February 04, 2003
I Really Cannot Understand Why Anyone Would Do This

Even a year ago people could think that the finances of the U.S. federal government were not grossly out of balance for at least two generations to come. Looking beyond 2050, projections of an ever-aging population and ever-growing health care costs sent the budget into increasing deficit. But the long-run budget projections in the back of the 2003 Budget documents told us that the yawning gap between the pledges and spending policies of the U.S. government on the one hand and the taxes levied by the U.S. government on the other--the yawning gap that had opened after the productivity slowdown that started in 1973 and had then exploded in size with the grave fiscal policy mistakes of the Reagan administration--no longer existed. Projections of current-policy budget balances showed the budget remaining in surplus until 2025 or so. Thereafter they showed deficits widening (if spending growth was not cut to less than the rate of growth of GDP, and if taxes were not raised) to nearly 5% of GDP by 2050. But even so the national debt held by the public as of 2050 was projected to be 46.5% of GDP: only a percentage point or two higher than the peak debt level reached as a result of the Reagan deficits.

Now--one year later--things are very different indeed! The numbers in the back of the 2004 Budget documents project that the budget year that began when Clinton was still President will be America's last surplus year, ever. The policies proposed in the 2004 Budget are projected to see the deficit widen steadily to 17.5 percent of GDP by 2050. By that date debt held by the public is projected to be 229.4 percent of GDP--a debt and deficit level that no economy could possibly sustain.

What does this mean? It means that the (not very bad) economic news of the past year coupled with the provisions the Bush Administration has put into its 2004 Budget will, if enacted, put the U.S. once more on the path to national bankruptcy. Once again the commitments of the government--to defense, administration of justice, the safety net, and the large elderly programs of Medicare and Social Security--will be far beyond the reach of federal revenues.

Why would any administration deliberately unbalance the long-term finances of the federal government? Why would anybody want to set up a situation in which the taxpayers one and two generations hence will find themselves stuck with an enormous bill? Why set up a situation in which what HHS and SSA tell potential beneficiaries of programs is radically inconsistent with what the White House and Treasury tell taxpayers about tax burdens?

It really is beyond my comprehension why anyone would do this.

Posted by DeLong at February 04, 2003 09:46 PM | Trackback

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"It really is beyond my comprehension why anyone would do this"

The Bush administration is following the same strategy that the Reagan administration used in the 1980s. They are using the budget deficit as a strategic weapon against new government programs that they don't like. The intentions are clear when you read the 2004 Budget: they are pushing through enormous tax cuts, increasing spending on defense and cutting back on all kinds of social programs. It's the kind of thing you expect from a Republican administration: huge tax cuts for their buddies to be financed by future generations. Carpe diem.

Posted by: Nescio on February 5, 2003 01:09 AM

But there simply isn't enough spending in those "programs they don't like" to make a difference. - Where has Bush even tried to draw a line on spending? Consider last year's farm bill: enough said.

I suspect that there are a number of other calculations at work. First, some of these guys really do believe in supply side/dynamic scoring magic. (No, REALLY.) Second, the Karl Rove wing of the party expects that Republicans will get the credit for tax cuts, and Democrats the blame for tax increases.

Admittedly, neither proposition looks sound when you look at the record of the past 20 years, so a third point is probably crucial: Republican tax plans are the public policy equivalent of corporate insider self-dealing. Better, it's legal - and while the Dems may eventually re-write the tax code, they can't ask for the money back.

Posted by: Dave Larson on February 5, 2003 02:28 AM

"It really is beyond my comprehension why anyone would do this"

Don't think too far, it's quite simple: because they can.

Posted by: Chris K on February 5, 2003 02:56 AM

If you discard the assumption that they are doing what they think is in the best interests of the nation, and substitute for it the assumption that they are doing what is in the best interests of their cronies, it all becomes clearer.

They couldn't care less about the best interests of the nation, especially more than a few years out.

Posted by: Chuck Nolan on February 5, 2003 04:27 AM

There is a point that shoow-off economists sometimes make, without much success, about what really matters in the debate over economic policy. It shows up in the Gale and Orszag stuff. What really matters isn't the bookkeeping, but how much stuff is available to satisfy our wants. In considering Social Security, for instance, it is fine to think about how to pay for it, fine to figure out how generous the benefit should be and how old one should be to enjoy the benefit, but if there is too little produced to satisfy our commitment to non-productive members of society while also rewarding its productive members, we have a problem. Growth matters a heck of a lot more than the finances of the government. To the extent that activities undertaken by the government foster growth, finances become less of a problem, self-funding in a way. To the extent that government activities and finances do not foster growth, we have a problem.

Bush claims that our growth problem is a long-term one, but the record of productivity gain in recent years argues otherwise. Krugman, DeLong and many other (but not all) economists argue that our growth problem is a short term one, that we might fall off the path. Hubbard's estimate of the interest rate impact of deficits (now that he thinks there is one) is small, clearly intended to argue that deficits won't interfere much with the growth of domestic income. Delong disagrees.

To take a leaf out of the FOMC's book, the right approach seems to be to assess the risks that lie in either direction. Is a short-term stimulus so unwarranted that it is riskier to undertake such stimulus than to forego it? That is hard to argue if one also argues that deficits are relatively harmless. Why would deficit spending aimed at revving up demand this year be more damaging that deficits run up over many years? Are long-term deficits so certainly benign for growth prospects (whatever the implications for meeting our debt service obligations) that the risk of locking in long-term deficits is negligible?

Posted by: K Harris on February 5, 2003 05:33 AM

Because it serves their political interests to give a big tax cut to their contributors, and anyway, they'll all be dead by 2050, so who cares?

Posted by: rea on February 5, 2003 07:04 AM

How robust/good are those economic models/budget forecasts?

I deal with computational models but physical, not economic and there's always care to balance the sides (conservation energy, angular momentum, etc) While I admit that some risk management systems can be very good (e.g. aware of one for 109+ years) but there's usually indepedent calibration data. And they're very careful not to project past 5-10 years as they are aware of unanticipated decadal climate shifts. It seems miraculous that the US financial system is sophisticated enough to produce econometric predictive results out 50 years.

I'm curious what makes them so credible?

Posted by: LL on February 5, 2003 07:17 AM

The Bush administration is ... using the budget deficit as a strategic weapon against new government programs that they don't like.

If you wanted to pull off this strategy, I think you would still want to make sure that there was a reasonable chance for budget balancing in the medium term (5-10 years). The logic would be that new programs would bust the budget in the medium term but tax increases aren't necessary because we're on our way to balance.

It doesn't seem like the same strategy would work here. If you've made clear that you don't give a fig for budget balancing in the short, medium, or long term, what's the problem with piling on?

Posted by: alkali on February 5, 2003 07:33 AM

the grave fiscal policy mistakes of the Reagan administration

This is Bloomberg data for month end 12/80 and 12/88, bracketing Reagan's term of office:

Unemployment 7.20, 5.30.
Fed funds rate 18.90, 8.76.
Dollar/D-mark 1.9735, 1.7735.
Chain-weight GDP US$b $4937, $6465.

No doubt there were enormous debts run up during the Reagan administration. But given the macroeconomic outcome, it seems inaccurate to characterize his fiscal polilcy as a series of "grave mistakes".

Posted by: Bucky Dent on February 5, 2003 07:54 AM

LL, obviously the long-range projections aren't very credible, in the sense that they can change profoundly from year to year. But the projections do give us reason to believe that the United States is headed in a bad direction. We don't need perfect climate models to conclude that burning all the coal we can get our hands on is probably a bad idea. We don't need perfect budget models to conclude that deep permanent reductions in revenue streams (relative to the current-policy baseline), without spending cuts, create huge debts. Of course sufficiently optimistic models might produce other results. But if these are the Bush administration's own projections, then one really has to wonder. Granted, someone will probably show some guts before 2050....

Posted by: Mark Lindeman on February 5, 2003 07:58 AM

Why would they do this? Consult http://www2.observer.com/observer/pages/conason.asp

"So, from now on—or at least until 2004—think of the federal budget as a caper movie: The Great Treasury Robbery."

Posted by: Charles Utwater II on February 5, 2003 08:26 AM

[G]iven the macroeconomic outcome, it seems inaccurate to characterize [Reagan's] fiscal policy as a series of "grave mistakes".

The conventional wisdom on the subject is that whatever you think of Reagan's fiscal policy (i.e., tax and spending proposals), monetary policy during the Reagan years (i.e., the management of the Fed by Messrs. Volcker and Greenspan) was extremely successful. In particular, Volcker and Greenspan are credited with having brought inflation under control, although they are criticized for having tolerated extremely high unemployment in pursuit of that goal.

The Democratic critique of Reagan's fiscal policy, as I understand it, is that (1) tax cuts were too aggressive, requiring correction under Bush 41 and Clinton, (2) Reagan's promises of spending cuts were largely illusory, because there is simply not that much discretionary spending in the federal budget, and (3) Reagan spent wastefully on the military. The upshot was deficits in the hundreds of billions of dollars, which raised long-term interest rates and stifled investment, and which offset the benefits of the Volcker/Greenspan monetary medicine.

Posted by: alkali on February 5, 2003 08:57 AM

raised long-term interest rates and stifled investment

This is Bloomberg data for month end 12/80 and 12/88, bracketing Reagan's term of office:

30 year treasury bond yield 11.98, 8.99

Gross private domestic investment in chained $USbillions: 662.2, 916.7

Posted by: Bucky Dent on February 5, 2003 09:28 AM

Agreed that interest rates decreased during Reagan's tenure. The question is whether and to what extent his fiscal policy undid the work the Fed did getting the rates down. (Obviously, not entirely.)

Posted by: alkali on February 5, 2003 09:40 AM

With controlled experiments impossible in macroeconomics, we'll never know, alas.

Posted by: Bucky Dent on February 5, 2003 09:44 AM

You know Bucky, I'm no financial expert, but to strictly look at the financial status & statistics on the day of Reagan's inauguration and the day he left office is not very smart or perceptive or even realistic.

The financial crash that happened under Bush Sr. was a direct result of the poor financial decisions made by Reagan (abetted by a Democratic Congress, just to be fair). It took Clinton how many years to get the budget back to where we had a surplus. Debt is the gift that keeps on taking, year after year. Again, I'm no economist but there is substantial evidense showing that bonds sold by the US Gov to finance the runaway budget takes money away that would be going into private investment. This budget is horrendous.

That's what concerns me. The deficit is a problem that isn't in your face like terrorism. You can pretend it isn't there until it finally swallows you whole. That's what's happened in Argentina. Quoting stats from the Reagan era is like talking about how great the economy was in Argentina prior to the crash. And Congress can't even file for Chapter 11 like when an individual spends too much on their home entertainment system, etc.

Posted by: Palmer Haas on February 5, 2003 09:58 AM

But of course, Mr. Dent is careful not to note that the overall record of growth under Reagan is in the middle of the pack for post-war presidents. Throw out chain-weighted GDP figures and assume that everyone will be too awed by the jargon to remember the reality. and, of course, focus on short-term interest rates rather than looking at a more useful measure such as 10 year corporates.

The reality, of course, is that Reagan achieved average growth while running up enormous deficits which subtracted from future growth. As for the decline in interest rates, they are completely explainable by the fall in oil prices, and in fact track them fairly well. Interest rates remained at historically high levels during the Reagan Administration thanks to the reckless borrow and spend policies that crushed the Bush I Administration.

Posted by: Charles Utwater II on February 5, 2003 09:59 AM

The explicitly stated purpose of the Bush admin. is to reduce the size of government. The unstated secondary purpose is direct payback for the moneyed interests that hired them. National interest and democracy have nothing to do with it.

It strikes me that intent of this exercise is to essentially bankrupt the government by dramatically reducing revenues, and using the resulting deficits as a justification for dramatically scaling back gov't programs. Racking up a huge accumlated debt makes the damage permanent by hamstringing any future administration's effort to maintain programs. That's what they were hired to do, and they're doing it. That they achieve these goals by paying off their sponsors (e.g estate tax, dividend tax exemption applying to shareholders rather than to the corporation) is a 'two-fer' for them.

The Bush administration apparently views misleading rhetoric, and outright lying about the extent and outcome of these cuts as ends justifying the means, and as Mr. DeLong has pointed out they are getting away with it.

If they can carry the momentum from the Iraq war to win the next election, and maintain the tax cuts through another 4 year period, they will have succeeding in damaging finances to the extent that it will force the scale-back they want to achieve.

From their perspective, the Reagan exercise was a failure only in that Bush 41 and the democrat controlled congress lost their nerve and refused to reign in spending. That this is the likely outcome of this second exercise is only a better reason to do as much damage as possible now so as to force the outcome they want.

Posted by: Peter Bailey on February 5, 2003 10:06 AM

not very smart or perceptive or even realistic

I'm not the one who gratuitously smeared Reagan.

I just posted some related statistics. If you can post others that prove your assertions, please do so.

Posted by: Bucky Dent on February 5, 2003 10:23 AM

a more useful measure such as 10 year corporates.

I don't have a corporate index going back that far, but I do have these data points for "conventional effective home mortgage rates":

9/82, 15.15; 12/88 10.53.

Posted by: Bucky Dent on February 5, 2003 10:48 AM

But given the macroeconomic outcome, it seems inaccurate to characterize his fiscal polilcy as a series of "grave mistakes".

Yeah, Reagan's trendline economic growth sure was impressive. Well worth quadrupling the debt!

Posted by: Jason McCullough on February 5, 2003 11:32 AM

Statistics in regards to the Reagan era

size of my dick in 1/81 (I was 6) - 2.0" erect (est.)

size of my dick in 1/89 (I was 14) - 7.5" erect (est.)

I'm sorry Bucky, your right - the Reagan era was great for America, and great for me........

Try reading something by excommunicated GOPer Kevin Phillips (Like The Politics of Rich and Poor) He's got tons of stats in his literature to back up my beliefs. Hell, I've had some of my beliefs validated by Mr. Phillips.

Posted by: Palmer Haas on February 5, 2003 11:36 AM

Given where rates were when his term started, any kind of growth is pretty impressive.

As I've said before, I wasn't happy with the explosive debt either. But to claim it led to macroeconomic suffering flies in the face of the data.

Posted by: Bucky Dent on February 5, 2003 11:37 AM

I think Bucky's general point is correct: it is hard to argue that the macroeconomic basics (inflation, growth etc.) of the Reagan era were bad, especially given the starting point we had coming out of the 1979 oil crisis.

Correspondingly, I think Bucky also has to concede on the deficits point, no less an esteemed liberal economist as Martin Feldstein was critical about the Reagan fiscal plan and it took tax hikes and spending cuts by two administrations: Bush I and Clinton to undo the deficit problem.

I know someone is going to come in with the argument that this was all a smart plan by Reagan to run large deficits in order to win the cold war so that future administrations could then use the reduced military spending to pay off the debt. I would buy that if you can show me a single speech in which Reagan articulated this fiscal vision (my historical knowledge is limited so there may well be such a speech). But in reality, I believe it was passing the buck to the next generation, on the part of the Reagan.

Fortunately, this president has assured us in the SOTU address that he does not plan to leave this type of deficit problem for future generations/presidents. Given the projections of the deficits and debt publicized by Prof. De Long's chart, if I was a conspiracy theorist, I would be very worried by how long the current administration plans to stay in power: seems like 2050 at the earliest.

Posted by: achilles on February 5, 2003 11:47 AM

Palmer: I've read Phillips, of course.

And I assure you no one is interested in your privates. Congratulations for establishing a new low in the level of discourse here. Let's hope your record holds.

Posted by: Bucky Dent on February 5, 2003 11:49 AM

Simply, the Bushies do not expect this circumstance to last. By manufacturing impending deficit crises, they force Democrats into two unpleasant alternatives: raise taxes, or cut spending. Either way though, the budget will be balanced again.

And that's the real lesson of the Reagan Revolution: when push comes to shove, Democrats are chumps who can be counted on to do the right thing. And so, after twenty years, starting in 1980, going through $300 billion deficits, and ending with a surplus, what was the net effect? Smaller government, welfare reform, no major new spending programs (other than the EITC), and a tax burden which had migrated down the income scale.

What does Bush want to do? Lather, rinse, repeat.

If Dems raise taxes again, that's fine - until it happens, the one-percenters keep the extra money. Also, it would be very difficult politically to target future tax increases as aggressively on the wealthy as the current rounds of tax cuts have benefited them. So, even if taxes go right back up in general, the back-and-forth will end up shifting the tax burden farther down the income scale. (This is a strong argument for repealing the Bush 2001 tax cut now, and not simply hoping to get it back again by other means in the future.)

Also, raising taxes perpetuates the 'tax-and-spend' view of Democrats.

If spending cuts have to happen, the cuts will have to come from programs that are either close to the hearts (and base) of Democrats, or which have lots of poltiically powerful friends. What future Democrat wants to be forced to cut the military, or Medicare and Social Security, or Education, or farm subsidies? Again - Dems lose.

Finally, ideologically and special-interest-wise, the deficits prevent government expansion. Clinton was a deficit hawk because he had to be - but if Gore had had the surplus, likely we could have seen lots of program ideas that scare the pants out of some major GOP corporate donors and activist foot-soldiers: prescription plans (to say nothing of national health insurance), expanded environmental programs, anti-fossil fuels programs, more welfare, more federal education money, increased funding for regulatory agencies and enforcement all over the place, etc...

In the end, the real question has to answered: how much of this is political strategy, and how much is opportunisitic greed? It's some of each. But notice, the Bushies could have acheived equally drastic deficits, and paid a lot more money directly to Christian Right voters (as well as rural residents, southerners, or low-to-middle income white men - all big Bush demographics) with a payroll tax cut. And they didn't...

Posted by: Ethan on February 5, 2003 11:52 AM

Also, tax cuts are a very simple way for the GOP to direct federal dollars to their base while preventing the Dems from doing the same. You can't get re-elected if you can't bring home the bacon, or pork. And, to the extent that government is just redistributive efforts to buy future or continued political support, tax cuts redistribute to GOP constituencies, and prevent subsequent redistribution to Dem constituencies.

To answer my previous question, the answer is that the poorer GOP constituencies are either libertarians of some stripe who do not benefit from tax cuts but actually beleive that giving money back to the rich is morally correct, or idiots who mistakenly beleive they are or will be in the top one percent (40% of the US, supposedly), or social conservatives who are willing to be bought off with symbolic policies, appointments, or largely cost-free social engineering like faith based initiatives, abortion posturing, John Ashcroft, or judges. These constituencies can be purchased by means other than direct tax cuts to them.

Posted by: Ethan on February 5, 2003 12:05 PM

Alkali,

Just to add to your list, wasn't it 2 or 3 tax hikes under Reagan as well as hikes under Bush 41 and Clinton?

Posted by: K Harris on February 5, 2003 12:10 PM

The Republicans are trying to re-write the social contract between government and the people. They firmly believe that less government is better and they'll do just about anything to achieve that goal. They truly believe that it is better to put a dollar in your pocket rather than build a school for your kids. You can alway home school your kid, but if the government gets the dollar they'll just waste it. But they don't dare make that arguement to the general public. So they lie in public while letting their constituencies in on the secret in private.

Posted by: Michael L on February 5, 2003 12:16 PM

Let me see now. No tax on inheritance. No tax on stock dividends. Move ahead the cuts in come tax brackets. Raise the IRA allowance from 3,000 to 15,000 dollars a year per person. Increase the tax deduction for the largest SUVs by 50% [Hummer for me, Navigator for you].

Duh.

Posted by: anne on February 5, 2003 12:47 PM

Thanks, Anne.

Compassionate conservatism for ever.

Posted by: dahl on February 5, 2003 01:06 PM

> It really is beyond my comprehension why anyone would do this.

I think it is a combination of reasons. The most charitable is the idea that some of these people actually believe in the Laffer curve and expect the tax cut to pay off in enough growth to pay for itself. I don't rule that out, but I think it's just a little far-fetched in this case; most of these people aren't that interested in economic theory. Anyway, there's a more obvious explanation.

They don't care because they want to do this, and they have the power to. Or as another poster put it, "because they can." The short term benefits to those influencing the decisions are clear; they get more money to keep for themselves. That's pretty simple. Also, nobody likes being taxed, so a tax reduction may just sound appealing in its own right.

Now what about the longterm costs? Again, there's a charitable and not so charitable view.

If I'm charitable, I'll just say that they figure someone else will clean up the mess for them. These guys are patriotic Americans, right? Obviously, they don't want to see our prosperous middle-class republic fall into economic disarray. But the money is better off in their hands than in the hands of bureaucracy. When the government really needs more of it to conduct its basic business, we can rest assured that someone will straighten out the mess.

If I'm not so charitable, I would just repeat: They don't care. So what if the US is on the path to turning into the world's biggest banana republic? Even in Colombia, for instance, the rich can live very well. Who needs public highways, police, utilities? Just the middle class. The ones who count will have helicopter shuttles, bodyguards, private water purification. It'll be just fine.

I'm not sure how charitable I'm feeling. I believe that the viewpoint probably varies from individual to individual in the tax cut movement. Unless middle class Americans can learn not to despise the public sector, and to vote that way, it seems likely that this trend will continue. And, who knows, maybe somebody will clean up the mess one day.

Posted by: Paul Callahan on February 5, 2003 02:11 PM

I'll just speak for the laymen out there who stopped reading after he saw the chart.

What the f*ckin' hell?!

Posted by: Sterling on February 5, 2003 02:47 PM

http://www.nytimes.com/2001/08/25/politics/25BUSH.html in which Bush says deficits are "Incredibly positive news."

I think this administration is not about POLICY. Not even a little bit. It's about "The Party" and their cronies. Nothing else makes sense to explain their behaviour.

Jeeze! We already pay out over $300 billion in debt interest each year!!

Posted by: IssuesGuy on February 5, 2003 02:52 PM

As I've said before, I wasn't happy with the explosive debt either. But to claim it led to macroeconomic suffering flies in the face of the data.

So does claiming it lead to an economic boom.

Regardless, we were left with the debt for.....what, exactly?

Posted by: Jason McCullough on February 5, 2003 04:34 PM

No one claimed the debt led to an economic boom.

I pointed out that it did NOT coincide with macroeconomic disaster.

Posted by: Bucky Dent on February 5, 2003 04:42 PM

Bucky's stats contain a flaw in their construction. He basically takes interest rates during an inflationary spiral and compares them to a period after the Fed solved that problem. He can then say something like Ah Ha! See interest rates fell.
.
In 1980 the yield on corporate long term bond rates (AAA Moddies) was 11.94, inflation averaged 13.5 and Unemployment was 7.6 percent. The real interest rate was -1.6 percent. This reflects the fact that inflation was unaticipated. In 1988 this interest rate was 9.7, and inflation was 4.1 percent, and unemployment was 5.5 percent. These were all high by historical standards. (Where one compares expansionary periods to expansionary periods) And unemployment was really, really high for a period of expansion.

The 1988 number can be compared with 2000, a similar year, but one where deficit reduction had taken effect and expectations were for it to continue, as well as low inflation. That year long term rates were 7.6 percent, inflation was 3.4 percent, and unemployment was 4 percent.

Lawrence

Posted by: Lawrence on February 5, 2003 04:47 PM

Lawrence: Everything you say has merit. But it remains false to assert the 80s deficits caused macroeconomic distress. It simply cannot be proven from the data.

You can say things likely would have been better otherwise, but that remains unproven conjecture.

Posted by: Bucky Dent on February 5, 2003 05:24 PM

Lawrence has correctly unraveled Mr. Dent's yarn.

Inflation was very high in 1980. Why? Inflation in fuel oil was 39%! Why? Because OPEC was raising its prices. And so real rates were not so very high.

High inflation had its consequences: elevated interest rates and rising unemployment-- and a recession. But then we get to 1981, and what happens? The recession starts to recede. Interest rates start to stabilize. And... Ronald Reagan enters office and announces a huge tax cut and DOUBLES the rise that Carter had already added to the defense budget (As Stockman so ably testifies, there was no military justification for this additional increase).

What happens? Interest rates spike again! And a SECOND recession starts.

It was only after Reagan enacted the massive payroll tax hike-- and OPEC started to disintegrate-- that rates started to come down. You can see this at

Briefly, using 10-year treasury securities as a good benchmark:

Year Rate
01/02/1980 10.50
03/24/1980 13.17
05/06/1980 9.80
09/15/1980 11.62
09/29/1980 12.07
Reagan elected November 4th.
11/06/1980 13.04
12/29/1980 12.20
02/13/1981 13.65
05/05/1981 14.69
06/01/1981 13.46
07/09/1981 14.12
08/04/1981 14.95
08/27/1981 15.36 (approximate high point)
11/25/1981 12.98
01/06/1982 14.59
02/09/1982 14.95
06/25/1982 14.76
08/20/1982 12.24
(and, painfully slowly, down)

The point is that interest rates reached their most painful a year and a half after Reagan was elected, and only started down with the massive tax hikes he imposed when it became clear that the economy was on the road to collapse.

Of course Mr. Dent grabbed one irrelevant point and skipped the what counts: compare growth rates under Reagan to those of other presidents; count the extra interest on the debt attributable to Reagan's debt (roughly 200B ANNUALLY); and consider why interest rates fell (oil prices fell due to the breakup of OPEC).

The Reagan record is not as bad as the George aWol's record. That's about all one can say in his defense.

Posted by: Charles Utwater II on February 5, 2003 05:32 PM

The missing URL: www.federalreserve.gov/releases/h15/data/b/tcm10y.txt

Posted by: Charles Utwater II on February 5, 2003 05:37 PM

Bucky,
Sure you can say that Bucky-Persistant long term deficits do several things but one thing they do is they cut off growth eventually. Yes the deficits under Reagan stimulated growth. It did this buy substituting public investment for private investment and crowding out long term private investment. That sort of boom is not sustainable in the long run. (And it wasn't).
The second thing that can be said is that it redistributes income and wealth. For instance it redistributed investment from other uses to defense related industries. As far as unproven conjecture, not true-we have two diametrically oppossed policy regimes, Reagan, and Clinton and we can see outcomes. In fact I would argue that Clinton was merely a return to the long term economic policy of all post war presidents Democratic or Republican.
Generally all tried to manage deficits and keep them small. Each tried to pay off large scale government debts within a generation. We are currently enmtering a second similar policy regime to Reagan. These outcomes are and will be comparable.

Lawrence

Posted by: Lawrence on February 5, 2003 05:43 PM

A fundamentally dishonest post.

The reason the scenario looked so good not so long ago is that we were all mad, a point that Paul Krugman, among others, has made. In other words, things didn't really look so good not so long ago, we only thought they did. The changes in fiscal policy since then certainly haven't helped the long term situation, but to pretend they've caused the long term problems is, well, a lie.

Posted by: Thomas on February 5, 2003 06:39 PM

Actually, what is fundamentally dishonest is to parade up charts with the rosy scenario and talk about how we should give back the surplus to the people and use the rest (ha!) to pay off the national debt.

Posted by: achilles on February 5, 2003 06:47 PM

If deficits are an impending disaster, they can be avoided by immediate means testing for social security and medicare, raising the retirement age to 72, zeroing out agriculture subsidies, the National Endowment for the Humanities, and other non-essential activities, and ending the practice of running the Defense Dept. as a means to get incumbents re-elected. "Wait! That can't be done! The people will never agree to it!" Well, it seems as if the people also don't want to pay the taxes associated with such expenditures; otherwise the party which advocates tax cuts would not be in control of the Legislative and Executive Branch (insert ranting about Florida here). This leads to a fairly simple question: Why is it any more legitimate to support spending programs that people wish to have to forcibly grab property, from tomorrow's taxpayers, than it is to support tax cuts which allows people to keep what they have gained through voluntary transaction, even if it means tomorrow's taxpayers have to make interest payments? Mind you, if I were Emperor for a day (no, I don't want to be), I could lop off 300 million in spending, and this society would prosper and function just fine, discounting the short-term dislocations. The fact that people are unwilling to do so, however, is not evidence that being unwilling to pay the taxes associated with that higher spending is any more wrong than being unwilling to lower the spending. The people want higher spending and lower taxes, and both will combine to burden future taxpayers with interest payments.

Posted by: Will Allen on February 5, 2003 06:47 PM

But it remains false to assert the 80s deficits caused macroeconomic distress. It simply cannot be proven from the data.

Government debt servicing jumped (see page 48) from 1.9% of GDP in 1980 to 3.0% of GDP in 1988. What's the NPV of a permanent 1% diversion of national income? Another way to look at it is that the national debt went from 26.1% to 40.9% of GDP.

Interestingly, tax collections dropped from 18.9% to 18.1% (social security + income taxes) and 14.8% to 13.3% (income taxes). So in cash-flow terms, the government was actually taking slightly more out of the economy in 1988 than in 1981.

More evidence for my "deficit-financed tax cuts just rearrange the tax burden" theory.....

Posted by: Jason McCullough on February 5, 2003 07:13 PM

achilles,
As dishonest, then, would be proclaiming the accomplishment of balancing the budget when that feat was clearly unsustainable and talking about expanding entitlement programs for seniors even more rapidly than they are currently, dramatically underestimating the likely costs, and offering to cut taxes at the same time.

Posted by: Thomas on February 5, 2003 07:18 PM

Why should one apologize about an on-budget surplus, even if it was temporary? Or have we moved into a bizarre parallel universe where runnign temporary on-budget surpluses are somehow as 'dishonest' as running permanent OVERALL deficits?

You can't deny that Rubinomics (yes the object of Hubbard's scorn) had deficit reduction as an explicit goal. So I see no reason why it should not then be celebrated as an accomplishment.

And you can make all the shaky unfounded inferences you want about what Al Gore would have done had he won the election. The 8 year track record of an administration with Al Gore certainly did not produce a budget that resembles the disjointed train wreck that came out from this administration.

Posted by: achilles on February 5, 2003 07:41 PM

achilles--
I'll let the reference to Rubinomics slide--it means whatever anyone wants it to mean, including for many fans the notion that economic growth was caused by budget surpluses (when it is clear that the budget surpluses were caused by economic growth combined with an unsustainable bubble).

But I must respond to the rest. First your criticism of Bush was criticism of the rhetoric as well as the policy. If the Bush's rhetoric was dishonest, then so was Gore's. That is undeniable, though I'm sure partisans will try to deny it. Second, the references were to Gore's promises; surely it's not partisan to take the man at his word. Finally, go check some of those early Clinton/Gore budgets. Those were without any excuse--no war, drastically decreased defense spending, no recession, etc.

Posted by: Thomas on February 5, 2003 09:41 PM

Re: Reagan Years and his legacy that we are still paying for.. By the end of his term, 138 administration officials had been convicted, had been indicted, or had been the subject of official investigations for official misconduct and/or criminal violations. In terms of number of officials involved, the record of his administration was the worst ever. $ and the taxpayers paid....1- Wedtech influence-peddling scandal...billed to taxpayers. 2- the Pentagon procurement scandal, which resulted from the Republicans' enormous infusion of money..billed to taxpayers.3-Massive fraud and mismanagement in the Department of Housing and Urban Development throughout Reagan's eight years. These were finally documented in congressional hearings in spring 1989, after Reagan left office. Cost the taxpayers billions of dollars in losses.Reagans' friends and fixers profited at the expense of the poor.4-Environmental Protection Agency's favoritism toward polluters. Assistant administrator unduly influenced by chemical industry lobbyists..taxpayers billed for clean-up. 5-Neglected nuclear safety. A critical situation involving nuclear safety had been allowed to develop during the Reagan era. Immense sums, estimated at 200 billion or more, would be required in the 1990s to replace and make safe America's neglected, aging, deteriorating, and dangerous nuclear facilities.6- Savings & Loan Bail-out. Hundreds of billions of dollars were needed to bail out savings and loan institutions that either had failed during the deregulation frenzy of the eighties or were in danger of bankruptcy...bill left for Bush,Clinton, and taxpayers.7-Reckless airline deregulation. Deregulation of airline industry took too broad a sweep, endangering public safety.
Any honest discussion of the Reagan era should include the bill credit-card Republicans left for America to pay. It's like some crazed religion with them, with no basis in fact. History proves supply side voodoo and deregulation mania do not work and never will. Conservative economic policies are immoral, they enslave workers every bit as much as communism.

Posted by: T. Paine on February 5, 2003 10:54 PM

This is gross private investment as a percent of domestic income.

Year gross private investment
1976 20%
1977 21%
1978 22%
1979 23%
1980 21%
1981 22%
1982 19%
1983 19%
1984 20%
1985 19%
1986 18%
1987 17%
1988 18%
1989 18%
1990 17%
1991 17%
1992 17%
1993 17%


If you take out capital consumption, of about 12% of domestic income, investment fell in half in the 80’d. I seems at least some of this is do to crowding out.

George

Posted by: George Stebbins on February 6, 2003 01:36 AM

DOUBLES the rise that Carter had already added to the defense budget (As Stockman so ably testifies, there was no military justification for this additional increase).

Winning the Cold War with narry a shot fired in anger? I'm glad we won with little bloodshed.

Inflation was very high in 1980. Why? Inflation in fuel oil was 39%!

Inflation is, by definition, a monetary phenomenon. Give the boys at the Fed credit here, not the demons at OPEC.

Perhaps in addition to requiring a valid email address, Dr. DeLong should require passing grades in history and macroeconomics.

Posted by: Bucky Dent on February 6, 2003 02:17 AM

Lawrence: These outcomes are and will be comparable.

Then I urge you to borrow all the money you can now, and short treasury debt futures. You will become a rich man before the decade is out.

Posted by: Bucky Dent on February 6, 2003 02:24 AM

Government debt servicing jumped

Is that an identical concept to "macroeconomic distress"? As interest rates and unemployment fell? No.

Posted by: Bucky Dent on February 6, 2003 02:30 AM

Whatever your definition, that's 1% of GDP that can't be spent on private investment or private consumption.

Posted by: Jason McCullough on February 6, 2003 02:55 AM

...or transfer payments!

Posted by: Bucky Dent on February 6, 2003 03:29 AM

All these posts about Reagan's deficit spending and macroeconomics overlooks an important point---the ballooning trade deficit.

That said, it's not clear that deficit spending was "awful". (No, I'm a left/liberal and despise Bush.) You also have to ask, though, what it was spent on.

Posted by: Stephen J Fromm on February 6, 2003 06:54 AM

Matt, its so very gracious of you to let my reference to Rubinomics slide. The Clinton-Rubin economic plan built on sound fiscal policy was so behind the times compared to the sophisticated fiscal policy being practiced today that I am sorry I even mentioned it.

Look, no one is denying that the productivity boom, favorable oil prices, cheap imports etc. played by far the major role in the boom of the 90s. And I am generally of the view that presidents are blamed/credited too much for the state of the economy. But that was not the point to which I was responding. It was to the bizarre claim that somehow the budget surplus in the 1990s was all due to a bubble: a bubble that appeared only in the last 2 years of an economy whose budget balance was clearly trending towards less red-ink. And why a government that had explicitly put in policies that were designed to reduce red ink should not take credit for reducing red-ink?

The key issue is whether the long-term budget situation (smoothing out bubbles and business cycle fluctuations) was better under Clinton or under Bush. And looking at the numbers, it does seem like the structural surplus is -200 billion under Bush. I would love to know how you can argue otherwise unless you were an avid supply-sider, in which case of course anything is possible.

And as to your other point, Bush's plan of what to do with the surplus was no mere rhetoric. As has been well documented, the plan was a chameleon that turned out to have been the best policy for a variety of changing circumstances even well after the surplus was gone. I did not take Gore's promises at his word, don't put words in my mouth to suit your convenience. I said that a comparison of the actual budgets produced by Clinton/Gore don't come close to the train-wreck shown here, and yes, that includes the budgets in the first term.

Posted by: achilles on February 6, 2003 07:28 AM

Mr. Dent disingenuously shapeshifts onto yet another sidepath >Winning the Cold War with narry a shot fired in anger? I'm glad we won with little bloodshed.

Pathetic little dodge, isn't it? Rather than confront the fact that interest rates peaked under Reagan due to his tax cut, triggering a nasty recession that cost millions of people their jobs, you slither off onto yet another issue which you don't understand. As Stockman documents, Weinberger demanded the extra money for defense *purely as a bureaucratic maneuver to increase the dimensions of his domain*. There was no plan for specific weapons systems.

As for Reagan "winning the Cold War", that's about as serious a statement as saying that he won World War II. Who won the Cold War was eight presidents of both parties and tens of thousands of Americans, Koreans, South Vietnamese and others who laid down their lives. Reagan was the cock crowing at dawn to claim the sunrise.

>Inflation is, by definition, a monetary phenomenon. Give the boys at the Fed credit here, not the demons at OPEC.

This is ludicrous. As a start, do you understand the difference between cost-push and demand pull inflation? Do you understand what inelasticity of demand is?

>Perhaps in addition to requiring a valid email address...

I hope you are not attempting to claim that mine is not? Or are you just making sure before sending viruses and spam like the rest of your brethren who can't win an argument either by hook or by crook?

You're 0/5 with me, Mr. Dent. Slithering faster and faster won't save you.

Posted by: Charles Utwater II on February 6, 2003 08:27 AM

Oops I said Matt, but I was really adressing Thomas. Following too many threads :)

Posted by: achilles on February 6, 2003 08:32 AM

Pathetic little dodge, isn't it?

I didn't raise the defense issue. You did. All bureaucrats at all times seek larger budgets/domains. This is a universal organizational behavior SOP.

Do you understand what inelasticity of demand is?

I'm not going to get into an economic jargon tossing war with you. If you don't understant the centrality of money to inflation, there's nothing to be done with you.

sending viruses and spam

You must have missed Dr. DeLong's post about requiring valid email addresses before posting. Please don't project your violent mindset onto others. It's disturbing.

Posted by: Bucky Dent on February 6, 2003 08:37 AM

"Where did the surplus go? The "trifecta" is not the main story; recessions have only a small impact on long-run projections, and the Center on Budget and Policy Priorities calculates that increases in military and homeland security spending account for only 16 percent of the 10-year deterioration in the C.B.O. projection. In fact, it's clear that we would be facing large deficits outside Social Security, and probably significant deficits in the budget as a whole, even if neither the recession nor Sept. 11 had happened.

"The two main culprits are the tax cut and "technical changes" in the estimates: perhaps because of the end of the bull market, a given level of G.D.P. is yielding much less revenue than it did during the late 1990's. Or to put it another way, our brief era of big surpluses seems to have been a fluke."

Who said this? Paul Krugman. I'm not inventing some wild partisan claim here. A widely read and respected liberal economist is saying what I'm saying. So, on that view, the tax cuts certainly haven't helped the fiscal situation, though it's equally clear that an unlimited expanded Medicare would be equally disastrous for the long term fiscal situation. (And that is what was promised by Gore, in rhetoric that was no less dishonest than the rhetoric from Bush.) On that view, there's not much that Clinton/Gore can take credit for, except being around during a fluke event.

Posted by: Thomas on February 6, 2003 11:52 AM

Thomas,

The computer ate my last post so I'll try again.

I am not discussing cyclical fluctuations here. Of course Clinton/Gore were lucky, I said in my last post that the supply shocks of the 1990s were much more favorable than the supply shocks of the 1970s. And there is no doubt that the bubble helped drive the budget into surplus way faster than anyone expected and the popping of the bubble helped drive into deficit way faster than anyone expected. Only the most partisan would contest that.

The discussion was not about cyclical fluctuations but about long-term structural budget balance. My point is simply that the policies of Clinton (and Bush I) explicitly focused on improving the structural surplus and turned out to be far more healthy for the structural surplus than the current fiscal policy of Bush looks to be. As I said before, the on-budget balance was moving towards surplus long before the bubble appeared.

CBO projections do change, but unless we have some real reform of entitlement programs, or pretty large supply side effects the long-term fiscal policy of the country does not look good. For the administrations sake I hope that the entitlement reform is coming. But right now, all indications from the dismissal of Rubinomics, to the establishing of dynamic scoring to the recent statements about moving to 5 year projections instead of 10 year projections indicate an administration that not only does not have a long-term fiscal vision but is in fact actively burying its head in the sand, public pronouncements of taking responsibility this generation and blaming tax-and-spend Democrats notwithstanding.

Posted by: achilles on February 6, 2003 12:24 PM

Given his rhetoric prior to election, I thought Bush might be willing to have a debate about entitlements, something that Clinton resolutely resisted. Who knows? Maybe 9/11 and a recession changed this Administration's plans, or maybe they never truly intended to pursue it. Entitlement spending, however, remains the budgetary elephant in the room that no person wishes to talk about, unless it is to claim that one's political opponents' intend to push Granny over the cliff. Well, guess what? Granny's gonna have to work longer, and pay for more of her own medical care, than what was the case when Granny was expected to croak at age 70, and we didn't have technology to extend granny's life 6 more weeks, at the cost of several hundred thousand dollars. This nasty little fact is no less true for it being nasty, and the sooner some major political figure demands, and gets, a debate on the subject, the better off we'll be. Then again, I may be too optimistic. If a major political figure has his career ruined by taking this issue on, it may well guarantee that the subject is not addressed again until the wheels come off completely. Like I said, who knows?

Posted by: Will Allen on February 6, 2003 01:31 PM

Brad DeLong writes, "Even a year ago people could think that the finances of the U.S. federal government were not grossly out of balance for at least two generations to come."

Really? I think anyone who could say that was comple completely fooled by government accounting "gimmicks." ("Gimmicks" = "Fraud," when done by private individuals.)

Surely everyone who visits this site knows that the U.S. government has been using all Social Security receipts in excess of payouts, to pay for other government programs. In other words, there is no "trust fund."

So the reality is that the budgets that were reported as being "balanced" were in fact *increasing* the government debt, in the form of unfunded liabilities.

So anyone who thought, one year ago, that federal government finances "were not grossly out of balance for at least two generations to come" was being seriously misled by fraudulent government accounting.

http://www.harrybrowne.org/articles/BudgetSurpluses.htm

http://archive.lp.org/rel/19961206-Social-Security.html

http://www.townhall.com/columnists/brucebartlett/bb20010810.shtml

Posted by: Mark Bahner on February 6, 2003 01:44 PM

"5-Neglected nuclear safety. A critical situation involving nuclear safety had been allowed to develop during the Reagan era."

I worked in the nuclear industry in the the 1980s. What "critical situation" was "allowed to develop" during the 1980s?

Go to this site:

http://www.nei.org/documents/Electronic_Presentation_Safety.ppt

Slide 15: You'll see that the median value of unplanned shutdowns per plant, in 1980, was 7.6. In 1982, 6.0. In 1984, 4.4. In 1986, 3.8. In 1988, 1.9.

This trend has continued. In 1997, 1998, 1999, and 2000, the median value was 0. (In 2000, 59% of the operating nuclear plants had no unplanned shutdowns.)

Whatever the economics of nuclear fission power in the United States, it has been extraordinarily safe.

Posted by: Mark Bahner on February 6, 2003 03:05 PM

"The explicitly stated purpose of the Bush admin. is to reduce the size of government."

Bwahahahahaha! Good one! :-)

If you can name me even one time where G.W. Bush said he was going to send to Congress even one budget that had less money in it than the previous budget, I'll send you $20. (And I'll send you $100, if you can find anywhere Al Gore said he was going to send to Congress even one budget that had less money in it than the previous budget.)

Posted by: Mark Bahner on February 6, 2003 03:19 PM

...or transfer payments!

So you're telling me *throwing the money away* (I know that's the technically true, but close enough) is better than letting the government have it?

So anyone who thought, one year ago, that federal government finances "were not grossly out of balance for at least two generations to come" was being seriously misled by fraudulent government accounting.

In 2000, the total government (social security and on-budget) increased the deficit by 23 billion, or .3% of GDP; the budget was effectively balanced. Looked fine to me.

Posted by: Jason McCullough on February 6, 2003 06:00 PM

Inflation is, by definition, a monetary phenomenon. Give the boys at the Fed credit here, not the demons at OPEC.

Surely you're aware of the concept of supply-shock inflation? A decrease in available goods leads to inflation just as easily as an increase in money.

Posted by: Jason McCullough on February 6, 2003 06:04 PM

Mr. Dent, I'm sure that if you had anything to say, you would have said it. However, you've been repeatedly braced withe evidence showing that Reagan caused a massive increase in the debt, did not have an exceptional record of growth, did not reduce inflation, and did not as you so ludicrously claim "win the Cold War"-- and you've failed to answer a single point.

This would make you 0/6 with me. You're not a very challenging debater.

Posted by: Charles Utwater II on February 6, 2003 08:49 PM

Oh, and about that "decreasing nuclear safety" thing, here's a relevant Wired article, taken from DayPop. Off topic, of course.

Posted by: Jason McCullough on February 6, 2003 08:57 PM

Reagan caused a massive increase in the debt, did not have an exceptional record of growth, did not reduce inflation, and did not as you so ludicrously claim "win the Cold War"

I never denied the debt increased a bunch under Reagan. I never said growth under him was exceptional. I never credited Reagan with cutting inflation.

And denying Reagan won the Cold War -- clearly a nationwide effort -- is every bit as valid as saying Clinton bore little responsibilty for the 90s economy -- also clearly a nationwide effort.

The notion that nothing good can be said to have issued from a GOP adminstration is an article of faith.

Posted by: Bucky Dent on February 7, 2003 05:33 AM

A decrease in available goods leads to inflation just as easily as an increase in money.

Wouldn't it have to be ALL available goods? Otherwise, only *relative* not *absolute* prices would change.

Posted by: Bucky Dent on February 7, 2003 05:39 AM

Oil is different than most goods because so much of our economy depends on it. I remember my Econ 101 course covering this and pointing out the effect that price increases/decreases in oil had on inflation and on economic growth.

Posted by: Paul on February 7, 2003 07:13 AM

If the money supply is fixed, for argument's sake, how can ALL prices sumultaneously rise?

Oil's increase would have had to be offset *somewhere* ... house prices? wages? phone service?...unless the supply of money rose as well.

Posted by: Bucky Dent on February 7, 2003 07:20 AM

And denying Reagan won the Cold War -- clearly a nationwide effort -- is every bit as valid as saying Clinton bore little responsibilty for the 90s economy -- also clearly a nationwide effort.

Both statements are entirely correct. Reagan sped it up a little, and Clinton's surplus slightly improved investment, but nothing to write home about in either case.

And Paul's right, I think: oil is an input to virtually everything, so the inflation should pass through. Years of trying to outrun Okun's law didn't help, but it didn't go haywire until the supply shock.

Now if it was an orange freeze or something, yeah, it would be offset elsewhere.

Posted by: Jason McCullough on February 7, 2003 10:51 AM

How can broad prices rise with no offsetting declines, in the absence of an expansion of the money supply?

Posted by: Bucky Dent on February 7, 2003 11:06 AM


>How can broad prices rise with no offsetting declines, in the absence of an expansion of the money supply?

Oh, It is simple you get a change in the Velocity of money. But don’t worry the velocity of money would recover so what you would get would get is a couple of years of high inflation followed by a couple of years of deflation. You could avoid deflation by adding enough money to keep inflation always positive. Since, disinflation is always related to recessions. To get rid of that inflation of the second oil shock all Fed would have to do is created a recession the size of the Great Depression, but Voclker didn’t so we ended up with a recession the size of the 82 recession and that inflation held.


Posted by: George Stebbins on February 8, 2003 01:12 PM

You could avoid deflation by adding enough money to keep inflation always positive.

Bingo.

Posted by: Bucky Dent on February 9, 2003 02:21 PM

Actually, I think they are laying the groundwork for raising the payroll tax. Why?

1) Their elimination of the payroll tax in considering tax burden in order to make the argument that the poor and lower middle class don't pay enough in taxes.
2) Their ludicrous assertion that the payroll tax isn't really a tax because taxpayers get something for it...as though the roads, national defense and other goods paid for by income tax are not tangible benefits.

If not a payroll tax increase, then they will push for a sales tax...another way to shift the tax burden on to those with the least.

Posted by: Kija on February 10, 2003 03:36 PM

Actually, I think they are laying the groundwork for raising the payroll tax. Why?

1) Their elimination of the payroll tax in considering tax burden in order to make the argument that the poor and lower middle class don't pay enough in taxes.
2) Their ludicrous assertion that the payroll tax isn't really a tax because taxpayers get something for it...as though the roads, national defense and other goods paid for by income tax are not tangible benefits.

If not a payroll tax increase, then they will push for a sales tax...another way to shift the tax burden on to those with the least.

Posted by: Kija on February 10, 2003 03:38 PM

Kija, they are already proposing consumption taxes instead of income taxes.

Ethan, you are right.

Posted by: Andy on February 11, 2003 06:41 AM

I wrote, "So anyone who thought, one year ago, that federal government finances "were not grossly out of balance for at least two generations to come" was being seriously misled by fraudulent government accounting."

Jason McCullough responded, "In 2000, the total government (social security and on-budget) increased the deficit by 23 billion, or .3% of GDP; the budget was effectively balanced. Looked fine to me."

Heh, heh, heh! Jason, you seem to post things to attempt to contradict me...regardless of how far outside of reality you have to go to do it! :-)

Your response covers the *one* year, 2000! (Which was followed by 2001, when the debt increase rose back up to $141 billion. So anyone who was talking "one year ago"...i.e., February 2002...should have known about the results from 2001.)

http://www.harrybrowne.org/articles/BudgetSurpluses.htm

So, from this *one* year, where the budget was "effectively" balanced (actually, $23 billion increase in debt)...you concluded that federal government government finances, "were not grossly out of balance for at least two generations to come"?????!

Maybe I better check semantics...what is a "generation" to you? A single year, perhaps? ;-) To me, a "generation" is about 20 years, so the "next two generations" would be the next ~40 years.

In 2000, when the stock markets were at historically stratospheric P/E ratios, and before Baby Boomers start to retire, *if* Social Security's excess incoming funds (over payouts) were diverted to other areas, the budget *almost* balanced. (Totally neglecting the fact that using those Social Security funds for other uses means that there is actually an increased unfunded liability in the amount of whatever was taken from Social Security to pay for those other items.)

Once again, anyone who thought, one year ago, that "federal government finances weren't grossly out of balance for at least two generations to come" was being fooled by fraudulent government accounting.

Specifically, they were being fooled by the fact that money coming into the Social Security program is being paid out to finance other programs, leaving an unfunded liability for Social Security. That's a pretty amazing mistake for someone like Brad DeLong to make.

Posted by: Mark Bahner on February 17, 2003 02:32 PM
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