Tuesday, July 29, 2008

That Nasty Ol' Deficit

Figures lie and liars figure - My father of blessed memory.

One cute lil' news item flogged all over the dinosaur media yesterday was about the Evil Deficit BushHitler is going to be passing on to the next unfortunate who takes over his job in the Oval Office.

According to the story, the White House is projecting a record deficit for 2009 of between $480 and $490 billion,"a record" according to sources like the New York Times , NPR and the good people at ABC News.

It terms of a dollar amount, they're right. It's by far the largest in history. What they're not telling you is that a dollar figure in this regard is absolutely meaningless.

The real figure to look at, of course, is the deficit amount as a percentage of Gross Domestic Product (GDP), the total amount of what our economy produces. In those terms, even if the deficit dollar amount is correct, the projected 2009 deficit would be about equal to 3.3 percent of GDP. As a comparison, we ran a 6.0 percent deficit in 1983 and survived quite nicely, thank you.

To translate was utter bolshoi this is into everyday terms,let's say you earn a salary of $4,000 per month and your total spending is equal to $1,000...that gives you a debt ratio of 25%.

You get a raise to $6,000 per month and your spending goes up to $1,200 per month - a record, no? Except it isn't because in terms of your income your spending level actually went down to a mere $20%.

Another thing that the bare dollar amount doesn't tell you is how much of that deficit spending constitutes investment in scientific research, infrastructure or tax and fiscal policy actually intended to increase the GDP.

Like my father always told me, figures lie and liars figure.Especially in an election year.


Anonymous said...

We did NOT survive quite nicely the deficits of 1983 of 6% GDP.

The 30 year bonds floated by Ronald Reagan to give people 'small government taxes and medium government services' are stlil being paid off today - by my daughters, for example, who were not even alive when Reagan bought voter loyalty with these deficits.

The 3.3% GDP deficit also needs to be put into context by comparing with supply sider scenarios that we'd be running a surplus by now.

Governments subsidize activity that they wish to encourage: ethanol, farming, etc. Why conservatives believe we should subsidize the true cost of government by hiding the tax burden is a mystery to me. This only encourages growth of government. Compare the growth in federal budget during Clinton years as he wound down the deficit to growth during GWBush years as he used deficits to mask the pain of increased spending.

Conservative support for deficit spending show a lack of consistent rational thinking on the subject.

Freedom Fighter said...

Hello Anonymous,
I'm afraid you're misinformed.

First of all,in your own post you claim that your daughters are `still paying off those 30 year Reagan bonds' and yet in the next sentence talk about the Clinton `surplus'.

Riddle me this...how could Clinton have a `surplus' if your daughters are still paying for that alleged Reagan `deficit'? QED.

I think you are also probably unaware of exactly how President Clinton achieved that so-called surplus. A large part of it was garnered by refinancing long term bonds into shorter 5 year term bonds which had a lower interest rate but would have come due as a balloon note obligation after Mr. bill was safely out of office.

It was only the lucky fall of interest rates that enabled the US to move those shorter term obligations back to longer term debt and prevent a financial catastrophe.

You won't get an argument out of me that Washington's spending is way out of whack,but the articles I referenced on a 'record deficit' are ridiculous misrepresentations.

One more thing.It may sound appealing to tax those greedy fat cat corporations..until you realize that corporations don't pay taxes,their customers do.Think about it.


Rosey said...

Also, these are extremely weak dollars. The % of GDP measure is the most accurate. But consider quoting the deficit in Euros, Japanese Yen, constant barrels of oil, ounces of gold or wheat. The reason this number is inflated is the same reason oil is $125 a barrel. With supply/demand remaining constant, and oil quoted in a weakening dollar, the price must rise just to remain constant.

But govt spending is out of control...especially in NJ which I am about ready to leave...