« Blogging from a Secure Bunker | Main | Ross Douthat Makes No Sense »

June 09, 2009

Comments

The bottom line is that Obama will reduce the deficit by more than his promise of half by 2012 from 2009, when he is up for re-election. He will not only reduce the deficit by 60-70%, but will also pass Health Care Reform.

It is going to be hard for Republicans to run on the issue of, "he only reduced the deficit from 2009 by 70%." Throw in that the public has zero confidence in the Republicans on economic matters and probably won't for two or three generations.

Beyond 2012, I wouldn't put much stock in CBO (or anyone's) estimates. For example, in 2007, the CBO was estimating this for 2008:

the most likely scenario is for the econ-
omy to return to solid growth by early 2008. According
to CBO’s projections, GDP will increase by 2.1 percent
in real (inflation-adjusted) terms this calendar year and by 2.9 percent in 2008 (see Summary Table 2). Employ-
ment growth, which slowed slightly in late 2006, is
expected to continue to increase moderately, thereby
keeping the unemployment rate near its current 4.6 per-
cent through 2008.

So, don't hang your hat on projections out 5-10 years from a group that predicted (only 12 months out) +2.9% GDP and 4.6% unemployment but the real result was -1.4% and unemployment was 7%.

On the other hand, the January CBO forecast included some unreasonable assumptions that made the long-term budget look rosier than it was: that the Bush tax cuts would be allowed to expire, that the AMT would continue unchanged, etc. So it's not really fair to hold Obama responsible for all of the increase since then. I'm going to stop using von's phrase, "Obama's deficits."

Whaaa? This doesn't make any sense whatsoever. Supplement spending is spending outside of the ordinary budgetary process, but it does not mean that the spending is not ultimately reflected in the CBO's numbers. Moreover, one second of Googling generated a contemporary result from 2007 that's in line with the CBO's after-analysis. This article from the CSM

Sigh. According to wiki:

United States Total Debt (Split) End of fiscal year Intragovernmental Holdings Debt Held by the Public 1999 2.020 trillion 3.636 trillion 2000 2.269 trillion 3.405 trillion 2001 2.468 trillion 3.339 trillion 2002 2.675 trillion 3.553 trillion 2003 2.859 trillion 3.924 trillion 2004 3.072 trillion 4.307 trillion 2005 3.331 trillion 4.601 trillion 2006 3.664 trillion 4.843 trillion 2007 3.958 trillion 5.049 trillion 2008 4.216 trillion 5.809 trillion 2009* est 5.900 trillion 6.400 trillion

That is, the total debt in 2000 was $5.674 trillion. The total debt in 2008 was $10.025 trillion. The difference then is $4.351 trillion, for an approximate deficit of $544 billion a year for eight years. Do you agree that those were the total debt figures for 2000 and 2008 respectively?

The numbers simply don't add up. The only way to wiggle out of this is when you say "it does not mean that the spending is not ultimately reflected in the CBO's numbers." you mean that Obama gets lumbered with Bush's spending.

Now, you can either dispute the numbers, or you can say, specifically, what is wrong with the logic. Refrain from any vagueness, which, when I see it in my students, I take to be wild handwaving to get at least a point or two on a 10-point problem.

Did anyone mention that in 2007 the CBO's 10 year forecast was a $2.9-$3.4 trillion deficit?

Looks like things are improving!

That is, the total debt in 2000 was $5.674 trillion. The total debt in 2008 was $10.025 trillion. The difference then is $4.351 trillion, for an approximate deficit of $544 billion a year for eight years. Do you agree that those were the total debt figures for 2000 and 2008 respectively?

The numbers simply don't add up. The only way to wiggle out of this is when you say "it does not mean that the spending is not ultimately reflected in the CBO's numbers." you mean that Obama gets lumbered with Bush's spending.

Now, you can either dispute the numbers, or you can say, specifically, what is wrong with the logic. Refrain from any vagueness, which, when I see it in my students, I take to be wild handwaving to get at least a point or two on a 10-point problem.

Scent of Violets, this has been addressed upthread. The deficit and debt figures don't match up because of the effect of the Social Security trust fund surplus, not because of the supplementals. The deficit figures are reduced by the amount of the SS surplus; the debt figures are not. It's an accounting trick employed by all administrations, including Obama's. The debt increases by more than the amount of the deficit each year because the debt includes the amount needed to repay the yearly borrowings from the SS surplus while the deficits do not.

per SoV's wiki link, overlapping charts

note that they are scaled differently. It looks as if, roughly, the non-deficit-accounted increases in the debt will be similar going forward as they have been in the past 8 years.

Actually the CBO pretty much agrees with the Obama projections for his first term (when they seem to largely agree with his expectations for economic growth), then projects a growing gap thereafter between his projections and theirs through 2019, but that is largely because they project a steadily declining increase in GDP growth from 3.5% in 2014 to 2.2% in 2019. The administration's budget uses 2.6% each year from 2015 through 2019, and that 0.4% difference in 2019 can make a big difference and it is way too early to know what will be the actual rate of growth in any of those out years. No one really knows how to project the economy over the next 10 years and it seems much more relevant to me what is going on over Obama's first term, when there is really little difference between the administration and CBO and a decline in the deficit both absolutely and as a % of GDP so I doubt people will see any reason to go running to the GOP in either 2010 or 2012.

On the debt vs. deficit issue, because the social security trust fund is included in the budget the current social security reveue surplus reduces the yearly deficit figures from what they would otherwise be (during both the Bush and Obama years) while the debt increases yearly by a larger amount because the social security surplus is viewed for debt purposes as a purchase of government debt which the government must repay to the trust fund when it stops producing a surplus sometime next decade, almost certainly by issuing new debt to the public. Everyone involved has always known that the govt. has been living on a larger amount of borrowed money than is reflected in the budget figures because the "social security trust fund" has to be "repaid." Thus, the figures for the Bush years understate the real deficit and borrowing costs created by his tax and spending policies.

Von,

I will make a bet with you: the minute the federal government runs a surplus, Republicans will start clamoring for tax cuts on the grounds that the government is collecting more revenue than it needs. That was exactly Dubya's line in 2000, and if you believe it won't be the "conservative" line next time a surplus rears its ugly head, I'd like to hear you say so.

Naturally, we can't reduce the DEBT without running surpluses for a while. So the knee-jerk impulse to cut taxes in response to surpluses (even if surpluses are achieved by spending cuts) pretty much guarantees an ever-growing debt, doesn't it?

--TP

This post is simply correct. I've been warning about this for a while now. Right on the mark - on all counts. I'm impressed that you even note that the disturbance in treasuries may just be a blip - but that does not mean doom is coming for bond markets (if you're the government).

*but that does not mean doom is *NOT* coming for bond markets (if you're the government).

Sorry - my mistake.

The disturbance in treasuries was enough to kick mortgage rates up 3/8 of a percent between the time I sent in the papers, and the time I got my rate lock in. Wasn't quite fast enough...

Von, One more thought re: this:

"Dean Baker's chart makes a number of elemental mistakes, one of which is to assume that there is spending that is exclusively "Bush" and spending that is exclusively "Obama.""

But I cited Dean Baker in response to Megan's argument:

"FY '09 is indeed Bush's final budget, but it's been massively increased by the stimulus package and other Obama programs. You can't lay this spending at the foot of Bush."

But Megan was making the same assumption that you chide Baker for: that there is spending that is exclusively "Bush" and spending that is exclusively "Obama."

So are you saying that Megan was making a fundamental error?

Sorry to be late to the party.

Let's look past the bailouts and the stimulus, since it is the long term that is significant.

What all of this discussion overlooks is that domestic discretionary spending in Obama's budget is projected to increase at a rate of 2.3%/year. This is consistent with realistic expectations of economic growth, and not at all with drunken-sailor analogies.

The long-term deficits are largely built in by our tax code and entitlements.

I agree that we are in a heap of trouble, but it is wrong to put the blame on Obama, except to the extent that his campaign promises make it difficult to increase taxes enough to pay for our obligations. The only thing of significance that Republicans have contributed to this debate is cries for more tax cuts. There is little question that the fiscal situation would be even worse with Republicans in charge.

"2.3%/year. This is consistent with realistic expectations of economic growth"

It's marginally lower than historical growth rates in the US during the 20th century, but considerably higher than historical growth rates in Europe. I don't think a return to cut-throat, largely unregulated capitalism in in the Obama game plan, and if we're going to be transformed even further in the direction of a European style regulatory/welfare state, assuming such a high growth rate is unrealistic.

And here I was just agreeing with part of what you said in another thread too, Brett.

The US's growth rates through the 20th century had little to do with "cut-throat, largely unregulated capitalism". For what that resulted in, look at the Roaring 20s and the Great Depression and World War II. The US's sustained growth since WWII had more to do with a) the fact we were the only major industrialized country that hadn't been bombed or fought over, b) post-war veteran's benefits including college educations and homeownership and health care that helped create an expanding middle class, c) the growth and strength of unions that helped create the middle class and ensure the results of the growth were spread beyond a tiny slice of the country, d) post-Depression bank regulations that helped keep destructive boom-bust cycles damped, and e) massive public investment in infrastructure that has provided the base of growth for decades, like interstate highways, telephone networks (mandated by the government to include rural areas), etc.

Or it all could have been the work of lone geniuses holding the weight of the world on their backs if that damn government weren't interfering. Anything's possible, I suppose.

here's what the NYT has to say (via MSNBC:

    The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.

    **Wall Street bailout
    About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

    Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

    About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

Scent of Violets, this has been addressed upthread. The deficit and debt figures don't match up because of the effect of the Social Security trust fund surplus, not because of the supplementals. The deficit figures are reduced by the amount of the SS surplus; the debt figures are not. It's an accounting trick employed by all administrations, including Obama's. The debt increases by more than the amount of the deficit each year because the debt includes the amount needed to repay the yearly borrowings from the SS surplus while the deficits do not.

Posted by: von

What you're saying then, is that this is not accurate, at least on the Bush side, and further, yes, Bush's spending comes home to roost in an administration preceding his. Further:

If I borrow $5 from a mutual friend, and you borrow $500, you can say that 'everybody does it'. But if, all other things being equal, my debts excluding this borrowed amount is $200, and yours is $100, you can't say that on some set of books my deficit is 'higher' than yours. The true totals including these amounts are $205 and $600. Iow, you can't use the 'everybody does it' excuse to obscure the degree to which they do it.

von, this is elementary, and I'm surprised and disappointed that you would attempt such chicanery, or that you think it would pass. Ideology is one thing. But you're messing with the numbers, and that simply won't do.

This was a garbage post from the get-go. Don't do this again, okay?

I'll add my voice to those who have already made essentially the same observation, that if 'Bush's deficit' is only for eight years, as von is implying with his chart, then Obama's can go to - at most - 2017, that is, another eight years.

Saying that Bush's responsibility stops in January of '09, but Obama's continues on into the future, to 2019 at least, is either innumerate or dishonest.

Normally, I'd say that dishonesty is the greater generic sin in any such conversation, but in anything involving numbers, I'm tempted to say that innumeracy trumps dishonesty. I don't hold much truck with Heinlein, but I think this is true:

Anyone who cannot cope with mathematics is not fully human. At best he is a tolerable subhuman who has learned to wear shoes, bathe, and not make messes in the house.

It's important to note here that 'math' in this case is 'arithmetic' - adding, subtracting, multiplying and dividing whole numbers and fractions.

Now that we're through with the arithmetic lesson:

Let's look past the bailouts and the stimulus, since it is the long term that is significant.

What all of this discussion overlooks is that domestic discretionary spending in Obama's budget is projected to increase at a rate of 2.3%/year. This is consistent with realistic expectations of economic growth, and not at all with drunken-sailor analogies.

The long-term deficits are largely built in by our tax code and entitlements.

Indeed. In fact, according to most authorities, the entitlement that is the biggest offender in this respect is Medicaid/Medicare. If you're also using those dicey infinite time horizons (I don't know if the CBO is), SS is also a problem.

To try to insinuate that this is all on Obama is - again - dishonest. In fact, to the extent that he succeeds with health care reform, these projections should start trending down.

I agree that we are in a heap of trouble, but it is wrong to put the blame on Obama, except to the extent that his campaign promises make it difficult to increase taxes enough to pay for our obligations. The only thing of significance that Republicans have contributed to this debate is cries for more tax cuts. There is little question that the fiscal situation would be even worse with Republicans in charge.

Posted by: steve

The other thing they have contributed to is resistance to significant spending cuts. Yes, I'm looking at military spending. If anyone wants to say that the Democrats are at fault here too, I would have no objection. OTOH, to say that both parties are 'equally at fault' here as well would not be true. This, however, can be attributed to simple economics and who benefits.

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

Posted by: cleek

That sounds more like it. I'm of the school that believes that without a lot of support, Presidents simply don't have that much power to improve the economic climate. OTOH, as Bush as shown, it's very easy for an incompetent President to severely trash it. This would extend to simple inaction on the Chief Executive's part - again - as Bush as shown. Though to be fair, this goes all the way back to Carter.

I pick ScentOfViolets for my team!

Still not detailed enough for policy evaluation, but a better summary of long-term responsibility:

How Trillion-Dollar Deficits Were Created

There is a front-page NY Times article on this subject today. If you compare the Clinton surplus to the current year deficit they break it into three parts;

37% economic downturn
33% Bush policies
20% Obama, including the portion of Bush policies that he wants to continue

Of the 20% figure, 3% is longer term spending and 7% is stimulus.

You might want to link to it von; it is an interesting read.

Nate, it would appear we agree on this much: "Historical" growth rates from the 20th century were a function of factors no longer present. To which I would add, cheap energy. It's somewhat unrealistic to project out that far assuming them.

FYI, the NYT version of the story is better than MSNBC's. for on thing, the NYT's includes a big-ass chart!

Brett: The way to get many of those things is NOT by having the government cut back on spending, or giving "cut throat capitalism" free reign. Most of the things I listed were things done by the government. That can be re-done, some of them (Infrstructure, education), or similar things can also be done (health care reform).

ScentOfViolets, I can't respond to your posts because I don't understand them. (I do understand that you think I'm an evildoer and liar, but whatever.) Whatever the relative responsibility of Bush and Obama for 2009, the CBO's projections through past 2009 reflect Obama's proposals. Full stop.

Marc, there's a front page post on the matter.

"Marc, there's a front page post on the matter."

And it's plenty weird that you don't link to it in both an update to this post, and in your response to Marc, don't you think? Is Typepad charging extra for that now? (I could believe that.)

It's not as if everyone reads every post, you know.

Even though I do, he preened.

ScentOfViolets, I can't respond to your posts because I don't understand them. (I do understand that you think I'm an evildoer and liar, but whatever.) Whatever the relative responsibility of Bush and Obama for 2009, the CBO's projections through past 2009 reflect Obama's proposals. Full stop.

Posted by: von

I'm sorry that you think that, given that I don't think you're an evildoer or a liar.

I think you're innumerate. Big difference. It really doesn't take an advanced math degree to understand that you can't compare eight years to ten or twelve or more, or that borrowing $5 is different from borrowing $500, even though both actions are the 'same' i.e., borrowing.

I do, OTOH, see from your posting that you're trying to compare Bush and Obama, which you simply cannot do using this chart.

Full Stop.

If you don't understand this (and this is not a partisan thing), then you are, quite simply, innumerate, and you have no business on commenting on these sorts of issues. So which is it? Do you really not understand that borrowing $5 is different from borrowing $500? Do you really not understand that you cannot compare differing amounts of years?

I really don't know how to make this any plainer.

Bush's two wars

When the mood takes them, Democrats like to say that they support the war in Afghanistan. (In reality they also voted for the war in Iraq, but lets not quibble.)

And when the mood takes them differently, they like to pretend that these wars were inflicted on them by Bush.

In any case, it is comical to pretend that these wars are the cause of the huge budget deficit under Obama. They were "hot wars" under Bush and caused no such gigantic deficit then. Just look at the chart.

On January 8, two weeks before Obama took office, the CBO was projecting deficits through 2019 (and especially substantial ones for the first few years). I wouldn't pin those on Obama, von.

Jog my memory here. Which party was in control of Congress from 2006 onwards?

The problem here isn't Bush specifically, and it isn't Obama specifically. it's Washignton D.C. and almost all the politicians there who don't actually have to live with the consequences of their decisions and are more beholden to their own personal and political preferences than to the people that elected them and the country they serve. They all spend like drunken sailors and they never met a program they were willing to cut. I don't remember readin the Constitution that the government and responsible taxpayers have to foot the bill for failed businesses, citizens, and illegal immigrants, but somehow those three categories get all our attention and money to the neglect of those who are trying to do great things.

You guys should have let the Republican win. It is the guy in office who gets the blame. Why? Well he WANTED to be President.

If Democrats cut back on the War Dept. and we are attacked they will be kaput. So not much economy there - realistically.

The other alternative is for Congress to cut back on all stimulus spending, eliminate green subsidies, and you know - drill for oil and build refineries. The government gets royalties on oil pumped in America. And the money stays in the country a while longer.

Shep, if Americans choose to work a bit harder and consume a bit less now, future American generations will have more resources. Choosing not to consume more than you produce does not "saddle" future generations with the same choice, but consuming more than you produce does saddle your children and grandchildren with debt.

As for the matter of paying off debt over time: when you have a major capital expense (education, public works, etc.), it makes sense to go into debt, to run a deficit and pay later. But the current projections show nothing but debt. If the budget projections showed the deficit ending in, say, 2012 and surpluses afterwards, this thread would not exist. You have a problem precisely because your current projections show nothing but more debt, with no plan for paying it off ever.

To All,

Von is 100% correct. The numbers from Bush's years are ACTUAL numbers and come from the 'Monthly Treasury Statement'. These numbers are actual expenditures - not budget projections. In fact BusHitlers budgeted deficits were generally FAR HIGHER than the actual deficts. Regardless, the Monthly Treasury Statement includes the annual war supplimental. That site is an exceptional resource. It is located at:

http://www.fms.treas.gov/mts

Use the September reports to get full Fiscal Year data.

And, yes, without the FY2007 war supplimental we were looking at a deficit of about $70 Billion. You can see the DOD splurge on receiving the supplimental.

And, the total cost of the war has been about $100 Billion/year. A cost President Obama has elected to continue.

And, where is any of the background data Mr. Dean Baker used to generate his funny little Excel chart. Any hard numbers, and description, any breakdown. Nope. Nada.

And, Bush had a role in the FY2009 bloat. But had nothing to do with the 'Emergency Stimulus Bill ($860 Billion) nor any of the other 'emergency' spending that occured after January 19th (more auto and bank bailouts). He is responsible for TARP - which never was completely obligated (and will not be) and is now being paid back (at least in part). Will President Obama's 'Stimulus' be paid back. Nope. Splitting the blame will actually be fairly simple. Bush - TARP. Obama - Everything else. We will, however, have to wait till someone breaks it down. We have to wait to see if the banks are stupid enough to keep enslaving themselves via TARP bailout cash. I think it is clear they are staying far far away from the TARP Baby.

And, at what point in the Bush Presidency was there ANY talk of defaulting on Treasury debt or inflating our way out of paying it?

And, the evil BusHitler warned us in 2000 and 2004 that Social Security was heading into the red by 2008/09. And, yup, it shore is bubbas.

ScentOfViolets,

Both Bush and Obama include Social Security revenue to offset the real deficit. The chart reflects reality on that basis. A weird reality, but a reality none the less. All Administrations since Johnson’s use this budgeting technique. So it makes sense to use it on both sides of the chart.

However, the real reality is that the Social Security bonds do not provide enough growth to overcome the wage inflation computation used to generate Social Security payouts. The situation is that the Social Security surplus has been shrinking as the boomers stop paying into it. BusHitler tried to warn us of this. The fact that the Social Security is shrinking hurt Bush’s numbers and will continue to hurt Obama’s at an increasing rate. Sometime soon (within four years) Social Security will be in deficit.

So, given that both Bush and Obama factor in Social Security surplus money into their deficit using the same methodology – how does that affect the chart?

The comments to this entry are closed.

Blog powered by Typepad