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Wall Street Journal ^ | August 19, 2005 | Editorial

[remember]

PAYGO expired in 2002. It is no coincidence that in that same year, the budget plunged back into the red...

When you say "no coincidence", I understand you're inferring that a causal relationship exists and is confirmed by a statistical correlation.

Actually, I was just quoting the editorial by Senators Lincoln Chafee (R-R.I.) and Russ Feingold (D-Wis.).

Given the fact that PAYGO's start in 1990 preceded an even bigger surge in public debt, I can see why PAYGO is favored by the big government tax raising crowd.

There's a couple of problems with your statement. First of all, PAYGO started in 1991 as stated in this document on the White House web site. Secondly, the best indicator of success to look at is the deficit, not the debt. The following graph shows various measures of the deficit since 1970:

The actual numbers and sources can be found at http://home.att.net/~rdavis2/def06.html. As can be seen, the gross deficit had reached a maximum of 6.6% of GDP in 1991, the year that PAYGO went into effect. The gross deficit then decreased steadily reaching a low of 0.2% of GDP in 2000 and moving up to 1.4% of GDP in 2001. Then PAYGO expired in 2002 and the gross deficit jumped up to 4.1% of GDP and has been above 5% of GDP since 2003.

Just as it would be unreasonable to expect Bush to balance the budget in one year, so would it be unreasonable to expect PAYGO to do so. Because of the relationship between the deficit and debt described in post #197, the gross debt continued to increase until the deficit was brought below a certain level. Assuming a GDP growth rate of 5.5%, a gross deficit of 3.3% of GDP would cause the gross debt to trend toward 60% of GDP. The gross deficit decreased from 3.4 to 2.3% of GDP in 1997 and it was that year that the gross deficit began to decline.

[expat_panama]

...the best indicator of success to look at is the deficit, not the debt....

I say if debt % gdp goes up even if we have a budget surplus, then our debt is a bigger burden to us than before and we're worse off..  Conversely, if the debt % gdp goes down even if we have an increased deficit, then our debt problem is less and we're better off..

Do you agree?

[remember]

the best indicator of success to look at is the deficit, not the debt....

I say if debt % gdp goes up even if we have a budget surplus, then our debt is a bigger burden to us than before and we're worse off.. Conversely, if the debt % gdp goes down even if we have an increased deficit, then our debt problem is less and we're better off..

Do you agree?

Yes, but that has nothing to do with PAYGO. That has to do with the policies and/or the events that pushed the deficit so high to begin with. It's very difficult to decrease the deficit quickly. The usual approach is to slow down or freeze spending growth and to slowly increase revenues (without a major tax hike, it's difficult to increase revenues quickly). That's why it's taking several years for Bush to halve the deficit. Doing so quickly would be economically and politically difficult.

PAYGO has even less power over the budget. Unlike the President, PAYGO cannot just submit a balanced budget. It can only serve to make NEW tax and spending policies revenue-neutral. It can do nothing about existing taxes and spending. The fact is, the deficit steadily declined under PAYGO and has steadily increased since it expired.

Neither Bush nor the Congress have shown the courage to make the tough choices when it comes to the budget. Only by tying those choices to the easy ones (tax cuts and increased spending) will the tough choices ever get made.

[expat_panama]

our debt problem is less and we're better off. Do you agree?...   ...Yes, but that has nothing to do with PAYGO.

This is exactly why I'm not unimpressed with PAYGO.  I suggest we forget PAYGO and focus on actions that do have something to do with the the debt problem.   This is not sarcasm.  Your argument is that PAYGO affects the deficit which affects the debt which affects the economy which affects whether we're earning and accumulating wealth.  My argument is that wealth is important by itself and all other indicators are important only inasmuch as they effect wealth.  Sure, we can go further and say that wealth is not important by itself but rather only inasmuch as it makes us safe and allows us to pursue happiness, but then we'd really be getting off topic.

Our central question is the nature of any link that may exist between PAYGO and our ability to accumulate wealth.  We seem to agree that the link between PAYGO and the debt (through the deficit) is weak.    I see a negative direct impact that PAYGO has on personal wealth in the taxes that it can raise.   PAYGO is not justified.

[remember]

This is exactly why I'm not unimpressed with PAYGO. I suggest we forget PAYGO and focus on actions that do have something to do with the the debt problem.

The following graph shows various measures of the federal debt since 1940:

The actual numbers and sources can be seen at http://home.att.net/~rdavis2/debt40.html. As can be seen, the only time in the past sixty-five years that a rapidly rising gross debt has been changed to a falling gross debt in one year was 1947, at the end of the Second World War. You say that you are "(not) unimpressed with PAYGO" (I assume that the double-negative was unintented) because it did not have the same radical effect on the debt as the end of the Second World War. You are a tough man to impress! The fact is, PAYGO did everything that could be expected of it. It forced some badly-needed budget discipline on the Congress and helped to bring the deficit down, turning it into a surplus.

This is not sarcasm. Your argument is that PAYGO affects the deficit which affects the debt which affects the economy which affects whether we're earning and accumulating wealth.

That is NOT my argument. My argument is that it decreases the deficit which decreases the debt from what it would be otherwise.

Our central question is the nature of any link that may exist between PAYGO and our ability to accumulate wealth. We seem to agree that the link between PAYGO and the debt (through the deficit) is weak. I see a negative direct impact that PAYGO has on personal wealth in the taxes that it can raise. PAYGO is not justified.

No, the link between PAYGO and the debt (through the deficit) is very strong. By decreasing the deficit, PAYGO made the debt lower THAN IT WOULD HAVE BEEN. That's simple math. In any case, we seem to have a fundamental disagreement on a number of basic items on which I see no indication that either of us will change anytime soon. Hence, I suggest we end the conversation here and agree to disagree on this topic.