Skip to comments.PAUL KRUGMAN: The Deficit Is Basically Solved
Posted on 01/11/2013 8:21:14 AM PST by blam
PAUL KRUGMAN: The Deficit Is Basically Solved
Jan. 10, 2013, 4:00 PM
Many people think that fixing the deficit is a painful process that involves deep cuts to crucial programs. Some think the process is too hard, and it's not worth trying yet.
That's not correct, according to a chart from from the Center on Budget and Policy Priorities' Richard Kogan showing just how far the United States has come in the past two years.
We've talked before about how the painless and most effective solution to the deficit is additional growth in GDP. As the recovery progresses and GDP rises, the government will get more revenue from increased productivity. We've also pointed out that fundamentally we don't have a spending problem.
Paul Krugman made the point that the chart shows how far we've come on the deficit and how easy it will be to solve moving forward.
Richard Kogan points out that the debt to GDP is very important indicator, and can't rise forever. "If it did," he says, "that would shrink the amount of national saving available for private investment, ultimately impairing productivity growth and, in turn, living standards."
In short, seeing what we're seeing is a good thing.
The chart shows the stabilization of the debt to GDP ratio of the United States.
As late as 2011, the U.S. was bound for an unmitigated increase in debt to GDP ratio. Thanks to two bills, the deficit is close to coming under control: The Budget Control Act of 2011 (BCA), which came from the debt ceiling negotiations and mandates $1.2 trillion in cuts. The American Taxpayer Relief Act (ATRA), which was signed two weeks ago to avert the fiscal cliff and raised taxes on high earners.
(Excerpt) Read more at businessinsider.com ...
Just like Greece did. [/s is this necessary?]
America is run by a tax cheat and
an undocumented liar.
My creditors have never worried about my new debts as long as I have been paying off my debts to them, which the U.S. has NOT been doing.
You don’t need to be good at math to win the Nobel prize, I guess.
Magic must be real.
Krugman would flunk even the most basic engineering math.
A Fourier transform is completely beyond his ability.
However, his math is evidently good enough to get a Nobel Prize in Economics.
Such is the (dismal) state of both the economics profession and the (laughable) Nobel Committee in Economics.
Well if Krugman says so it must be true. I feel so much better now.
What a MAROON! That chart shows the same level of pain for 10 years like that’s a GOOD THING... and that’s assuming that the tax increases do the historical OPPOSITE of what we know they will do and they assume that the budget will shrink by $1.2T . my prediction ,, AND I’M NOT A NOBEL WINNING ECONOMIST ,, is that we will see the opposite of all the pretty prediction lines with the most likely outcome having us being at 88% debt/gdp by 2017 or 2018 .
Q: If Johnny has 10 apples but signed a contract to deliver 100 apples, how many apples short of fulfilling his obligation will Johnny be?
A: None, Johnny just needs to make his 10 apples extra shiny and declare he delivered on his obligation.
There is no doubt that the best solution to the deficit problem is strong economic growth — but only if spending is constrained to grow at a much slower rate than revenues. Until that happens, the deficit will never be solved.
The chart makes no sense. Even without the Budget Control Act of 2011 or the American Taxpayer Relief Act of 2013 the chart shows the debt to GDP ratio flattening out in 2014. Now assuming the anemic GDP growth of 2% we’ve been having, that means that the debt increase would have to match that. If the debt went up 2%, that would imply a deficit of about $330 billion. Now compare that to the deficits in the $1.2 trillion range we’ve been running since Obama entered office. Has anyone seen any proposals for a $900 billion spending reduction for FY 2013 or 2014?
great googly moogly, have you read any of the comments at the source?
Wow, people are delusional!
`Comrades! Attention Comrades ...’
Krugman: An agent of disinformation and demise.
Oh, goodie. The deficit is gone, now we can spend even more money. And since government spending is figured in as part of the GDP, the GDP will keep growing too!
Happy daze are here again!
In 1962, defense spending was nearly half the total federal budget (49 percent); Social Security and other mandatory programs were less than one-third of the budget (31 percent). Two major entitlement programs, Medicaid and Medicare, were signed into law by President Johnson in 1965. In 2012 entitlements were nearly 62 percent of total spending, while defense dropped to less than one-fifth (18.7 percent) of the budget.
We have a spending problem.
Here is what he saying :
1) the gubment *borrows* and spends
2) those getting that money in jobs or stimulus checks or whatever, they spend the $$$
3) More people are needed in economy to service the increased spending demand
4) More people pay taxes, revenue goes up decreasing the deficit.
5) net effect is??? less deficit than if gov didnt do #1??
This is basically a (national debt) feedback loop that involves billion of
peoples (world economy) actions and reactions to these limited government directed stimulus: tax cuts or spending.
Sure, a major recession will cut revenues, sure stimulus in #1 will create a temporary increase in GDP and tax revenue, but beyond that...?. Beyond that they dont have a clue
In fact GWB tried this in response to a recession: huge increases in spending+ huge tax cuts +lots of Fed stimulus(interest rates+easy loans) = lots of stimulus, and it all blew up in 2007 to 2008 anyway.
Does Krug praise this? No, he says we didnt need stimulus under Bush.
I suggest Krugman should read the Trustee's Reoprt on SS and Medicare to understand why entitlements will consume the entire federal budget unless they are reformed. By 2030 there will be just two workers for every retiree and one in five Americans will be 65 or older--twice what it is now. Entitlement spending is increasing faster than GDP growth.
Once you join a cult your thinking tends to get very muddled and confused.
Evidently the GDP ratio grows at astronomical rates until 2014 when a miracle happens and we stop spending like drunken monkeys or the economy starts booming. Gee, What happens in 2014 that causes that to happen? Asteroid? Earthquake? US wins the worldwide lottery? ... (I didn’t read the article at the link but I can still laugh at it)
The article does not mention the implied growth rate in GDP in order for it to be true. My guess is that it’s in the 3%+ range and we are nowhere near that. The CBO estimates have been wildly wrong are far more positive than reality. I do forecasting for a living and it is ALL ABOUT THE ASSUMPTIONS.
... and call anyone who points out the discrepancy a backwards-thinking racist bigot.
The final arrow in the quiver is monetizing the debt. It will come to that. It is what they are already doing to one degree or another and have been doing for a long time. However, this arrow is the one that will lead to hyperinflation. It is not a matter of if. It is a matter of when.
And when it happens, the next phase will be world war.
The graph is misleading as it seems to show a large drop in the budget deficit but in reality it only goes from 82 to 72% of GDP. Still an unsustainable level of spending. It also doesnt show what happens to the National Debt which continues to rise.
The racist/bigot moniker is only applied after the Carneyesque spokesperson declares the questioner isn’t intelligent enough to understand mathematical equations on Johnny’s level.
Agree. I find it interesting that they assume that the $1,2 trillion in BCA cuts will actually be made. They have now been postponed for two months and I would wager that Congress will use some sleight of hand accounting tricks to postpone and deflect the cuts so as to continue to fund defense and the welfare state.
And they assume that raising the taxes on the wealthy under the ATRA will bring in more revenue and not hurt GDP growth. Usually when you tax something more, you get less of it.
And to really get things stablized they are suggesting another $1.4 trillion in combined tax hikes and spending cuts. With the already slow growth in GDP, high unemployment levels and household income declining by close to 10%, any projections on the growth of our GDP are clearly suspect.
The first real indicator will be whether the mandated BCA cuts will really occur. If we can't cut $100 billion a year out of a $3.7 trillion annual budget, then we have a failure of political will to do what is necessary to get us off of this fiscal path of destruction.
And they are only considering the publicly held debt, not the $5 trillion in the various trust funds like SS, HI, federal pensions, etc.
The argument forgets one key fact, no one in the government expects to or wants to pay down the existing federal debt. The ace in the hole is the Federal Reserve. They are the never ending sleight of hand provider of money to the government. Buy the paper, credit the governments bank account and voila!, instant cash to spend. Pretty neat trick, keep borrowing from yourself and pay it back with more paper! Krugman channels Bullwinkle: "Nothing up our sleeves!". I just do not want to be around when the day of reckoning comes.
If you subtract deficit spending from GDP, GDP is contracting every year.
In other words... Forget about the problem, it will go away.
Honest to god, these libs are aliens from another planet.
Nobody will notice Krugman’s platinum coin they’re all hiding their guns
Basically the same thing that Obama told Boehner.
“We don’t have a spending problem. The deficits are caused by out-of-control health care costs....and I fixed that!”
Oh that’s great, so my family, and children and grandchildren’s families aren’t responsible for $350,000 of the Marxist democrat’s debt!!?? Did the Fed just pay off that $5+ trillion we owe to other countries and forgive the $12 trillion we owe ourselves? Garsh this is regular plop plop fizz fizz news....so why did we need to raise taxes?
So, basically this says we have the problem solved if we keep in place the BCA cuts of sequestration (which nobody wants) AND add another $1.4T in cuts over the next ten years ($140B/year).
That is probably true, but the BCA cuts were designed as a draconian penalty to motivate more carefully designed cuts. If congress can agree to replace the BCA with something better, it will certainly not be more severe cuts and they certainly won’t cut another $140B/year on top of that.
This is like saying that if we just cut spending enough we won’t have to worry about deficits. DOH!
Could we PLEASE give Paul Krugman to the Red Chinese to pay off all our debt to them?
I tweeted the author about the growth rate. The assumption is that GDP growth between 14-17 is 4.3%. That’s very, very strong considering the strongest four year average growth over the last decade is 3.0% (and that was 2002 which incuded the end of the dot com boom). This chart would look very different at 3% GDP growth instead of 4%+.
Double plus ungood!
A Fourier transform is completely beyond his ability.
However, his math is evidently good enough to get a Nobel Prize in Economics.
Such is the (dismal) state of both the economics profession and the (laughable) Nobel Committee in Economics.”
Krugman won his Nobel Prize for path-breaking work on the geography of international trade, not for his knowledge of fiscal policy and macroeconomics in general. Issac Newton was an alchemist, Linus Pauling believed that vitamin C was the cure for everything from cancer to the common cold, and Louis Ignarro believes that l-arginine is a cure-all for heart disease. Among scientists, this is called the “Nobel disease”; the arrogance possessed by some Nobel Prize winners that causes them to believe their specific knowledge and achievements in one narrow field of study gives them expertise in some (or all) other fields.
Liberalism: The art of self-deception
Has the author ever tried that line with a credit card company that wants to pull his line of credit ? Just give him more credit and he can then handle the monthly payments. What will happen to US treasury revenue when world war breaks out ? How will we pay for the next world war when spending is already maxed ?
As productivity declines, the debt to GDP ratio would increase. Sheesh.
Krugman’s solution is to basically print up $16 trillion in new money and use that money to buy back all outstanding T-bills. No more debt. (Of course it would take several years of 92% unemployment to ‘fix’ the rampant inflation that would follow).
No, but stupid is.
Remember Ohaha's self-serving SOTU speech? Sounding like "he just took office" in January 2011 with a Republican congress. T'was that 2008 ex-Republican POTUS and Republican congress who screwed everything up.
Therefore Ohaha couldn't fix EVERYTHING with the Republican congress blocking all his GREAT ideas. NO MENTION of the years Democrats controlled everything---and nothing got done---unless you count Congress getting rich on insider info (/snix).
In a fair accounting, President Obama is responsible (along with the then-Democratic Congress) for the $1.3 trillion in deficit spending in 2010 and the estimated $1.6 trillion in deficit spending in 2011. He [Obama] should not get credit, moreover, for the $149 billion in TARP (Troubled Asset Relief Program) repayments made in 2010 and 2011 to cover most of the $154 billion in bank loans that remained unpaid at the end of the 2009 fiscal yearloans that count against President Bushs 2009 deficit tally.
The Treasury Department says that all but $5 billion of the TARP bank loans has now been repaid. The portion of repayments that was for loans issued in 2009 should be deducted from Bushs deficit tally, not credited to Obama as deficit savings. There is some astounding number crunching in this article, and a chart of modern day presidents average annual deficit spending ........a frightening conclusion of what happens if Obama has an 8 year term.