Budget Deficit Drops to $250 Billion

AP ^ | October 6, 2006 | ANDREW TAYLOR

[West Coast Conservative]

The federal budget estimate for the fiscal year just completed dropped to $250 billion, congressional estimators said Friday, as the economy continues to fuel impressive tax revenues.

The Congressional Budget Office's latest estimate is $10 billion below CBO predictions issued in August and well below a July White House prediction of $296 billion.

The improving deficit picture _ Bush predicted a $423 billion deficit in his February budget _ has been driven by better-than-expected tax receipts, especially from corporate profits, CBO said.

[remember]

The serious question is what do we learn about current debt/gdp levels by looking at what similar levels did in the past. We're together with the fact that debt was 122%gdp in '46, and that the post war era was one of unprecedented economic expansion.

What we're together on is the fact that the debt was 122% of GDP in 1946. However, the economic expansion from '46 through '70 was no greater than the economic expansion since then. Also, how could there have possibly been an "unprecedented economic expansion" with the 82-plus percent top marginal tax rate that existed from 1942 through 1963? ;) What brought the debt down was fiscally responsible budgeting. From 1947 through 1970, the only gross federal deficit above 2% of GDP was 3.3% of GDP in 1968. The red line in the following graph shows the level of the gross federal deficit since 1970:

The actual numbers and sources are at http://home.att.net/~rdavis2/def07.html. As can be seen, the only times that the gross deficit has been less than 2% of GDP since 1970 has been in 1974 and 1998 through 2001. In fact, it's been above 4% of GDP in every year since 2001.

You lost me on this idea that today's lower amount of debt is somehow worse because of the kinds of things the money is spent on.

Once again, the huge gross deficits of 35, 29, and 25 percent of GDP from 1943 through 1945 were due to military spending of about 37 percent of GDP during those years. Over 100 percent of that 122 percent of debt we had in 1946 came from military spending in just those three years. As soon as the war ended, we returned to responsible budgets, even running a 6% of GDP surplus in 1947. Now, no one is even suggesting a plan to balance the budget. Instead, Bush is bragging about having halved the unified deficit in four years.

Maybe you're getting at the need for a massive overhaul of social security; but that's only projected at about 4 or 5% gdp in 2010, no here near what we handled in '43. with the war.

The difference, of course, is that Social Security and Medicare (the likely larger problem) go on year after year. World War II lasted only 4 years. However, these are chiefly future problems. The more immediate problem is the general fund which has been running a deficit of over a half trillion dollars a year for the past four years.

I say we're blowing this thing way out of proportion and we can forget about it and play mind reading games like you suggested--

You mean that you do not intend to waste your time looking for an optimistic projection when you know that a credible one likely does not exist.

You said "We don't need anyone else's garbage when we create it right here on this thread-- er, you know what I mean". As you had so much confidence that I knew what you meant, I took a guess. If I was not familiar with your subtle sense of humor I might have thought that your use of the word "garbage" and your prior reference to "stinking pile of doomandgloom/votedemocrat rants" were meant to be insulting. Of course, I know that those are just your way of being chummy!

That's when I'll probably mention that I think that my link about Carter was funnier than your link about Bush.

Yes, I had thought of relinking your 1978 link!

[expat_panama]

"...from 1942 through 1963? ;) What brought the debt down was fiscally responsible budgeting."

Let's say that some fiscal responsibility was a useful but incomplete part, and that success hinged on the overriding fact that so much wealth was created by the American people back then --the reasoning being that from '46 to '70 the total nominal amount of debt actually increased by a third, while the gdp doubled.   What I remember of those days is that people didn't consider the federal budgets particularly "responsible", but they sure felt prosperous.

We know we need both, wealth and fiscal responsibility, and they have to be in the right mix.   At times when we're forced to choose just one, we have to protect wealth creation first and put off fiscal responsibility for later.  Recovering the lost ability to create wealth in the '30's involved a lot more suffering than the recovery from the overspending of a decade later.

I love your graph and sources; we're definitely getting somewhere.  We got the total public debt and it's annual change.  I went further and included the annual change of private net worth % gdp (data here).

If there's any connection between public debt and private wealth, then paying off the war debt didn't seem to hurt us nearly as much as the budget surplus of the late '90s.  Then again, I'm not willing to say there is a connection anymore than you are.

Cheers, and don't forget to vote!

[remember]

If there's any connection between public debt and private wealth, then paying off the war debt didn't seem to hurt us nearly as much as the budget surplus of the late '90s. Then again, I'm not willing to say there is a connection anymore than you are.

You're right, I don't see much correlation between public debt and private wealth. As you can see from the following graph, the decline in household wealth was due chiefly to a decline in equities and pensions and, looking at the entire period from 1994 to 2002, real per-capita wealth continued to increase:

The actual numbers and sources are at http://home.att.net/~rdavis2/worth.html.

Cheers, and don't forget to vote!

Thanks, I remembered. Hope you did as well!

[expat_panama]

..don't see much correlation between public debt and private wealth...

Which brings us back a month ago when I came in to your chat with olderwiser when I said (in post 190) "that tax-cuts haven't kept things from getting better."

I like your idea of 'core wealth' vs 'volatile asset prices'; kind of like 'core inflation'.  There's a problem with the fact that stocks and land only leave you us an apple core of just a fifth of our assets, while taking out food and energy from price indexes only removed a fifth of the basket of purchases.  

But hey, maybe we can include a moving average of land and stock prices --the reasoning can be that people own pension funds and land over several years.

We got possibilities here...