Contributors

Monday, November 04, 2013

Show Him This

There are many myths about our nation's debt and most our being pushed by the Right. "We can't keep spending like this!" they whine incessantly or "sooner or later, the money will run out!!" Strange, really, because they act as though we don't control our own money supply nor have any revenue. The simple fact is we have both. We have collect just under 6 trillion dollars in revenue and enjoy a 17 trillion dollar economy.

But talking about the economy in a simplistic way is what the Right does, not the rest of us who understand the complexities of monetary policy. The truth is, as Lawrence Summers puts it, the debt isn't that big of a deal.

More fundamental is this: Current and future budget deficits are now a second-order problem relative to other, more pressing issues facing the U.S. economy. Projections that there is a major deficit problem are highly uncertain. And policies that indirectly address deficit issues by focusing on growth are sounder in economic terms and more plausible in political terms than the long-term budget deals much of the policy community is obsessed with.

The latest Congressional Budget Office (CBO) projection is that the federal deficit will fall to 2 percent of GDP by 2015 and that a decade from now the debt-to-GDP ratio will be below its current level of 75 percent. While the CBO projects that under current law the debt-to-GDP ratio will rise over the longer term, the rise is not large relative to the scale of the U.S. economy. It would be offset by an increase in revenue or a decrease in spending of 0.8 percent of GDP for the next 25 years and 1.7 percent of GDP for the next 75 years.

Here is our budget deficit over the last five years.
















There is no doubt we are heading in the right direction. And, as I have explained many times, we have been in debt pretty much since we have started as a country. Take a look below.
















Certainly, we have been in far worse spots and predictions of 100 percent debt to GDP in the last few years have not materialized. Right now we stand at just over 70 percent debt to GDP which is entirely manageable. In fact, there are perils in the philosophy of austerity as Eduardo Porter pointed out recently that illustrate the cost-benefit analysis of taking on some more debt and getting paid off in the long run with more growth and thus, less debt.

A recent analysis by the research firm Macroeconomic Advisers estimated that cuts to discretionary government spending — roughly everything the government spends money on except for Social Security and Medicare — trimmed growth by seven-tenths of a percentage point a year since 2010, and cost some 1.2 million jobs. The costs are mounting across the Atlantic, too, despite the contentment in London and Berlin. 

A study by an economist from the European Commission published this month concluded that spending cuts put in place by governments from Greece to Germany since 2011 had stalled the economic turnaround of the entire euro area. A host of economic analyses over the last three years by researchers from different corners of the world — including Roberto Perotti at Milan’s Bocconi University, Alan Taylor and Òscar Jordá at the University of California, Davis and researchers at the I.M.F. — have concluded almost invariably that budget cutting in a depressed economy is counterproductive. 

By cutting teachers or raising taxes, reducing government transfers or trimming public purchases of goods and services, austerity shrinks the economy in the short term, often more than it shrinks the burden of public debt.

Exactly right. This is why we have the anemic growth that we have right now. I suspect that many in the business wing of the GOP know this and they just want Obama to fail so they bloviate about cutting taxes and bring guys like Arthur Laffer back into the mix.

I think that Simon Wren-Lewis, a professor of economics at Oxford University, has it right. Arguing that the tiny amount of economic growth Britain has recently achieved after a years-long downturn proved austerity to be the right policy is tantamount to saying that global warming skeptics had “won the climate change argument because of recent heavy snow.” Of course, they argue that as well!

So, when your weird uncle, who, at the age of 40-60 something, still has a problem with authority, starts spouting off at the upcoming holiday gatherings about the deficit, the debt, and how it's "math," show him the information in this post and have him explain his understanding of these facts. And then read him this.

If even half the energy that has been devoted over the past five years to “budget deals” were devoted instead to “growth strategies,” we could enjoy sounder government finances and a restoration of the power of the American example. At a time when the majority of the United States thinks that it is moving in the wrong direction, and family incomes have been stagnant, a reduction in political fighting is not enough. We have to start focusing on the issues that actually are most important.

Drop me an email or put up a comment and let me know what he says:)

3 comments:

Juris Imprudent said...

So the last time we ran debt this high it wasn't just normal ol' govt operations, it was fucking World War Two. And once that war was over, what happened to debt, huh?

GuardDuck said...

You can only post this if you ignore EVERY fact counter to what you want to believe.


That's right - your entire viewpoint exists within the bubble of your own cognitive dissonance, willful ignorance, ideological blindness and naive beliefs.

Anonymous said...

M is intellectually bankrupt. His posts display this every day.