Skip to main content

A picture speaks a few trillion words

Don't believe the BS coming out of the media!

Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II.

In fact, outside of that post-WWII era, the only time the deficit has fallen faster was when the economy relapsed in 1937, turning the Great Depression into a decade-long affair.

If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn't risk backfiring. That's why the best way to address the fiscal cliff likely is to postpone it.

While long-term deficit reduction is important and deficits remain very large by historical standards, the reality is that the government already has its foot on the brakes.

In this sense, the "fiscal cliff" metaphor is especially poor. The government doesn't need to apply the brakes with more force to avoid disaster. Rather the "cliff" is an artificial one that has sprung up because the two parties are able to agree on so little.

Hopefully, they will agree, as they did at the end of 2010, to embrace their disagreement for a bit longer. That seems a reasonably likely outcome of negotiations because the most likely alternative to a punt is a compromise (expiration of the Bush tax cuts for the top and the payroll tax cut, along with modest spending cuts) that could still push the economy into recession.

Rather than applying additional fiscal restraint now, the government needs to make sure it sets the course for steady restraint once the economy emerges further from the deep employment hole that remains. In fact, a number of so-called deficit hawks are calling for short-term tax cuts to spur growth, rather than immediate austerity.

From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.

That's just a bit faster than the 3.0 percentage point deficit improvement from 1995 to '98, but at that point, the economy had everything going for it.

Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.

President Obama hasn't gotten much credit for reining in the deficit, probably because a big part of the deficit progress has come from the unwinding of extraordinary government supports that he helped put in place. Stimulus programs have come and mostly gone; the end of stimulus to states led them to enact Medicaid curbs; jobless benefits in recent months have fallen by 50% since early 2010 (due to both job gains and extended benefits being exhausted).

TARP and the bailouts of Fannie Mae and Freddie Mac also make the deficit improvement look better, boosting the fiscal '09 deficit by about $200 billion more than in fiscal '12 (though the initial cost of TARP was overstated).

Still, military spending is now on the decline due to fewer troops in Iraq and Afghanistan; Medicare costs rose 3% last year vs. the average 7% growth in recent years; and after the last year's Budget Control Act, excluding the automatic cuts set to take effect in January, nondefense discretionary spending is already on a path to shrink to 2.7% of GDP, well below the 3.9% average, notes the Center on Budget and Policy Priorities.

Read More At IBD:

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  But also note (3+ / 0-)
    Recommended by:
    skillet, coffeetalk, 207wickedgood

    One of the other reasons the deficit has decreased is that overall interest costs have decreased, despite larger deficits. ZIRP has had an impact.
    2012    $359,796,008,919.49
    2011    $454,393,280,417.03
    2010    $413,954,825,362.17
    2009    $383,071,060,815.42
    2008    $451,154,049,950.63
    2007    $429,977,998,108.20

    With US GDP at about 15 trillion, the drop from 454 billion to 359 billion (2011 to 2012) is close to a .6% of GDP in one year from interest costs alone. For 2013, barring a booming economy debt service costs will come down more. The bad news is that if interest rates stay low it means the economy has not recovered, if they go up (from a booming economy or high inflation) then the drag on the deficit will be immense (from a return to normal rates).

    Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

    by taonow on Thu Nov 22, 2012 at 03:50:11 AM PST

    •  Booming economy or high inflation don't seem to (1+ / 0-)
      Recommended by:

      be a problem any time soon.

      •  soon? (2+ / 0-)
        Recommended by:
        skillet, carver

        Because the US dollar is the world reserve currency it takes longer for money printing to have an impact. But talking to folks who do business in China ... you can kiss ultra cheap Chinese crap goodbye ... in other words the continual drop in prices we have seen the last decade is likely done and the next move will be higher (wages there are going up in the 15-20% a year range and this eventually gets passed on).

        And .. without reasonable growth the deficit can not come down fast enough to offset the impact of SS and interest costs.

        Ultimately the key problem is that almost nothing has been done to actually reform the economy .. the approach seems to be to try to get back to where we were (which was unsustainable). Instead we need real reform with real tax cuts (cut the defense tax, the heath care insurance tax, the drug war tax, the financial vampire tax  ... all things that tax the ability of the economy to grow in a sustainable way)

        Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

        by taonow on Thu Nov 22, 2012 at 04:47:05 AM PST

        [ Parent ]

        •  Oh, wow. (0+ / 0-)

          Talk about dinosaur economics.  Let's start with one thing: the China Trade, as it has been since the settlement of the Americas, is dead.  You can kiss buying things in China for a fraction of their value goodbye.  The US and Great Britain are no longer able to impose trade terms by gunboat.  The Chinese populace is no longer starving and willing to work at slave wages for pittance.  The Chinese government is no longer so weak vis-a-vis international corporations that it must perforce give them whatever they ask for.  And put on an equal footing, the Chinese are shrewd bargainers who will use every bit of leverage they have to make trade terms to their own profit.

          US-China trade passed the point where it was profitable for the US as a whole several years ago and has already become a net loss.  Individuals at the tops of American merchant and finance hierarchies are still making money, but they're now taking their slice from a pie that belongs to the Chinese.  Because of this, damping down trade with China will actually produce a net structural benefit for the US, especially if that decrease comes from monetary issues that also render US currency less desirable in low-wage nations such as Viet Nam, Burma, and Indonesia.  Add in the increasing cost of transportation, and manufacturing will need to move back to America, closer to its end markets.

          This will cause wages to rise.  We obviously disagree on the value of rising wages.  Classic economists see rising wages as falling profits, and as they identify with the financiers whose purpose is to extract excess value from labor, they see this as Bad.  However, 90% or more of the population are wage-earners, and therefore for them, higher wages are better.  Yes, higher wages will lead to higher prices.  But with higher wages, workers will be able to afford higher prices, whereas with low wages, they have been less able to afford LOW prices, subsisting instead on credit (which has also lined the pockets of the financial class to the detriment of workers).

          High wages are very, very good for everyone except the Mitt Romneys of the world who wander woefully looking for a "decent servant" at the vanishingly low prices they are willing to pay.  In addition, a tightening of the labor market may put an end to the ridiculous excesses of corporate intrusion into workers' lives.  Finally, a reduction in corporate profits provides less cash to purchase political and judicial favors.

          Meanwhile, higher wages pay for -- guess what? Social Security and Medicare, which are financed by payroll taxes.  Yes, let's reduce trade with China and increase taxes on the financial sector and its wealthiest executives!  Higher wages -- in both absolute and proportional terms -- are exactly what this economy needs.

          •  not sure (0+ / 0-)

            Not sure where we disagree.

            Yes, China will suffer more than the US in the coming trade rebalancing (just as the US suffered more than the UK in the 1930's), as the one with the trade surplus has more to lose. The US will benefit from work moving back to the US.

            But ... there are major structural problems in the US economy that will inhibit growth going forward (something that will be very costly)... and these have not been addressed. These include over expenditures on defense (waste), health care (incredibly inefficient), and legal bills. All of these act as taxes (drags) on the efficiency of the economy. Without working on these any growth will be limited.

            Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

            by taonow on Thu Nov 22, 2012 at 12:01:56 PM PST

            [ Parent ]

  •  FOX cancels it's subscription to IBD. (2+ / 0-)
    Recommended by:
    MartyM, ExStr8
  •  why isn't this on TV/Radio/Newspapers more? (5+ / 0-)
    Recommended by:
    shotten99, MartyM, Delevie, ExStr8, carver

    Instead, we are told everyday... the world is coming to an end, because the President got re-elected.

  •  Jack Welch just tweeted about this (6+ / 0-)
    Recommended by:
    MartyM, eeff, Gooserock, tampaedski, Delevie, ExStr8
    "Unbelievable deficit numbers..these Chicago guys will do anything..can't accept that unskewed Romney won so change numbers."

    "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

    by kovie on Thu Nov 22, 2012 at 04:33:35 AM PST

  •  The historical comparison is a tad (0+ / 0-)

    awkward considering that never in history did the defiicit INCREASE at the rate it did in the preceding year or two.

  •  Postpone the cliff? (4+ / 0-)
    Recommended by:
    phatcat cane, ExStr8, Sylv, Bluerall

    Fuck that. I say go over it.  The reality is the cliff is just a speed bump and the effect will be felt over time, not in one fell swoop.  

    Right now the business class is freaking out and crapping in their pants because their precious cap gains rate is set to go up to 23.8% (up to 20% plus the 3.8% from Obamacare) on 1/1/13 and their dividend rate for high earners will go up to 43.4%(up to 39.6% plus the 3.8% from Obamacare) !!!  That's from 15%.  That's why Walmart decided to pay out dividends before 12/31/12.  28.4% additional on a billion bucks is well not chump change.  Hell it may even pay for a few lazy unemployed people to eat and have lights on and stuff.  Poor Mitt, what's he to do if all of a sudden he has to pay say 22% instead of the 13% he's paying now.  It might mean he won't be able to afford that car elevator!!!!!

    Personally I say let the fucking Bush cuts expire and negotiate a new Obama tax cut for the middle class.  The GOP won't have any leverage at that point and will be forced to pass it.  The middle class won't get hit as it will be most likely retroactive, the deficits will go lower because of the additional revenue and the lazy rich fat fuckers who sit around living off their dividend checks will have to actually come up with a way to make some real money that may, heaven forbid, require doing something.  Maybe as a gift the Dems could include lowering the Dividends rate 5% to 38.4% in exchange for extension of unemployment benefits.  the whoel point is the GOP will now be negotiating from a position of complete weakness and will have to beg for scraps OR GET NOTHING.

    BTW the uber rich NEVER gave a flying fuck about Obamacare for any other reason than their own self interest.  It was the fact that their precious cap rate and dividend taxes were going up 3.8% that really irked them.  These rich fucks are so goddamn greedy that even an increase of 3.8% is too much.  You never hear that mentioned in discussions of Obamacare.  I wonder why.  Maybe because they don't want to admit they hate giving healthcare to the unwashed masses because they will have to pay more?   The ultimate redistribution of wealth in their eyes.  Classic givers and takers bullshit.  No chance they would come across as greedy SOB's if they just came out and said 'I don't want to pay more taxes so some poor shit gets healthcare', right?

    This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

    by DisNoir36 on Thu Nov 22, 2012 at 05:10:51 AM PST

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site