September 29, 2003

Deficit Projections

From the Center on Budget and Policy Priorities:

Press Release: The Developing Crisis -- Deficits Matter, 9/29/03: A bipartisan group of prominent budget analysis organizations, former senior government officials, and business leaders warned today of a "growing mismatch between what Americans are scheduled to pay to government and what they expect government to deliver in return."  The group released a new analysis of the expanding federal budget deficit, projecting $5 trillion in total deficits over the coming decade.  The group also released a joint statement calling on Congress and the President to develop "a realistic plan for putting the nation's fiscal house in order." Issuing the statement were the Committee for Economic Development, an organization of business leaders and educators; the Concord Coalition, a bipartisan organization dedicated to sustainable fiscal policy; and the Center on Budget and Policy Priorities, a policy research organization that focuses on fiscal issues and issues affecting low- and moderate-income families.  Joining them in releasing the statement were prominent board members of the three organizations, including Robert Rubin, Warren Rudman, Peter Peterson, Robert Reischauer, and William Lewis. 

"Many in Washington now argue that escalating deficits do not really matter, that they are self-correcting, that they are unrelated to interest rates or future economic well-being, and that tax cuts will pay for themselves later by spurring economic growth," the statement noted, adding,"t would be wonderful if this were true.  It is not."  With just a few years remaining before the baby boomers' retirement, the government is on course to squander its final opportunity to prepare for that event by reducing the national debt.

Well, that's two visible Republican grownups. Can anybody suggest a third?

Posted by DeLong at September 29, 2003 08:25 AM | TrackBack

Comments

Related item on the subject, a speech from the head of the GAO, Comptroller General David M Walker, entitled "Truth And Transparency: The Federal Government's Financial Condition And Fiscal Outlook". It is included in the latest of Franklin "Chuck" Spinny's commentaries over at Defense in the National Interest:


http://www.d-n-i.net/fcs/comments/c497.htm

The overall D-N-I.net site is a very good resource for information on the DoD financing/procurement and related problems. Chuck Spinny's commentaries (which the above is from) are excellent reading.

Posted by: Nicholas Weaver on September 29, 2003 08:50 AM

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The two grownups are utterly ignored by the revolutionaries now destroying the Federal government. The government is not just "on course." It was deliberately set on course by Bush/Norquist/Delay. I hope they have a good place to hide from me.

Posted by: John Thullen on September 29, 2003 09:04 AM

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I guess Keynes was wrong then when he said deficits do not matter. The ratio deficit/GDP is still below the one after the second war.It bothers me that social programs are relegated in favor of war.Ignore the people and they will ignore you.

Posted by: Julian Bonaval on September 29, 2003 09:16 AM

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Julian Bonaval writes:
>
> The ratio deficit/GDP is still below the one after the
> second war.

And this is relevant because...? Seriously, I have no idea what this comment is doing here, unless the irony is very subtle.

The original target article is all about concerns for the near future, when, ceteris paribus, spending must increase as baby boomers retire while receipts as a fraction of anything useful go down. Further, we cannot rely on GDP to grow anything near fast enough to compensate, especially given the effect that the size of huge structural deficits will have on borrowing costs for everybody. After WWII, there was concern about whether we would plunge right back into Depression, but deficit/GDP was basically fated to decrease as we de-mobilized the military and any decent number of people who had been stuck in the armed forces were now available to make potentially large contributions to the economy. When half of Europe and Japan are flattened, it's easy to see good times in your export markets, for starters.

Posted by: Jonathan King on September 29, 2003 09:38 AM

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"The ratio deficit/GDP is still below the one after the second war."

True. And until several hundred thousand US troops are killed in Iraq, there will be a lower casualty rate (% of population of US) than in WWII. In fact, it'd probably take several million KIA's to get to the proportion of population killed in the US Civil War.

I feel better already.

Posted by: Barry on September 29, 2003 09:40 AM

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"I guess Keynes was wrong then when he said deficits do not matter. The ratio deficit/GDP is still below the one after the Second World War."

Cyclical deficits help maintain economic growth. Structural deficits as we have now are the problem. We were a far far younger country after WWII.

Posted by: jd on September 29, 2003 09:42 AM

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If there is a deep recession, and monetary policy is not fully effective, then to counteract a downturn the government must use fiscal policy. Expansionary fiscal policy involves moving the government budget toward deficit, with a combination of increased spending and lower taxes.

Unfortunately, in the last several years, the public and politicians have come to believe "surpluses good, deficits bad." In fact, the surpluses have been the result of strong economic performance, not its cause. The proof of this is the fact that when President Clinton's fiscal policies were enacted early in his term, they were forecast to result in continued deficits. The surpluses were unexpected, because the strength of the economy was unexpected.

There is a slight case to be made in favor of budget surpluses. Other things equal, running a budget deficit will worsen the generational imbalance that is embedded in our demographics. That is, as a country we would like to save for the future, when the ratio of retired people to workers will rise sharply.

Posted by: Julian Bonaval on September 29, 2003 10:00 AM

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Barry, your argument is silly. Do not compare apples with oranges.Sarcasm is not for you.

Posted by: Julian Bonaval on September 29, 2003 10:08 AM

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John: You're absolutely right that the real significance of the deficit is not the magnitude (though that is important), but rather the fact that it was intentional and deliberate. Please excuse the shameless promotion, but if you're curious you can see the exact breakdown of the causes of the budget deficits on Angry Bear today.

Posted by: Kash on September 29, 2003 10:17 AM

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Julian, immediate government spending is a very good countercyclical strategy for dealing with a recession. Tax cuts today for those who are very likely to spend is also very good. Tax cuts for those who aren't likely to spend and tax cuts far into the future are not good countercyclical strategies.

Deficits as the price for current stimulus is good. Other cases are not good.

Posted by: richard on September 29, 2003 11:26 AM

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I would have to list Senator Lugar among the GOP grownups. Here he argues for limiting the crop subsidy payments in the latest farm bill.

http://lugar.senate.gov/farm_bill_floor_statement.html

Lugar on the need for allies in Iraq

http://lugar.senate.gov/pressapp/record.cfm?id=203497

Lugar on the need to address N. Korea

http://lugar.senate.gov/pressapp/record.cfm?id=203533

Lugar on eliminating FSU nukes

http://lugar.senate.gov/nunn_lugar_scorecard.html

I will go further to say that Senator Lugar is the most intelligent statesman the GOP has.

Unfortunately, like most in the GOP he has gone along with the Bush tax cuts.

Somehow, the Bush administration manages to drown out all other voices on issues of importance. I do think the current climate in Congress is partly responsible. Congress has rolled over for Mr. Bush in a way that the Democrats never did for Mr. Clinton's first two years. We are worse off for it.

Posted by: bakho on September 29, 2003 11:35 AM

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Administration changes in our tax policy have assured a structural or persisting deficit no matter how quickly the economy fully recovers from the recession of 2001. The deficit will grow as a percent of GDP, and grow at a time when we should be preparing for the aging of America. Private saving is too low to allow baby boomers to prepare well for retirement, and the public deficit will put Social Security and Medicare in danger.

I can not imagine a more foolish fiscal policy than this Administration has given us. Foolish and purposively destructive of middle class needs.

Posted by: anne on September 29, 2003 11:42 AM

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"Somehow, the Bush administration manages to drown out all other voices on issues of importance."

Just wait till the energy bill is passed! Things get worser and worser with these radical rightees.

Posted by: Ari on September 29, 2003 11:52 AM

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Is this the Weblog of the former SDS members, now grown and professors, before young and students?.

Posted by: Julian Bonaval on September 29, 2003 12:03 PM

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jb

Learn how to think logically, learn some economics, then learn anything else. Doh.

Posted by: Terri on September 29, 2003 12:12 PM

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Julian - why do conservatives prefer ad hominem attacks to serious discussion of issues?

Posted by: joe on September 29, 2003 12:13 PM

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I should add, lest you push the "certainty" qualifier, that I know *with certainty* that you are not me. Yet, I don't know who you are. QED.

Posted by: Keith M Ellis on September 29, 2003 12:16 PM

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[re: above comment of mine] Oopsie. Wrong thread.

Posted by: Keith M Ellis on September 29, 2003 12:17 PM

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Joe, why do liberals always think of conservative ideas as less important than the liberal ones and lacking intellectual honesty?.

Posted by: Julian Bonaval on September 29, 2003 12:49 PM

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Maybe because your "arguments" consist of marginalizing your opponents as Hippies?

Posted by: rps on September 29, 2003 01:20 PM

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Julian - ad hominem attacks do, in fact, lack intellectual honesty.

Posted by: joe on September 29, 2003 01:30 PM

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I accept the explanation, so the same argument should be used to disqualify the use of elitist comments (i.e:learm economics, your logic is flawed...) by the left.I find fascinating that the "liberals" seem to take more of an elitist stand when arguing with the right.

Posted by: Julian Bonaval on September 29, 2003 01:31 PM

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Julian - what I find fascinating is how quickly conservatives resort to a "moral equivalence" defense when it serves their purpose.

Posted by: joe on September 29, 2003 01:40 PM

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"Barry, your argument is silly. Do not compare apples with oranges.Sarcasm is not for you."

Posted by: Julian Bonaval on September 29, 2003 10:08 AM

Just trying to fit in, Julian. You used an argument which wasn't immediately applicable
(hint: WWII was a transient event), with no indication of why it would be applicable.

Posted by: Barry on September 29, 2003 01:55 PM

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Saying that someone needs to know something is not elitist per se, and a lot less so when confronting with "the right" which tends to be constituted by people who have a lot easier access to education.

DSW

Posted by: Antoni Jaume on September 29, 2003 02:11 PM

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Antoni, I disagree.Saying that your rival's knowledge of a subject is not good, simply as a defense and to avoid discussing his/her points is indeed elitist since you disregard someone's opinion.
In Europe the right must be the one with easy access to education and the family network. USA is supposed to be an egalitarian society where friends are acquired, not congenital (like in Europe).
I have no affiliation with any right from any party but I have sympathies towards Burke, Ortega y Gasset, Irving Kristol, Daniel Bell.The last 2, former Troskists.Maybe ideology should be cyclical, like the economy...
Visca Cataluya! Antoni Visca todo el mundo!

Posted by: Julian Bonaval on September 29, 2003 02:26 PM

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Actually, ad hominem arguments have a secondary justification, insofar as they are attached to some larger truth claim that has a separate or independent basis of rational justification, in which case they serve as an obviating tactic to explain and thereby remove obstacles to understanding. It is the pure reductio ad hominem that is fallacious. But then fallaciousness has never been a bar to political argument.

One of the collateral damages of the bush administration's rather malignly irrational policies is to lower the burden and level of rational justification by counterposing such threadbare and often obviously fallacious public justifications for their policies. This is the sort of thing that has turned Paul Krugman, basically a very moderate and rather quietistic liberal, into a shill for the shrill. On the other hand, looking on the bright side of things, the coalition of the unwilling may end up being quite large, indeed. Is this what Hegel meant by the "ruse of reason"?

At any rate, to add an obvious point about the
Bush fiscal policy that has remained unmentioned,
even if these deficits were to revive and improve future economic growth, due presumably to easing conditions and increasing returns on already overproductive capital investment, the lowered tax rates would not recuperate the lost government revenues in the way that occurred at the end of the Clinton years. And furthermore, these large persistent deficits are projected precisely on the basis of a return of economic growth, but who really believes in ten-year economic predictions of growth rates?

Posted by: john c. halasz on September 29, 2003 02:42 PM

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Elitism is the charge made against anyone whose elite claims are based on intellectual or cultural attainments. Billionaires are not elitists unless they're intelligent and educated. Thus, Soros is an elitist and Scaife and Forbes are not. Scaife and Forbes are just regular guys -- no brains, no class -- who happen to have a lot of money in their pockets. Soros is an insufferable Oxford-educated bully who thinks he's smarter than everyone else.

Posted by: Zizka on September 29, 2003 06:12 PM

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Where where where were the long-term econ thinkers under Clinton's fantastic 2nd term bull market bubble economy? THAT was the time to fix social security. Privatize/schmivatize, the main issue should have been, and should be now, that people have personal accounts.

Their money goes into their account and remains their money. And the amount they have is based on the amount they put in. The Chile model; often the "second pillar" of a WB suggested 3 pillar model (for developing countries). Bush should push this; Clinton (and Bush I and ...) should have pushed it before.

Social security is more clearly unsustainable, and this has been far more certainly known, than any global climate change or any other long term econ effect.

I have to laugh, sadly, at complaints about Bush being too short term after the bubble burst, and especially 9/11. Non-crisis recessions are NOT the best (political) time to fix SS--though the sooner, the better, in any case.

Posted by: Tom Grey on September 30, 2003 02:09 AM

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Tom, read some of Krugman's earlier NYT columns. IIRC, in at least one of them, he suggested using tax cut money for just that purpose.

Posted by: Barry on September 30, 2003 06:10 AM

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"Social security is more clearly unsustainable, and this has been far more certainly known, than any global climate change or any other long term econ effect."

Rubbish. Social security was made secure for the next 40 years under the Clinton Administration. That was why the initial tax cuct by the Bush Administration was so disheartening and will prove so destructive. Now, we are headed for a problem with Social Security under Clinton the problem was solved!

Read Paul Krugman on the issue.

Posted by: lise on September 30, 2003 08:25 AM

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Julian Bonoval - the sneers and attacks began with you as the radical right usually sneer and attack and then complain when answered. I do suggest you learn economics and you will not "guess Kenynes was wrong." Radical rightees attack and whine. Too bad they do not think. Whaaaaaaaaaaaaaa.

Posted by: Terri on September 30, 2003 08:29 AM

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Terri-I am not a radical right,not a right conservative.I believe in legalization of drugs, I am Pro-Choice and at a personal level I am agnostic and do not believe in organized religion. By your response, I imagine you are a teen-ager or just months over .It seems the meaning of sarcasm is lost in you, otherwise you will understand what ment by "Keynes was wrong".
If you read Milton or if you are a monetarist, your thoughts about subjects discussed here will be quite different than the posted here. Does it make it right, wrong?.Maybe neither, maybe the truth is in between. I just think that having a different opinion does not make you stupid, conservative ,...
Sorry for taking you away from your activities, now please go back to watching ED, EDD and EDDY

Posted by: Julian Bonaval on September 30, 2003 10:57 AM

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Study without thinking, and you are blind; think without studying, and you are in danger.

Posted by: Ingle Abhi on December 10, 2003 04:38 PM

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Nothing's far when one wants to get there.

Posted by: Covington Barrie Tragash on January 9, 2004 04:23 PM

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