Saturday, August 10, 2013

The incredible shrinking deficit

Cardiff Garcia sends us this cool deficit reduction chart:





If you like your numbers raw, then there's this,

"In dollar terms, the Congressional Budget Office estimates for the July fiscal balance (which will be released next week) suggest that the deficit totaled $722bn in the 12 months ending in July, down from a peak of $1.471trn in December 2009; we now expect the deficit to total $650bn in FY 13 and $550bn in FY14".

Plenty of people are lamenting this show of "austerity" with unemployment still high.

If  we had been better Keynesians in the past, we would have used the "boom and not the bust" for "austerity", and could have run an expansionary policy longer. But in the absence of a proven connection between fiscal stimulus and sustainable job growth (sorry Brad and Larry), and the presence of our high and still rising debt levels and the continual damaging political theatre around debt ceiling breaches, I am fine with this rate of deficit reduction.

What is not so great about the deficit reduction we are getting is that it doesn't address longer run budget issues, and the deficit is projected to start rising again in 2015 and get ugly shortly thereafter.

I'm happy we've reduced war spending and cut the military (at least as a % of GDP). We can do that some more. But I don't see any achievable solution to our long run deficit drivers. People we can't even get chained CPI as the benchmark for social security increases. That was treated like running over grandma with a reindeer.

The good side to me is that our government actually "worked". Politicians saw the huge deficits as a problem and enacted policies to reduce them (at least for a while). The bad side is that the policy process burned tons of trust and political capital without addressing our real, long-run budget problems.


6 comments:

John Thacker said...

the continual damaging political theatre around debt ceiling breaches,

Though that political theater is the only reason that we're getting "this rate of deficit reduction." The track record of the government "working" without such theater is pretty thin, unfortunately.

Pelsmin said...

"Narrowed the deficit"?! Yeah, "falling outlays and rising revenues" have narrowed it, to what is still the largest deficit in 40 years, at least from eyeballing the chart. Apart from the past five years, which were outrageous, this is the worst in two generations.

Hardly reason to be patting ourselves on the back.

ColoComment said...

Don't forget as well that payments from Fannie & Freddie (however characterized as "dividends" or whatever) and any other "income" paid by Fed, etc., in "investments" to Treasury, all those payments camouflage the true deficit by pumping up "paper" revenues.

If you look at the numbers, you'll see that the Fan/Fred payments are really, really close to the amount that the deficit has been "reduced."

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