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Deficit reduced… — 10 Comments

  1. Neo,

    First of all, politicians love to play the dollars v. percentage game. If any political organization is quoting percentages of anything it means the dollar numbers don’t advance their narrative (and vice versa). So whichever the political animal is quoting, look to its converse and compare the two.

    Second, of course you are correct that a smaller deficit (measured by percentage) can be created by a larger denominator (i.e., GDP). This administration also plays another game. It has raised the deficit to unimaginable levels (the Obama administration has spent more than all other prior presidents combined — which includes a succession of wars from the Revolution through WW I and WW II to Iraq). So when you increase spending to unimaginable levels, reducing spending to ridiculous levels looks pretty good. As you and most here know, that’s like arguing fiscal responsibility by saying that you didn’t run up your unpayable credit card balance by nearly as much this year as you did last year; “I manage money pretty well, don’t I?”

    It’s Potemkin villages throughout the system and the really sad observation is that the Obama administration might be the worst offender, but it is by far not the first or only offender.

  2. To paraphrase Richard Widmark as Jim Bowie, I wouldn’t take their word that night’s dark and day’s light.

  3. The pols and their economists don’t care. They believe that deficits don’t matter. It’s called Modern Monetary Theory (MMT)

    “Virtually all economic commentary and punditry today, whether in America, Europe or most other places, is based on ideas about the monetary system which are not merely confused — they are starkly and comprehensively counter-factual. This has led to a public discourse about things like budget deficits and Treasury debt which has become, without exaggeration, utterly detached from reality. Time and time again, these pundits declaim that hyperinflation is imminent, that interest rates are on the verge of an uncontrollable upward spike, and that the jig will be up for sure just as soon as the next T-bond auction fails. But even though, time after time, it is the pundits’ prognostications which fail, no one seems to take any notice. This must change. A reality-based economics is needed to make these things make sense again, and Modern Monetary Theory is here to put everyone on notice that a quite different jig is the one that’s really up.”
    Read it all here:
    http://neweconomicperspectives.org/2013/03/what-is-modern-monetary-theory-or-mmt.html

    It’s an interesting theory and it might have some validity as long as energy is priced in dollars. When the dollar is no longer the international medium of exchange, the U.S. might find that fewer countries will accept dollars in payment for goods and our debt may become less desirable. Then our debt and level of government spending will affect our standard of living – probably not as bad as Zimbabwe, but maybe like Argentina.

  4. J.J.,

    “that fewer countries will accept dollars in payment for goods”

    I suspect that China will do everything in its power to keep that from happening. They certainly don’t want to be stuck with the 21st century equivalent of Milliom Mark notes from the Weimar Republic.

  5. neo-neocon: Couldn’t a lower deficit expressed as percentage of GDP have at least as much to do with possible rises in GDP as it would have to do with budget cuts?

    That’s usually the primary factor, though fiscal policy does have an impact. Deficits should be kept to no more than about the GDP growth rate. U.S. deficits are still too high, and more important, there is long term pressure on deficits due to entitlements. Additional revenues and spending cuts will be required to rein it.

    J.J: “Time and time again, these pundits declaim that hyperinflation is imminent, that interest rates are on the verge of an uncontrollable upward spike, and that the jig will be up for sure just as soon as the next T-bond auction fails.”

    Yeah, pretty funny.

    MMT is a bit too cute, and doesn’t work in many cases, certainly not as a comprehensive explanation.

  6. Here’s some background on what Z means by deficit, courtesy of intel profiling. Or was it open source data mining.

    Revenge for Sarah Palin, if nothing else.

    The American Recovery and Reinvestment Act added about $185 billion to the fiscal year 2009 deficit out of a deficit of $1.4 trillion. Much of the deficit is due to radically reduced tax receipts due to the recession. Importantly, the stimulus is temporary in nature,

    Meanwhile, income tax receipts increased dramatically and deficits shrank after Clinton raised taxes, because the economy expanded. And they have decreased dramatically over the last two years, even though rates are at historic lows, because the economy contracted.

    The GDP and tax revenues increased dramatically during the Kennedy Administration, but never did pass a tax cut.

    Today, Germany’s economy is in full recovery. They have higher marginal tax rates than the U.S., and have not implemented a rate cut.

    Sounds like Zimmer boy to me.

    http://www.patheos.com/blogs/theanchoress/2010/10/28/bush-tax-cuts-created-deficit-not/

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