Screaming Budget Deficit

Life's Trek ^ | August 8. 2004 | LifeTrek

[LifeTrek]

I am sick of the screaming some on the left are doing about the budget deficit. To be fair, some on the right are screaming too - I always try to be objective (try mind you!).

I ran across a the chart everyone has see from Reuters - can't seem to find it now, all links broken! It looked really nice and all, had great colors and a HUGE negative swing under President Bush. Problem is it isn't an accurate way to analyze finances, it is a fraudulent or at the least intentionally misleading way to analyze a deficit.

Sure, numbers to numbers it is completely true - but GDP matters! Lets say you make $100,000 per year and figure you can afford a house with a monthly payment of $1000 (rough numbers just for point.) Your looking at an annual house payment of $12,000 or 12% of your annual income, or GDP in government terms. Well, 30 years later - your income has grown to $300,000. You could afford a $36,000 annual house payment without even blinking because it takes the same percentage of your income. This is Real World Common Sense! With that in mind I started looking to see if anyone in the media had decided to be intellectually honest and look at these facts as they apply in the real world. Unfortunately I didn't find anyone in the media do interested enough or educated enough to review these facts.

(snip)

So, who holds the record for largest deficits as a percentage of GDP? Why the sainted Franklin Delano Roosevelt...

(snip)

In addition there are a few things that need to be included in any discussion of the current deficit:

1) THIS SEEMS TO HAVE BEEN COMPLETELY FORGOTTEN BY MOST EVERYONE! A major front in the War on Terror is the Economic Homeland - just like in WWII we protected the homeland we do the same now! The terrorists have told us they plan on causing economic ruin - doesn't it make sense to protect that portion of the homeland just as you would nuclear plants, skyscrapers or airports! How do you do that, not with bombs, guns, or even extra police but with Tax cuts and an influx of government spending. (More to follow on these fronts in the war.)

2) The Clinton's wonderful "surplus" was in large part at the expense of national security! In 1999 the Pentagon estimated that we were under funding defense by at least $10 BILLION per year. While defense spending dropped in the 90's - in real numbers - all other spending increased.

3) A deficit is not all bad - you know those savings bonds you get for your kids, you got as a kid, or you get through work? Well what exactly do you think those are? Yep, loans to the US Government. Without the deficit there would be a giant vacuum in today's diversified investment world.

4) Money you earn is yours, not something the government is kind enough to let you have - tax cuts are like a drop in your prescription costs each month - it reduces your bills and lets you keep more of your own money! A tax cut is NOT a gift but a drop in your bills.

DKK

[Scutter]

Good points.

Another benefit of a deficit (well, technically a drawback of a surplus) is that a surplus tends to encourage government spending. Remember those surpluses under Clinton? Congress went nuts and started spending like a drunken sailor.

[LifeTrek]

Very true! Spending grew, but still a surplus. Oh and how about the trillion dollars 9/11 cost the economy.

5) 9/11 cost the US economy (as close as can be estimated) over a trillion dollars! Try running your household with no income from September until January the next year and see if you don't slip into deficits!
DKK

[swilhelm73]

The next time a leftist complains about the deficit/debt in relation to Bush to you, ask them if they would agree to an across the board (save military) spendings cut to balance the budget and start paying back the debt.

If not, obviously they aren't seriously concerned with the issue.

[LifeTrek]

Great point - you know it is a phantom issue to them!
DKK

[Scutter]

Oh and how about the trillion dollars 9/11 cost the economy.

I think the surplus and deficit is more related to the economy than any particular change in spending from year to year. There's no doubt that if government cut back on spending, we could get rid of the deficit. However, in practice that never happens. What DOES happen is that tax revenue goes up or down depending on the state of the economy.

During the Clinton years, the economy was booming, and we had a surplus. The economy went on the decline towards the last year of Clintons second term, leaving Bush set-up for a budget deficit.

[LifeTrek]

Excellent point and might I add part of the booming 90's was really a bursting bubble!
DKK

[CyberAnt]

Since the tax cuts went into effect .. the deficit has SHRUNK BY 100 BILLION.

[Fishing-guy]

Having a huge deficit is a good thing!!!

Who is going to pay the debts when the creditors come calling? We all know they never fail to come collect.

[mathluv]

' it is a phantom issue to them! '

I would love to see the figures of how the def grew under dim congresses, and was done away with when the pubbies took over.

Also, where are the videos being played showing the toon talking about the def, in terms of it could be paid off in 7 years, .... in 10 yrs, etc.

They are claiming NOW that the dims tooke care of the def -FALSE!!! It just grew under dims - took a pubbie congress to DO something about it.

[Moonman62]

This is just one big excuse because the guy in charge has an "R" after his name. The real issue is government efficiency, or the value you get for the money that you must hand over to the government. With a "zero veto" record, it's hard to make the case that GWB is getting the best value for our money.

Productivity increases should cause the cost of government to come down over time, just as it does in the private sector. To assume that the government should take up a certain percentage of the GDP because we can afford it is wrong. Does IBM or Dell ask you to spend $4000 on a desktop computer like you did fifteen years ago because you can afford it? We should be looking at how much government we need, and how much it should cost compared to the private sector. Any amount of money above that is being stolen from us.

Speaking of the military budget, its share of the GDP has come down over time and is now around 4%. To say that GWB's fiscal irresponsibility is due to spending on security is wrong. His fiscal performance is a disgrace.

[Brett66]

The means for determining deficits is so politicized and bass-ackwards the deficit numbers don't have any real meaning anyway. I could say that I expected to have an income of $200,000 next year based on a promotion I think I might get at work, which could double my income from $100,000. If I don't get that promotion, I could say I'm running a $100,000 deficit annually. What a crock!

[NittanyLion]

Sounds like a whole bunch of excuses because Republicans are running the government. Huge domestic spending increases (Farm Bill, Education Bill, etc.) are bad. Period.

No amount of rationalization can change that.

[Willie Green]

Sure, numbers to numbers it is completely true - but GDP matters!

No it doesn't.

The budget deficit is a financial measure of government operations. It should be compared only to other similar measures: National Debt, federal revenues, federal expenditures, assets, etc. etc. etc.
GDP, on the other hand, is a measure of our overall economy, including the private sector along with state and local government.

Discussing GDP in the same breath as the federal budget deficit is disengenous and misleading. It's mixing apples and oranges to deceptively divert attention away from the incompetent and corrupt way our government is being managed.

[LifeTrek]

I agree with most here that the government should reign in spending, in my opinion by across the board cuts - which in Washington wouldn't really mean cuts, but would just mean a reduction in the in crease! The deficit would eliminate itself. The pork has got to be slowly whittled away and it seems the only way that has ever come close to working is by cutting the budget and forcing efficiency.

Government is the only place where a cut isn't really a cut, as Brett66 said above, the whole thing is screwed up and all based on projections.

But if you are going to compare numbers you do need to have it in prospective and that includes GDP numbers.

As the economy and investments grow bonds are an essential part of our financial system.
DKK

[remember]

Sure, numbers to numbers it is completely true - but GDP matters! Lets say you make $100,000 per year and figure you can afford a house with a monthly payment of $1000 (rough numbers just for point.) Your looking at an annual house payment of $12,000 or 12% of your annual income, or GDP in government terms. Well, 30 years later - your income has grown to $300,000. You could afford a $36,000 annual house payment without even blinking because it takes the same percentage of your income.

The comparison of the deficit to a mortgage payment is seriously flawed. In the case of a mortgage, you are taking on a debt in order to acquire a real asset and paying down that debt via your mortgage payments. Each payment (minus the interest portion) makes your mortgage debt smaller. The deficit, on the other hand, makes our debt LARGER. And it's questionable whether we are obtaining a real asset for most of that additional debt.

In fact, concentrating on the deficit, however you measure it, is a diversion. What really matters is the gross federal debt. It is the debt, not the deficit, that we and our children will have to pay interest on forever (unless we pay it back). Now it may be reasonable to look at the DEBT as a percentage of GDP (though looking at it as a percentage of actual federal revenues might be better). As can be seen in the graph and table at http://home.att.net/~rdavis2/debt05.html, the gross federal debt, as a percentage of GDP, is projected to increase, reaching 71.9 percent of GDP by 2009. This will be its highest level since 1952.

So, who holds the record for largest deficits as a percentage of GDP? Why the sainted Franklin Delano Roosevelt...

These deficits, of course, were to pay the cost of our winning World War II. Now one could compare this to the cost of winning the war on terror. The problem is, the war on terror is unlikely to come to and end of 4 or 5 years, as did World War II. In any case, we began to pay the debt down (as a percentage of GDP) as soon as the war ended. There is currently no plan for us to make the sacrifices to do that. In contrast, as shown in the following graph, the most recent budget shows that the debt is projected to explode over the next few decades:

The actual numbers for this graph can be seen at http://home.att.net/~rdavis2/pro2005.html. As can be seen, the public debt is projected to reach 432 percent of GDP by 2080, over three and a half times the level reached as a result of World War II. Of course, something will give long before we reach that point. The sad thing is, we don't even have the pretense of a plan for dealing with it.

[LifeTrek]

Got your point - but as long as investors continue to buy bonds this analysis is flawed as well.

The true danger - the threat of investors (non US Citizens even) having more power over government policy then the electorate. After all these are loans and although they can't be called the refinance of these could be "contingent" upon policy changes.
DKK

[PersonalLiberties]

I am in the process of trying to educate myself regarding these matters; i.e., debt, deficits, inflation/deflation, etc. (hey a FReeper who admits to not knowing everything) . . .

anyway I do not normally quote from the bible by there is a Proverb that says the rich rules over the poor and the borrower becomes the lender's slave. Debt has to be paid off eventually and while one is working to service that debt he is basically working for the lender.Congress continues to spend. The US continues to be financed by foreign countries. More and more of the wealth of this country will be paid to service the debt and at some point things will no longer be sustainable. Then what? I don't see they end result being very good.