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Old 01-28-2013, 11:33 AM  
Direckshun Direckshun is offline
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Fiscal times: Government spending is *not* out of control.

This is a must-read for all my conservative friends here on this board, who are due for a challenge to long-held assumptions of our ability to stabilize our government spending. The truth is, it's already pretty freaking stable.

Federal spending did, in fact, balloon in 2009. But it was primarily due to a huge employment purge that took millions off taxable payrolls and put them on existing government programs to assist them in times of need. This is what's called an "automatic stabilizer," and it resolves itself as unemployment improves. Count in the fiscal measures needed to stabilize the economy like the Recovery Act, and we have two one-off issues that caused an imbalance in the wake of the Great Recession. Those are starting to right the ship.

Government spending actually came in below projections in 2009, but the cratering in tax revenue caused by the recession is what drove the deficit.

The point: this is a temporary aberration created by a once-in-a-century collapse of the global financial system, and as the financial system stabilizes (check) and unemployment creeps down (happening), the deficit will slowly degenerate on its own. (The $2.4 trillion in austerity measures we've passed will accelerate that process.)

According to the chart you'll see below, government spending on all these major programs has actually stabilized -- yes, including Medicare. Where things are expected to get messy is on interest payments -- but so long as American bonds are the gold standard for safe investments, we literally pay very little on interest. Read: it's a problem worth addressing, but not that severe of one.

So it's not that worthy of an interest to be obsessed with the near term deficit -- what's important is the debt-to-GDP ratio, which tells us the long-term sustainability of our current budgeting. This is all prior to the fiscal cliff deal, however, so we're on a healthy path forward, fiscally.

Which futher feeds my opinion that our focus right now needs to be on unemployment, not deficit reduction.

http://www.thefiscaltimes.com/Column...rol.aspx#page1

Why Government Spending Is Not Out of Control
By BRUCE BARTLETT, The Fiscal Times
January 25, 2013

It is a standard talking point of Republicans and deficit hawks of all political stripes that federal spending is out of control; that major surgery is needed, especially on entitlement programs such as Social Security and Medicare, to get the budget on a sustainable course.

In fact, our long-term deficit situation is not nearly as severe as even many budget experts believe. The problem is that they are looking at recent history and near-term projections that are overly impacted by one-time factors related to the economic crisis and massive Republican tax cuts that lowered revenues far below normal.

Taking a longer-term view, such as that in a recent Treasury Department report, shows that our longer-term fiscal problem is in fact quite manageable.

As the chart below illustrates, federal spending ballooned in fiscal year 2009 mainly because of what economists call “automatic stabilizers” – programs already in law such as unemployment compensation that rises whenever a recession occurs. Spending rose from 20.7 percent of the gross domestic product in fiscal year 2008 to 25 percent in 2009.



Republicans would have us believe that all of this resulted from Barack Obama’s policies, but this is simply a partisan lie. Fiscal year 2009 actually began on September 1, 2008, and was based on the budget that George W. Bush submitted in January 2008.

Moreover, if we look at projections from the Congressional Budget Office on January 7, 2009 – while Bush was still in office and which do not incorporate any Obama policies – we see that the deficit was projected to rise from $455 billion in 2008 to $1.2 trillion in 2009 under existing law.

The actual deficit for fiscal year 2009 was $1.55 trillion. But the difference was due entirely to lower revenues than expected, not higher spending. Outlays in fiscal year 2009 actually came in below CBO’s projection – $3,518 billion actual vs. a projection of $3,543 billion.

The point is not to assess blame for the deficit; only to emphasize the temporary nature of the historically large deficits of the last few years and show that they did not result from an explosion of new spending initiated by Obama. This is important because Republicans continually make that claim, thus justifying their belief that spending must be massively slashed, especially for entitlements.

Getting back to the chart, we see that spending for every single government program going forward is remarkably stable as a percentage of GDP. Those who complain loudest about spending and deficits nearly always base their concerns on projections of nominal spending that are unadjusted for inflation, growth of the population or growth of the economy. This is intellectually dishonest.

In fact, virtually all the growth in projected spending comes not from entitlements or giveaways to the poor and lazy, as Republicans would have us believe, but rather from interest on the debt. This is a problem, but not nearly to the extent that it appears.

The reason is that interest on the debt is what economists call a pure transfer. Economically, it is little different from taking money out of your right pocket and putting it into your left pocket. That is because the vast bulk of interest goes to people and institutions who simply use it to buy more Treasury securities.

Back in the days when the federal debt was owned almost entirely by Americans, one could reasonably say that we owed it to ourselves and it was a matter of no economic concern. As Franklin D. Roosevelt put it Our national debt after all is an internal debt owed not only by the Nation but to the Nation. If our children have to pay interest on it they will pay that interest to themselves. A reasonable internal debt will not impoverish our children or put the Nation into bankruptcy.

Of course, we no longer owe the debt all to ourselves; about half of the publicly-held national debt is owned by foreigners, but most of that is held by central banks that will hold it pretty much forever. Nevertheless, there is still a fundamental economic difference between a debt arising from higher government spending on goods and services and one arising from higher interest expense.

When government buys stuff or employs workers, they are not available for use by the private sector. If the economy were growing and the unemployment rate was low, this would be a bad thing. Under current circumstances, however, when GDP is far below its potential and unemployment is high, government spending on goods and services is not displacing private use, but rather putting otherwise idle resources to good use.

My point is that economists have long differentiated between non-interest spending and that for interest, which, as I said, is a pure transfer that has essentially benign economic effects. For this reason, they are mainly concerned about what is called the “primary deficit,” which is non-interest spending as compared to revenues. As the chart shows, the primary deficit going forward is actually quite small – just 1.7 percent of GDP in the long run.

Moreover, this estimate is high because it was calculated before the effects of the fiscal cliff deal, which substantially raised revenues and reduced projected deficits relative to the assumptions used in the Treasury report. Consequently, the long-term budget situation is better than shown in the chart. It’s difficult to estimate that effect at this time – we will get additional data within the next two weeks in the president’s budget and CBO’s annual projections.

In conclusion, it is silly to obsess about near-term nominal budget deficits. What matters is the deficit as a share of GDP minus interest spending, which economists call the primary deficit. On that basis, we are much closer to fiscal sustainability than even most economists realize. Relatively small adjustments to the growth path of federal revenues and Medicare would be sufficient to eliminate the primary deficit. Taking a meat ax to every federal program, as Republicans demand, is neither necessary nor desirable.

It is a standard talking point of Republicans and deficit hawks of all political stripes that federal spending is out of control; that major surgery is needed, especially on entitlement programs such as Social Security and Medicare, to get the budget on a sustainable course.

In fact, our long-term deficit situation is not nearly as severe as even many budget experts believe. The problem is that they are looking at recent history and near-term projections that are overly impacted by one-time factors related to the economic crisis and massive Republican tax cuts that lowered revenues far below normal.

Taking a longer-term view, such as that in a recent Treasury Department report, shows that our longer-term fiscal problem is in fact quite manageable.
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Old 01-28-2013, 06:04 PM   #16
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Direckshun basically spends his days looking for articles that paint Obama in a good light.
All joking aside I think this place is the center of his life. It explains his endless pursuit of attention here~
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Old 01-28-2013, 07:12 PM   #17
Direckshun Direckshun is offline
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If revenue is the real problem I'd think you would have voiced your opinion against the fiscal cliff deal where permanent tax cuts were put in place. The ones that raised the most revenue.
Not necessarily, at least not in the near term. Lower taxes for the lower tax brackets have a stimulative effect.

I would prefer once unemployment reaches pre-recession levels, for the Bush tax cuts to be cut in their entirety.
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Old 01-28-2013, 07:23 PM   #18
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Originally Posted by Direckshun View Post
Not necessarily, at least not in the near term. Lower taxes for the lower tax brackets have a stimulative effect.

I would prefer once unemployment reaches pre-recession levels, for the Bush tax cuts to be cut in their entirety.
Unfortunately the numbers will never match up with your preferences.
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Old 01-28-2013, 07:27 PM   #19
Direckshun Direckshun is offline
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Originally Posted by mlyonsd View Post
Unfortunately the numbers will never match up with your preferences.
I don't see why they can't.
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Old 01-28-2013, 07:36 PM   #20
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I don't see why they can't.
Because you'd need another post WWII type economy to pay for our skyrocketing debt payments on interest and entitlements, let alone what you consider current responsible spending.

You don't realize it yet but Obama has painted himself and the dems into a corner.
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Old 01-28-2013, 07:36 PM   #21
Direckshun Direckshun is offline
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Originally Posted by mlyonsd View Post
Because you'd need another post WWII type economy to pay for our skyrocketing debt payments on interest and entitlements, let alone what you consider current responsible spending.

You don't realize it yet but Obama has painted himself and the dems into a corner.
Out of morbid curiousity, how much stronger do you personally believe this economy can become?
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Old 01-28-2013, 07:38 PM   #22
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Then why does Obama want to raise taxes on all of us
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Old 01-28-2013, 07:43 PM   #23
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Then why does Obama want to raise taxes on all of us
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Old 01-28-2013, 07:54 PM   #24
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You mean, "Bruce Bartlett......"


The same guy who wrote a book about how George W bankrupted America, who called Rick Perry "an idiot", who claimed 1930s Spending was correct and who is an avowed Keynesian. You could've just posted an analysis from Jared Bernstein in lieu.
Don't forget

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He served as a domestic policy adviser to President Ronald Reagan and as a Treasury official under President George H. W. Bush.
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Old 01-28-2013, 07:55 PM   #25
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Direkshun bathes in leftwing bullshit.

Bruce Bartlett isn't a lefty. Chalk another one in the "wrong again" column CoMo.
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Old 01-28-2013, 07:56 PM   #26
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Because you'd need another post WWII type economy to pay for our skyrocketing debt payments on interest and entitlements, let alone what you consider current responsible spending.

You don't realize it yet but Obama has painted himself and the dems into a corner.
No, you don't.
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Old 01-28-2013, 08:03 PM   #27
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This is a must-read for all my conservative friends here on this board...
Ignore thread.
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Old 01-29-2013, 06:45 AM   #28
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So spending a TRILLION dollars more each year than you take in is NOT overspending?

What math class did you take???
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Old 01-29-2013, 06:46 AM   #29
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Ignore thread.
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Old 01-29-2013, 06:47 AM   #30
Direckshun Direckshun is offline
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So spending a TRILLION dollars more each year than you take in is NOT overspending?

What math class did you take???
No, it's overspending. But it's overspending based on a one-off event (well, two one-off events), not based on hopelessly imbalanced budgeting.

We were already a few hundred billion in the red prior to the recession due to the Bush tax cuts, Medicare Part D, and two wars on the credit card. The reason we went a trillion in the red in 2008/09 was because a shit ton of payroll dropped off and went straight to welfare.

That's starting to right itself now.
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