US Deficit Grows to Record

[CapelDodger]

From shanek:

Which just delays the problem.

As long as national debt doesn't rise faster than GDP over the long-term there isn't a problem. And government paper plays a vital role in pension fund investments (or should, since these should not be risk-taking institutions.)

The "golden rule" of government spending is that current expenditure (keeping the system going, wages, the military) should not exceed income over the "business cycle". Borrowing should only be applied to productive investment - transport infrastructure, improving schools, better health facilities - that will support the increase in GDP that will, in turn, pay off the debt. A good example of that is the huge US road-building program after WW2, which was financed by borrowing and made an enormous contribution to the rapid GDP growth of the 50's and 60's (the days before the monetarists got out of the asylum).

When you're borrowing money to pay current expenditure you're in long-term trouble. That's like a company borrowing to pay the wages; it an only go on so long. As evidenced by the dot.con era. Is this administration following the Golden Rule? And Notional Missile Defence is not a productive investment.

 

[subgenius]

We're doomed as doomed can be.
But then I always look on the bright side of things.

 

[shanek]

As long as national debt doesn't rise faster than GDP over the long-term there isn't a problem.

As I've explained numerous times on this forum, GDP doesn't have one single frelling thing to do with how much of a deficit you can get away with running.

Borrowing should only be applied to productive investment - transport infrastructure, improving schools, better health facilities - that will support the increase in GDP that will, in turn, pay off the debt.

Government takes 48% of the National Income in taxes, yet government spending comprises only 20% of GDP. Now tell me that's supporting the increase of GDP! They're effectively taking money out of the system!

 

[CapelDodger]

From shanek:

As I've explained numerous times on this forum, GDP doesn't have one single frelling thing to do with how much of a deficit you can get away with running.

The higher the GDP the higher the taxes collected at a given tax rate. If investment, financed by borrowing, contributes to an increase in GDP that is greater than the interest rate paid then greater overall prosperity is the result.

The limitation to the deficit is that Golden Rule - over the business cycle, current spending should be covered by revenues. Productive capital spending can be financed by debt.

 

[shanek]

The higher the GDP the higher the taxes collected at a given tax rate.

Yes, but that affects revenues, not deficits.

If investment, financed by borrowing, contributes to an increase in GDP that is greater than the interest rate paid then greater overall prosperity is the result.

Except that government "investing" does not lead to an increase in GDP, since the government doesn't really invest the money it borrows.

The limitation to the deficit is that Golden Rule - over the business cycle, current spending should be covered by revenues.

If you're saying that a deficit during a brief period of low revenues is justified if it's offset by a period of high revenues as tied to the business cycle and thus pays off the debt, then I agree. But how does that in any way resemble what the government is doing now?

 

[CapelDodger]

From shanek:

Except that government "investing" does not lead to an increase in GDP, since the government doesn't really invest the money it borrows.

I refer you to the example I previously gave: the US Freeway System or Inter-State network or whatever it's called that was built after WW2. That is productive capital investment. Spending on education is also productive investment.

If you're saying that a deficit during a brief period of low revenues is justified if it's offset by a period of high revenues as tied to the business cycle and thus pays off the debt, then I agree. But how does that in any way resemble what the government is doing now?

It doesn't. I've merely being pointing out the errors in your posts lest others go away with the wrong impression.

 

[shanek]

I refer you to the example I previously gave: the US Freeway System or Inter-State network or whatever it's called that was built after WW2. That is productive capital investment. Spending on education is also productive investment.

But again, all of that coimprises only 20% of GDP, whereas they take 48% of the National Income in taxes. So it's hardly a Return on Investment.

 

[Dancing David]

So when the democrats run deficits, it's evil communism in thje name of government intervention. When Republicans run deficits its because the GDP is rising and we can afford it.

Funny how it is now okay to run a deficit because there is a born again Xian in the White House.

The irony is that it was the Elder Bushe's strong fiscal policy that led to the Clinton prosperity.

 

[CapelDodger]

From shanek:

But again, all of that coimprises only 20% of GDP, whereas they take 48% of the National Income in taxes. So it's hardly a Return on Investment.

Non-productive spending is such things as the military (10% of US GDP or thereabouts?), NASA, farm subsidies, diplomatic services, the Office of the President, moving granite blocks, a whole bunch of odds and ends.

 

[CapelDodger]

from Dancing David:

The irony is that it was the Elder Bushe's strong fiscal policy that led to the Clinton prosperity.

And bust his "read my lips" pedge that cut his legs off before his second term. Ain't life a bitch?

 

[DrChinese]

And bust his "read my lips" pedge that cut his legs off before his second term. Ain't life a bitch?

A. So Bush Sr. raised taxes, causing right-wing Republicans to vote Democratic?

Versus the other perspective:

B. Bush Sr. ignored the economy while unemployment rose, causing middle of the road voters to swing to the Democratic ticket?

Revisionist history: A or B?

 

[shanek]

So when the democrats run deficits, it's evil communism in thje name of government intervention. When Republicans run deficits its because the GDP is rising and we can afford it.

Yes, and you'll notice the GDP isn't rising any faster now than it was in the early Clinton years when they were moaning about the deficit. In fact, it was rising much more sharply back then.

 

[shanek]

Non-productive spending is such things as the military

Not necessarily; there are some forms of military spending that make it into GDP. But mostly, you're right.

NASA,

True now that most businesses and even the military are turning to private companies like Loral and Lockheed-Martin for most of their space needs.

farm subsidies,

Always a terrible idea. Why do so many "conservatives" support it?

But the majority of the budget covers boondoggles that benefit only a (politically-connected) few.

 

[DrChinese]

From Newsweek article The Brainteaser of Deficit Math:

"But I’ve been back at work for more than a week now. So I read the whole report instead of just the summary. By law, the budget office has to assume that existing laws expire as planned, and that no new programs are added or subtracted. But this report includes numbers that you can use to adjust for political reality. Which I did. First, I counted the $2.4 trillion Social Security surplus, which the Treasury uses to offset its cash shortfall. Then I figured that the last three years of tax cuts will become permanent; that Congress will pass a Medicare prescription-drug package and will also stop the dreaded alternative minimum tax from hitting 30 million taxpayers. These changes add $3.6 trillion to the deficit. So by the time you’re done, the total projected deficit is more than five times the aforementioned $1.4 trillion. Call it $7.4 trillion. And I’m being generous, assuming we spend nothing in Iraq starting Oct. 1, 2005."

Thanks again George (and our cooperating Congress).

 

[crocodile deathroll]

Bush will be kicked out if.......

One thing I know for sure is that if the deficit continues to grow and the situation in Iraq is unchanged costing the US taxpayer a billion dolllars a week then in 14 months time Bush will be kicked out of office so hard, he we need a spacesuit.

CDR.

 

[CapelDodger]

From DrChinese:

Revisionist history: A or B?

Everybody gets elected by swing voters. What Bush couldn't do when running for his second term was promise tax cuts, which is a policy that has, I think, a history of bringing in swing voters.

As an aside, the rate of unemployment is not, to my mind, as important as the rate at which it is changing. The unemployed quickly disappear over the horizon, but when people you know (people just like you) are becoming unemployed around you it concentrates the mind. I don't think unemployment was rising when Bush ran for his second term.

 

[DrChinese]

From DrChinese:

Everybody gets elected by swing voters. What Bush couldn't do when running for his second term was promise tax cuts, which is a policy that has, I think, a history of bringing in swing voters.

As an aside, the rate of unemployment is not, to my mind, as important as the rate at which it is changing. The unemployed quickly disappear over the horizon, but when people you know (people just like you) are becoming unemployed around you it concentrates the mind. I don't think unemployment was rising when Bush ran for his second term.

A lot of revisionism here. Bush did not use tax cut promises to reach out to swing voters. Clinton did use the high unemployment rate to reach out to swing voters. We know who won that battle.

 

[Grammatron]

[No message]

 

[CapelDodger]

From DrChinese:

A lot of revisionism here. Bush did not use tax cut promises to reach out to swing voters. Clinton did use the high unemployment rate to reach out to swing voters. We know who won that battle.

Post hoc ergo propter hoc? Bush certainly used tax as part of his first campaign. Low taxes are thought to play well by Republicans, and I agree. In his second run Bush was unable to raise the tax question and so couldn't run the sort of campaign he would have wished. It was the economy, of course, but Bush had lost credibility on that subject. Was it the fear of unemployment that influenced the swing voters? Or an expectation of greater prosperity with Clinton for people with jobs? It's not open-and-shut.