Kash from Angry Bear writes:
Angry Bear: The Bush administration has repeatedly vowed to acheive the very meager budgetary goal of "halving the deficit" in 5 years. Bush himself made such a promise in his state of the union address in January.
Today the CBO released its mid-year update on the budget outlook for the next ten years. Here are the CBO's estimates of the US budget deficit:
2004: $422bn, or 3.6% of GDP
2009: $312bn, or 2.1% of GDP
Halving the deficit in 5 years was a miserable, puny, girlie-man goal. Yet the Bush admininstration can't even meet this goal, according to the CBO's projections.
The worst part, however, is that the CBO's projections of the deficit are certainly far too low. The CBO estimate assumes:
- the tax cuts set to expire in 2005 are not renewed and do actually expire.
- there is no additional spending in Iraq or Afghanistan after 2005.
- The AMT is not reformed in any way, so that tens of millions of households must pay it by the end of the decade.
A more realistic estimate should add $100 to $200 bn to the budget deficit every year from now into the future.
Note one last thing: the projections that the CBO has made for the deficits for the period 2004-09 have gotten steadily worse, even over the past year. This past year, you might recall, is a period in which "America's economy is strong and growing stronger."
CBO projected total deficits, 2004-09:
As of January 2003: $40 bn
As of August 2003: $1,616 bn
As of January 2004: $1,921 bn
As of September 2004: $2,006 bn
What's the Bush administration's excuse for the projected deficits getting steadily worse? I'm curious.
As I've said, I'm surprised that there have been no resignations in principle from the Bush administration over this. It's Greg Mankiw, John Snow, Joshn Bolten, and Steve Friedman who have sacrificed their credibility to the claim that Bush has a plan to cut the deficit in half over five years. They need to take some steps to get their credibility back.
Posted by DeLong at September 7, 2004 10:33 AM | TrackBackI wonder how much credibility they have lost. My guess is that you still consider Mankiw a colleague. That you would not even consider shunning him if you saw him, and that you would schedule him to speak at your school if you had the opportunity.
I would also bet that if Mankiw writes a paper it will be read by economists rather than ignored. Certainly he should be cast out into the wilderness for a Nixon-like period, but I do not think academics have the smae convictions that they used to.
Maybe the Bush administration is perfectly comfortable with the projections.
Maybe that's what they really want.
After all, isn't it the goal of Norquist et al to reduce the Federal government?
They're succeeding quite well.
Posted by: evagrius at September 7, 2004 10:46 AMIf they ever did - the idea that they did probably falls with the rest of the 'golden age' myths that people love so much.
In the end, Mankiw helped his career by wh*ring for Bush - maybe, just maybe, a few economists will work against him. Meanwhile, lots of right-wing economists will like him more, and many, many more right-wing non-economists will give him money, jobs, etc.
Posted by: Barry at September 7, 2004 10:47 AMCredibility, schmedibility. On the Right, the only question is: whose side are you on?
Posted by: RT at September 7, 2004 10:55 AM"Deficits don't matter." DIck Cheney.
Now Collender is suggesting that Congress might opt for a continuing resolution and finalizing the budget after the election. Cynically, this would allow Congress to campaign on holding the line on spending, then come back and bust the budget. 2005 deficit has the potential to be far larger than 2004.
nationaljournal.com/members/buzz/2004/budget/090704.htm
Bush says he will cut the deficit in half. So what? When have his proclamations ever met with reality other than on tax cuts? Bush will make the tax cuts permanent if reelected. Period.
What we got from Bush:
Large tax cuts for the wealthy.
No veto over any Congressional spending.
Large budget deficits.
20% drop in Federal revenues.
25% increase in Federal spending.
Politically motivated steel tariffs.
Fewer jobs now than when he started.
Huge bill for Iraq "miscalculation".
Nevermind what Bush says he did or says he will do. That is irrelevent. Are you happy with what we got?
Posted by: bakho at September 7, 2004 10:56 AM
Brad - what has happened to Mankiw's reputation in academia since he joined the Bush team? I'm genuinely curious.
Jeez, we might as well ask what happened to Feldstein's reputation after he predicted that Clinton's tax increase on those with high incomes would be very bad for the economy.
Posted by: liberal at September 7, 2004 11:14 AM"It's Greg Mankiw, John Snow, Joshn Bolten, and Steve Friedman who have sacrificed their credibility to the claim that Bush has a plan to cut the deficit in half over five years."
Like Stockman before them? Honorable servants of corrupt masters, surely. One of Bush & Rove's skills seems to be finding such people.
Posted by: Randolph Fritz at September 7, 2004 11:15 AMDoes Mankiw have tenure at Harvard? If not, will Summers take him back?
Posted by: lfs at September 7, 2004 11:20 AMThis misses an important caveat - this is all considering the CONSOLIDATED budget. The dirty secret in this story is that the improvement in the deficit all results from increasing Social Security surpluses, which grow from roughly $180 billion this year to about $370 billion in 2010.
Which is of course the reason that these deficits matter. Shortly after that SS surpluses start to fall until the SS program itself beging to run an operating deficit around 2017. That is not in and of itself a problem, it is why we have been overtaxing workers for 20 years to build a trust fund with claims on general revenues so that the SS burden on current workers doesn't become too great.
Unfortunately the current fiscal path has the general fund running increasing deficits with the implication that servicing the debt will consume a larger and larger share of general (mostly income tax) revenues.
So when W talks about an "ownership society" that empowers Americans by giving them a share of their SS savings, he is talking from experience. He already gave it out once as tax breaks and again as interest on the debt that generated, so what's one more claim on those same resources. If we get caught short maybe we can just sell Pete Rose's bat.
Posted by: economaniac at September 7, 2004 11:30 AMMankiw is (according to his home page at Harvard) the Allie S. Freed Professor of Economics - in other words, he's got tenure AND an endowed position. I would LOVE to find out what's going through his mind in the face of all this. I can only think of two explanations: he believes he can exert some force on the Bush team in the direction of fiscal sanity (talk about an ivory tower view of the world), or he actually does believe in what the Bush team is trying to do (scary, but far more possible).
Posted by: Uncle Jeffy at September 7, 2004 11:33 AMTheir excuse is... is... Whoa, look at that dress stain!!
Posted by: ogmb at September 7, 2004 11:34 AMFWIW, I have problems with two of Mankiw's heavily cited academic papers. In one, he and co-author predict a crash in real house prices between 1987 and 2007. While he cleverly ties demographics to housing, he does not model either changes in permanant income nor the supply curve for housing properly.
In the other, he is puzzled by the fact that people invest in stocks early in life and bonds later, ignoring the fact (as Gomes and Michaelides point out) that because households are often constrained and subject to volatile labor income, they often cannot invest in an "optimal" fashion.
Mankiw is a smart, prolific, economist. That doesn't mean that he can't be sincerely wrong about things.
Posted by: Richard Green at September 7, 2004 11:40 AMA third alternative: Mankiw's concern for his own reputation matters as much as a fart in Hurricane Florida yesterday, as long as he's guaranteed the hefty payoffs from the whackaloon rightwing millionaires clubs.
His co-workers at Bushco don't have a cow about flat-out lying; why should he?
Posted by: Third Alternative, Jeffy at September 7, 2004 12:13 PMJust asking, but where is Adrian on this thread? I always count on a bit of amusement in cases like this where he makes his attempt to paint his Bush hero in the right of it.
Posted by: Alan at September 7, 2004 12:18 PMWe should aim for a government like the one we had when men were free. The way to get there is to go bankrupt and sell the assets. The US government is rich in prime picturesque properties and has lots of services that would be run more efficiently if they were in private hands. The deficit is just a liberal lack of constraint. The burden that it puts on the nation demands strong decisive action. We will steer you through this crisis. By sale time, what little taxes there are will shifted to the already strapped middle class. They would be effectively turned into Republicans and more than happy to see it go.
Besides once everything is private what could the liberals do? What would their agenda be? People will have learned that taxing and spending can ruin a nation. We cannot afford the liberal party. We will bulldoze until the conditions for liberalism are removed.
Don't worry about Snow. He was a rich jerk to start with and BOUGHT his position. Undoubtedly, as true woth many of the Bush appointees, he is most inept and incompetant. Talk about flip-flop, just ask him which jobs surveu is better.
Posted by: me at September 7, 2004 12:56 PMWe interrupt this program to mourn the 1,000th American soldier killed in combat in Iraq:
http://icasualties.org/oif/
Posted by: ogmb at September 7, 2004 01:05 PMGnorquit is close. The real Grover Norquist is just as nutty. Check out "Democratic Party is Toast" http://www.washingtonmonthly.com/features/2004/0409.norquist.html
Why it is not front page news that this Right-Wing Bomb thrower is the intellectual gate keeper of Bush's domestic policy is a mystery to me. centrist publications like The New Replibic use to complain that the Demoracrats were always pandering to the elderly about the how REPUGs wanted to destroy the social safety net. Now is there absolutely no doubt.
Why can't 60 Minutes or somebody do a piece on Norquist to show America what lies right below the surface of a Bush II administration.
Brad: "As I've said, I'm surprised that there have been no resignations in principle from the Bush administration over this. It's Greg Mankiw, John Snow, Joshn Bolten, and Steve Friedman who have sacrificed their credibility to the claim that Bush has a plan to cut the deficit in half over five years. They need to take some steps to get their credibility back."
Once you've had sex, you can never recover your virginity. Once you've whored yourself, you can never regain your good name.
Posted by: Mushinronsha at September 7, 2004 03:29 PMTwo things.
1. You know they've fucked up when no right-wing hacks will come here and try to defend Bush. That means there really isn't any defense.
2. Brad can probably answer this better than any of us, but perhaps it's not proper form to do so. In any event, which ways does Mankiw lean? I'd assume he's to the right, but to what degree? Is he very far to the right like Feldstein and Hubbard?
Posted by: Brian at September 7, 2004 03:44 PMHamajockey is right.
Thanks for the URL.
Norquist is insane.
He reminds me of the Communists in Russia with their 5 and 7 year plans. Everything was always rosy.
Norquist suffers from the same disease, utopianism.
Posted by: evagrius at September 7, 2004 04:54 PMRemember that household savings in this country is at -1%. That's below zero, folks!
They get away with it because people who actually believe in fiscal sanity (never mind fiscal prudence!) are a rarity these days. Integrity isn't a problem in Credit Card Nation; elections are merely popularity contests now, anyway.
Posted by: Dragonchild at September 7, 2004 06:00 PMWho needs credibility when you'eve sold your soul.
Posted by: Palolo lolo at September 7, 2004 06:57 PMHow strong would America be if each household only had debt service of _5%_ of household income?
The average household has about 10% of Gross Domestic (Household) Product in debt service.
America's National debt of 3.6% of what we earn seems miserly. Afterall, the criteria for lending is determined by the ability of the borrower to pay back the loan. IOW: if we had to pay back the loan could we do it out of what we (The Americans) make? Right now we could.
The problem with the budget is exactly the same today as it was under Reagan. That is, we are trying to satisfy everyone with no clear goal other than to satisfy everyone. Therefore we spend huge sums on both Defense and Social Services.
In Europe that choice is forced by the EU's requirement that member nations have a reasonable amount of deficit spending. To which most members have responded by decreasing the amount spent on the military in favor of social programs. France is quite the interesting study on this.
So really, all economist voodoo aside, it comes down to choices. And quite frankly neither contender for the throne is really addressing this.
If you, the reader of this post, had limited income (you can't borrow, you live off your paycheck) what is it that _you_ would spend your money on? You have to pay the lights, the heat, the rent, the food and the taxes. You have to have a way to work...bus pass or car...and you have to have the clothes to wear. Do we need cable? Beer to drink? A little smoke? Magazine subscriptions? Internet access? Books to enjoy? Special meals on the table?
Now, as a Nation, we have to decide what is the Mortgage Payment and what is the Cable Bill! A subject most dance around. What is the _primary_ function of government?
That's what this election should be about. Not historic "Who struck John" and not about the latest Argument of America's VooDoo Priests.
QM
Posted by: Jody Dorsett at September 7, 2004 09:11 PM
Your advice to the serious economists trappend in bushland has been clearer in the past. By the way, I count two Mankiw and Friedman. You said they should pick straws to decide who resigns on principle and who uses newly credible threats to do something about policy. This makes me wonder -- who is the one who picked the short straw. It seems infinitely preferable to denounce the Bush administrations idiocy than to try to force them to see reason or to listen to people who see it.
My sense is that the guy who picks the long straw and gets to say what he thinks for the good of all should celebrate and they guy who has to try to deal with Bush, Snow and Rove would curse the day he picked the short straw.
Posted by: Robert Waldmann at September 8, 2004 02:05 AMJody Dorsett
"The problem with the budget is exactly the same today as it was under Reagan. That is, we are trying to satisfy everyone with no clear goal other than to satisfy everyone. Therefore we spend huge sums on both Defense and Social Services."
But, you are forgetting the tax base. Government spending is a problem relative to a shrinking tax base, not because there is so much social service spending or military spending. The problem is the reduced tax base we have set under us during this Administration.
Back to square one people... there is no "value" to the dollar anymore. no gold, no silver... so how can we have a deficit ? obviously someone says so, not so obvious is "who says so?"... we're in a credit world right now... value is a perception, not a gold or silver ingot... figure this one out...and you'll hit the same wall most people do with their eyes closed... duh
Posted by: Hawk at September 8, 2004 05:12 AM"How strong would America be if each household only had debt service of _5%_ of household income?"
"The average household has about 10% of Gross Domestic (Household) Product in debt service."
QM is comparing apples to oranges.
Decisions by a household concerning it debt and income ratio have little, if any, discernable macroeconomic impacts. Such decisons by the federal government have huge macroeconomic impacts.
The Federal Government has the power to tax and borrow. This is a big difference, and has grave consequences for macroeconomic performance.
Posted by: bncthor at September 8, 2004 07:30 AMSpeaking of Friedman - a brilliant economist - wouldn't it be an excellent idea to send a copy of his paper connecting the reduction in crime rates in the 90's to the legalization of abortion to leaders of the Christian Right, along with the notation that this one of W's top economic advisors?!
Posted by: kevin quinn at September 8, 2004 07:50 AM"Abandon all credibility ye who enter here"
Greenspan appears to have credibility, or what
passes for credibility, while he is a
libertarian hack; any tax cut is good,
all problems can be fixed by the discipline
on the spending side. Clearly, he does
not see any spendings that are
worthwile.
Conservative and libertarian economists
have their own world with their
own doublespeak. As long as they have
secure "external funding" and plum
appointments, they can tell each other
enough complements to disregard the carping
of folks like Krugman, DeLong or
Dragonchild. "High regard" from the
outside their own circle is nice to
have, but clearly not a priority.
dragonchild writes "..elections are merely popularity contests now, anyway." encapsulating a less-than-enthusiastic public about fiscal policy. Well, don't let Greenspan know that he has a smaller audience than he thinks he has or we'll get another talking to about the virtues of ARMs.
Now to chisel away at the "merely popularity contests". Half of this country is not amused. Is it because they are appalled at the choices, believing the opponents' claims of each? (both unpopular) Is it because they see no difference between the candidates? (both equally popular) Or is it more basic: the sense of participating, having an active role in making decisions and feeling that they are part of planning for their future has suffered?
The popularity contest is not all that popular, no?
I'm adopting conventional wisdom as satire. If I can get anyone worked up with that, I feel a little better.
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