you could argue that the irrationality of the expectation that we conform to the full-on Keynes/Joseph is as much an indictment of our polity as the ideology behind the expectation. That wouldn't be a bad argument to defend, in fairness.<br /><br />BTW, Jeff, Little Golden Books, sorry about your luck. Mine isn't in the bubble per se, but I have this painfully distinct memory of hanging with some academic friends, early summer 2002, and arguing vehemently that, the bursting of the tech bubble be damned, there had to be serious residual value in the Amazon equity. It had to be a buy, I argued, regardless of the death of the other tech equities.<br /><br />Someone asked me sneeringly why I didn't take a big position in it.<br /><br /><a href="http://finance.yahoo.com/echarts?s=AMZN+Interactive#symbol=amzn;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;" rel="nofollow">I remember that conversation really really well :\</a>CSHnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-5446087189175896482012-08-13T16:31:27.002-05:002012-08-13T16:31:27.002-05:00Anonymous Dude, the current deficit is what stoppe...Anonymous Dude, the current deficit is what stopped the freefall and prevented the Great Recession from becoming the Second Great Depression. It's not an oversight.Scott Monjenoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-60599885890890152782012-08-13T16:24:58.471-05:002012-08-13T16:24:58.471-05:00Dude, when Clinton left office, federal spending w...Dude, when Clinton left office, federal spending was at 18% of GDP. <br /><br />That's what alleviated the deficit problem, not "taxes". <br /><br />Obama and Pelosi have rammed spending up to nearly 27% of GDP. And we have massive deficits as a result. Duh.<br /><br />It's the spending, stupid. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-25144883987083874692012-08-13T16:09:03.289-05:002012-08-13T16:09:03.289-05:00CSH touches on a real problem. It will always be d...CSH touches on a real problem. It will always be difficult to agree on an appropriate time to pay down the debt, but it's not impossible. For one thing, a time will come when inflation may become a real threat and not just a bugaboo, and then slowing down the economy could be the appropriate thing to do. There is also the example of the 1990s, but as CSH says, it's not highly encouraging. When G. W. Bush came in, he simply declared that the surplus was the people's money and it should stay with the people. Even a profligate liberal tax-and-spender like me found myself wondering "but what about the people's debt?" After all, we wre making progress on something that hadn't been done in 30 years. Greenspan, of course, chimed in that we were running the risk of paying off the debt too fast and thereby undermining the prospects of monetary policy (apparently because the economy and the subsequent tax revenues were never going to slow down again) and for some reason that had to be stopped immediately rather than later when the risk of paying off the debt was a little closer.<br /><br />The 1990s also had some sobering aspects. The debt reduction was, in a sense, a bipartisan affair, but apparently not the one we usually think of. Thomas Mann and Normant Ornstein recently commented that the debt-reduction deal worked out between Clinton and the GOP Congress did virtually nothing; its only debt-reducing aspect was the "Doc fix" and that was never implemented. The real drivers behind the surpluses were the tax increases initiated under G. H. W. Bush in 1990 and Bill Clinton in 1993, combined with the economic upswing that the tax increases somehow failed to stifle. (When confronted with that, the anti-tax gurus point out that these economic dynamics are really more complicated than that, but when they're asked for a solution to real economic problems, the situation seems to become simple again and lower taxes are the answer. Perhaps there's some subtlety that I'm missing.) But the Republicans have never gotten over the 1990 tax hike, and none of them has ever voted for a tax increase since--even though it's been 22 years, nearly a generation. That's the sobering part of the story.Scott Monjenoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-59602185256929950212012-08-13T15:40:49.596-05:002012-08-13T15:40:49.596-05:00Right, OK, thanks. So basically you're talking...Right, OK, thanks. So basically you're talking about political constraints on debt reduction. I don't doubt that those are serious. On the other hand, in 2000 the guy promising tax giveaways lost the popular vote (and the election, IMHO) to a guy who campaigned on putting the surplus in a "lockbox." So I think that's one contrary data point, anyway.<br /><br />Also, it wasn't redenvenlope.com I was flipping in the '90s. It was Yahoo (no gain) and eBay (decent gain) among others. Where I really got socked was on Little Golden Books. I mean, Little Golden Books! How could you go wrong with a brand on which generations of children have grown up? Well, I found out how. :-/Jeffnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-57480612493306845952012-08-13T15:21:08.624-05:002012-08-13T15:21:08.624-05:00Thanks for the comments, guys, I got a bit twisted...Thanks for the comments, guys, I got a bit twisted up in my knickers, so I appreciate your taking up my points. First, Jeff, an aside:<br /><br />Whenever I think of the traditional Keynesian argument, including the "surplus-pay-down-debt" side, I always think of Joseph and the Amazing Technicolor Dreamcoat, in particular the song (maybe Pharaoh's Dream or the one after?) where the narrator tells us "Seven years of bumper crops happened just as Joseph said/Joseph saw that food was gathered, readied for the years ahead". Keynesianism meets Broadway.<br /><br />But never the beltway. We've never gathered food, readied for the years ahead. We only recall a scant few years of surplus in any of our lifetimes. Those surpluses, in the last few years of the Clinton WH, were almost certainly driven by crazy fools like you and me flipping redenvelope.com twenty times a month and tossing epic short-term capital gains at the feds. How do we know this? In part, because neither the Clinton WH nor congress planned for the surpluses. If they had, being politicians, they would have found a way to spend them, no doubt.<br /><br />Returnin to Joseph again: we don't store up our food for lean years. We don't pay down debt. Paying down debt means accepting less economic growth than spending money. Even if we're rolling in growth, even if its baseline forecast is 6% (impossible, but go with me) with surpluses arising from it, we won't forego the opportunity to goose that number to 8% - possibly dropping it to 4% - to cover off against the sins of 2012. We won't, because we never have in the past.<br /><br />Shifting a bit to cgw's point, sure it would be better to pay down debt in a 6% growth environment than a 2% growth environment - that goes without saying, since the cost of debt reduction leaves us in a better place in a 6% growth environment. We still stumble on the fact that the American government has no track record, in any environment, of significant long-term structural debt reduction - except the 1830s, which sparked a depression.<br /><br />This is going to be hard. It will always be harder. It gets a bit harder with every day that passes. Thinking that it will get easier, and that we will trust our future politicians to do the right thing, when everything inclines them to do the wrong - that's a bit irrational, it seems to me.CSHnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-49472842329539511062012-08-13T14:43:12.312-05:002012-08-13T14:43:12.312-05:00I think you are over-analyzing things.
From th...I think you are over-analyzing things.<br /> <br />From the Republican perspective spending increases cause deficits. (That is why the only way to reduce a deficit is to cut spending.) Spending increases also cause tax increases. So higher taxes and higher deficits go together.<br /><br />Revenue increases do not reduce deficits.jamie_2002https://www.blogger.com/profile/07698370756702398273noreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-38842842187439327262012-08-13T14:36:54.784-05:002012-08-13T14:36:54.784-05:00I just get a kick out of a lefty blogger titling a...I just get a kick out of a lefty blogger titling a discussion with the question: "What's a Deficit?"<br /><br />It's so fitting, and explains so much. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-79031503108984131502012-08-13T14:10:51.022-05:002012-08-13T14:10:51.022-05:00I can’t speak for other uber-Keynesians, but I loo...I can’t speak for other uber-Keynesians, but I look at it like this. We have a structural deficit that began in the Bush years (tax cuts, unfunded wars, unfunded Medicare prescription drug program). The structural deficit is compounded by above-inflation rise in health care costs (this predates Bush). From there the deficit got blown up by the Great Recession – tax receipts plummeted, social welfare spending necessarily spiked. We currently have an annual deficit in the range of $1 trillion, down from about $1.3 trillion in FY 2009.<br /><br />I think we can halve that deficit through economic growth. To get the economic growth in the near term requires stimulus now. (Would it work? Yes, our main economic problem is a shortfall in demand. Stimulus is government filling the demand gap. And yes, more stimulus would initially add to the debt, but because of the conditions we face, it would generate more growth for relatively little debt. Remember, well-designed stimulus is one-time spending. Contrary to conservative belief, ARRA (the 2009 stimulus) added a couple of points to growth and 2.5 million jobs and was not a big contributor to our national debt.)<br /><br />That leaves the structural deficit, which could bottom out at about $500 billion per year (if I got my way on stimulus) but then would begin to rise again absent other action (because of aging population and rising health care costs affecting Medicare and Medicaid spending). Personally, I would raise taxes on the wealthy, cut defense spending by a third and double-down on the health care cost reforms in Obamacare. From the standpoint of growth, it would be better to do this later, when the economy is stronger. But no, we can’t count on future politicians doing this at the right time. So the best solution would be a political package deal now including immediate stimulus and deferred long-term deficit reduction along the lines mentioned above (taking effect in 3-4 years). As of now, we are due for major structural deficit reduction at the end of this year (expiration of Bush tax cuts, sequester becomes effective). The timing is bad, but ideally (to me) it would force the kind of deal I'm talking about.<br /><br />Deficit reduction might always be anti-stimulative to some degree, but that does not mean that deficit reduction is equally anti-stimulative at all times and in all circumstances. Timing matters. Deficit reduction in 2009-10 would have thrown us into another Great Depression. Deficit reduction in the 1990s coincided with 4% growth (more accurately, was caused by 4% growth). We want to get back to that dynamic, if we can.<br /><br />Now, is that irrational?cgwhttps://www.blogger.com/profile/10626069163536096203noreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-91434675067043355632012-08-13T14:09:59.667-05:002012-08-13T14:09:59.667-05:00CSH, you stumped me with this one, maybe because I...CSH, you stumped me with this one, maybe because I'm not familiar with Scott's analysis. My understanding is that in a boom, tax receipts rise and some categories of spending fall (unemployment, Medicaid, etc.). So it's then possible for the government, at reasonable rates of taxation, to run a surplus. Why would that surprlus need to be spent on continuing stimulus? We're in a boom, so what harm does it do to spend it paying down debt? Wasn't that Keyenes' own idea?<br /><br />Now if what you're saying is that in reality, some clown like George W. Bush will come along and say that any surplus is over-taxation and must be immediately refunded to his rich friends.... I mean, to "the People," then yes, debt reduction won't happen. But that's a political problem, not an inherent fact about economics. Right? What am I missing?Jeffnoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-57652205016422324772012-08-13T13:25:14.523-05:002012-08-13T13:25:14.523-05:00doc, thanks for that reference. It strikes me as i...doc, thanks for that reference. It strikes me as interesting that so many conservatives refused to answer the question and that someone like Mankiw stresses that he's never studied it. The liberals seem to be the only ones interested in the Laffer curve (maybe because the wrong answer comes out). The distinction between "revenue-maximizing" and "growth-maximizing" also raises valid questions, though. I wonder who's studied that.Scott Monjenoreply@blogger.comtag:blogger.com,1999:blog-6926413038778731189.post-30380932220705238502012-08-13T13:16:29.292-05:002012-08-13T13:16:29.292-05:00I wonder what is going on for those with above-ave...<i>I wonder what is going on for those with above-average political information...</i><br /><br />No small number of them also have an above-average propensity to being bought off with decreases in the top marginal tax rate, or with decreaases in taxes on non-wage income, or both.<br /><br />And they vote. And contribute to campaigns.<br /><br />Politicians respond to incentives.Davis X. Machinahttp://davisxmachina.wordpress.comnoreply@blogger.com