The Budget Deficit Debate: Avoiding the Real Problem
Re-posted with the permission of the author Mark Thoma at Maximum Utility.
The Budget Deficit Debate: Avoiding the Real Problem
I’ve been asked several times how I feel about the president’s proposed budget, and I find it hard to answer. For me, it all comes down to the following diagram:
[Source: CBO]
The main problem, as this graph from the CBO clearly shows, is rising health care costs. However, few politicians are talking about the real problem, let alone trying to find ways to solve it. So all of the budget debate we are seeing is really just tinkering around the edges of the long-run debt problem. For example, as the graph shows Social Security has little to do with our long-run budget problem, and the imbalance in this program can be fixed relatively easily. So whatever we do here it will still leave the big problem — rising health care costs — unaddressed.
Until politicians start leveling with the public about the source of the budget imbalance instead of fooling them into thinking the measures they are talking about for Social Security and other programs will help to solve our long-run debt problem, we won’t make much progress. And the costs of this political strategy could be large. We could lose valuable programs — programs we can easily afford once the health care cost problem is resolved –as politicians attempt to make the public think they are making inroads on the long-run budget problem when in fact they are avoiding the real issue (and it doesn’t help at all that any attempts to control health care costs are derided as “death panels”).
Stop spending for the US empire’s war machine.
There is no reason for the 38% which includes 20% for war to stay the same width for the out years.
If needed the trend in health is not so much a problem. The 20% of outlays for war does not need to keep its real outlays steady with inflation. Because aside from the Keynesian nature of war industry jobs, war is a drag on the economy. Cut the war percent from 20 to 7% and the US still has the largest of everything warlike.
Over on Krugman’s blog: http://community.nytimes.com/comments/krugman.blogs.nytimes.com/2011/02/18/realism-on-defense-spending/
He is wrong. The objective metric for the US war machine is not that it is just consuming 20% of US outlays. The object must be why take that 20% away from the economy, and nutrition for pregnant women and children.
Krugman and most who discuss spending in context of percent of outlays are misleadiing to say 20% is too small to worry on ……
Wrong!!
The war machine and the US empire have no enemies and are built to deliver jobs and war profits to a few at the expense of the economy. Most of the designs are shoddy, the quality lacking and there is no money left for me, the logistician to try to keep it all running.
The Brits spend less than 7% of outlays. The Germans 3.4% and the US a tad less than 20%.
In 1979, with the Red Army deploying 40,000 tanks, and 4,000,000 soldiers the US pentagon spent $314B in constant 2005 dollars (table 8-8 2012 president’s budget). In 1969, height of Vietnam and cold war the US spent $519B in constant dollars. In 1989, it was $482 B Star wars boondoggles and the peak of the Reagan war profiteers’ feast. By 1998 GHW Bush and Clinton had the war machine cut back to $348 B (again 2005 dollars) taking care of the economy and retiring debt. In 2010 the militarists were paid $608B for a force much smaller, fighting goatherds, not the Viet Cong or no longer deterring or discouraging the Red Army.
There is $500B a year to take from the militarists to make the economy run.
Every dollar spent on war is pillaged from better uses…………………….
It is correct however to discuss doing away with unwarranted influence wielded by rent collecting public funded entities such as health care and war.
“Until politicians start leveling with the public about the source of the budget imbalance instead of fooling them into thinking the measures they are talking about for Social Security and other programs will help to solve our long-run debt problem, we won’t make much progress. And the costs of this political strategy could be large. We could lose valuable programs — programs we can easily afford once the health care cost problem is resolved –…” Where have we heard this before? Y’ano that ole crowding out issue. Along with comments that essentially said: “protect SS, I don’t care… we must control the mandatory portion of the budget, SS, Medicare & Medicaid, and interest on the debt…)
Thoma, understands that issue and concentrates on the M&M portion, but debt interest is lurking in the background. Some anticipate it in the next 15-20 years to reach/or exceed ILSM’s favorite budget area.
but debt interest was created by military spending.
and yes, by the “stimulus.” but if you will look at the “stimulus deficit” the blip in the chart.. up for spending, down for revenue…you will see that it closes in about four years.
Dean Baker keeps saying that the US budget would be running a surplus, if medical costs in this country were the same as in Canada and Europe.
I agree with ilsm that the military budget is rediculous and offensive. If it were cut, the US could rebuild itelf and deal with global warming.
suggesting to me at least that the problem really is health care spending. suggesting to me at least that we really need to control health care costs. suggesting to me at least that maybe we ought to do like the Europeans whose costs are half what we pay, per capita. or, suggesting to me at least, that we ought to make up our minds to just pay for the health care system we love so dear. if we pay for it, it won’t cause any deficit at all.
which gets us back to politics. the R’s are all in favor of paying for their own health care, and letting the poor do the same or die. The D’s are all in favor of the rich paying for everyone’s health care.
Me, I think the rich should pay for their sacred way of paying for health care and should let the poor (that’s you and me) pay for theirs using “the government” to oversee and manage health care costs and payments… but ultimately paid for by the workers themselves under a system very much like Social Security.
which i like because i understand that it is not welfare, but avoids the market risks that ordinary workers can’t afford to take with the core of their needs.
CoRev,
Thoma like Krugman talks percents of outlays and falls into the trap of how come discretionary spending and war proifiteers just cannot live without 38% of the take!!
The idea of dealing with the pie and not reasons for the slices is wrong headed.
These guys are smarter than that.
Hey maybe the legislature looks at interest on US debt as the citizens being usurous and place a 100% tax on interest paid by the US Treasury, to all recipients.
Makes as much sense as rewriting SS benefits because of “fiscal reasons”.
ILSM, now you are realting the entirety, 38% of the budget to “war proifiteers just cannot live without 38% of the take!! ” In one comment you complain that the budget sets defense spending at ~19.X% and now you have doubled it? which is it?
You also claim that “These guys are smarter than that.” but copmpletely ignore my previous point re: interest on debt, not covered by this article and the chart.
Since I mentioned the chart, why has no one noticed and/or commented upon the chart’s assertion that budget is balanced in mid decade? Sure! That bridge in NYC is still available for purchase.
ILSM, now you are realating the entirety, 38% of the budget to “war proifiteers just cannot live without 38% of the take!!” In one comment you complain that the budget sets defense spending at ~19.X% and now you have doubled it? which is it?
You also claim that “These guys are smarter than that.” but completely ignore my previous point re: interest on debt, not covered by this article and the chart. Which if anyone cares to do the math adds somewhere in the range of 10-15% overall to the budget.
Since I mentioned the chart, why has no one noticed and/or commented upon the chart’s assertion that budget is balanced in mid decade? Sure! That bridge in NYC is still available for purchase.
CoRev,
I said both discretionary spending and its sub-group war profiteers, sorry for being lose with synatx.
Krugman and thoma must have as much stats as I at the grad school level, the prof I had said never “infer (inferential stats) on statistsics about statistics”. This is why I disagree with MG running CBO as truth.
See the comments to Krugman link above very enlightening.
Yes, interest is not there but we just treat the bond holder same as those whio think SSTF don’t exists either.
Bridge in NYC, hell I’ve helped DoD buy weapons, same o same o.
ILSM, who brought up ss? “Yes, interest is not there but we just treat the bond holder same as those whio think SSTF don’t exists either.” Whos saya they will, are not going to be treated the same?
One day we’ll actually discuss reality versus some diversionary issue. Please understand, Dale’s SS solution sequesters the SSTF Treasuries for ever, and that’s probably a good thing.
ILSM, who brought up SS? “Yes, interest is not there but we just treat the bond holder same as those whio think SSTF don’t exists either.” Who says they will, are not going to be treated the same?
One day we’ll actually discuss reality versus some diversionary issue. Please understand, Dale’s SS solution sequesters the SSTF Treasuries for ever, and that’s probably a good thing.
CoRev
that is not quite accurate. my SS solution uses the SSTF Treasuries to make up the difference between SS tax revenue and SS benefit payout over the next 20 to 30 years as was always the point of that big a TF in the first place. After that time, just keeping a one year reserve amounts to collecting interest on it, from lending it to the government “for ever.” But I am not doctinaire about keeping a one year reserve, and I wouldn’t care if it was invested in other places besides US Treasuries… as long as people knew that a bad day on the market could require an increase in their payroll tax.
on the other hand, if the government is going to run a deficit anyway, it might as well borrow the money from SS, but then it has to pay it back…or the deficit gets too big. And I am not smart enough to know the “effect on the economy” or the budget of borrowing a biggish chunk of money and then just paying the interest on it in perpetuity. looks kind of dumb to me. but as i said, i don’t know enough.
CoRev
is correct to point out that interest is not covered by this chart (almost said it was off the chart).
and it’s an important point.
but the answer is not that difficult:
pay down the deficit by raising taxes until the interest is “sustainable.” i don’t have anything against a zero debt myself…. because i don’t know enough about the role the debt plays in the economy. but if you are going to complain about the debt/deficit and you are going to not raise taxes, you are fooling yourself. or just fooling the people long enough to get yours and get out of town.
i note that on the chart revenues seem to keep up with expenses. so nothing is adding any new debt. which leaves medical care. and the answer there is still… either find a way to lower medical costs, or make up your mind to pay for them. if the best way to pay for them is through Medicare, so be it. There is nothing magic about government being 20% of the economy instead of 30%. In fact the equation is really this
Medical Care plus Government plus Private Spending = GDP.
it does not matter if it is
Private Spending plus Medical Care plus Other Government = GDP
or
Government plus Medical Care plus Other Private Spending = GDP.
In case that’s not clear. Say that Medical care is 15% of the economy, Government that does not include Medical care is 15% of the economy, and Private Spending that is not Medical care is 70% of the economy.
15% plus 15% plus 70% = 100%
and it doesn’t matter if it is
[15 + 15] + 70
or
15 + [15 + 70]
except of course that people run around in circles and scream and shout if “government” pays for their health care.
That is a great graph. It shows that BOTH SIDES ARE CORRECT in the Social Security debate.
It validates those here who maintain that “Social Security is not the problem.” However if you look at the vertical axis, you see taxes increasing from 20% of GDP to 30%. This is a 50% increase in taxation. This is the price to pay for all the entitlements, without cuttting spending.
The other solution is to “address” rising health care, and other program costs. “Address” means “cut” So you are cutting spending on health care and other programs and leaving SS untouched.
So, while SS is not part of the problem, it can be part of the solution.
sammy
lets be more clear.
in the first place don’t addle yourself with “this is a 50% increase…” it doesn’t matter if it is a 1% increase of a 500% increase. it’s the amount of money it takes to pay for something. we either need that something or we don’t. rolling on the ground and writhing because you have expressed a number as a “percent” just means you have an irrational fear of numbers and no idea or interest in what they mean.
in the second place Social Security, in my mind, the public’s mind, and the intent of the Big Liars, is Old Age Insurance. They are trying to conflate Old Age Insurance with Medical Costs.
In the third place Medical Costs… as in “addressing rising health care costs”… is not “Medicare” or even “Medicade…” it is the cost of medical care, whether paid for through government programs or through private insurance. it is those costs which are driving up the expected costs of those Government programs. but if we are going to want the Medical Care we are going to have to pay for it,
and unless we address the costs of medical care, we are going to have to pay more. and that’s true whether it’s paid by a tax or by writing a check to Blue Cross. and that’s true whether you write the check or your employer writes it.
Cutting Medicare without cutting health care costs will not save people a nickel.
Finally, your SS is not part of the problem, it can be part of the solution is at best a non sequitur. Yes cutting SS, which is not part of the problem, could allow the government to replace the SS tax… and leave the people to find another way to save for their retirement at the mercy of inflation… and then raise taxes to pay for medical care… or raise taxes to pay for the military…
but that kind of “part of the solution” isn’t really any different than robbing banks, or taking the kids milk money and using it to buy beer.
Sammy, note that taxes increase from under 15 percent of GDP today to about 30 percent in the distant future on this chart–a 100 percent rise. That’s because the Bush and Obama tax cuts are scheduled to go away, and there are other taxes that are scheduled to go up in future years. The CBO report list many. Which is why I keep saying that, after the problem of rising health care costs (an economic problem, not just a Medicare/Medicaid problem), the next biggest political problem is the inadequacy of taxation today. Raising taxes to 20 percent of GDP will be politically difficult–even Obama’s new 10-year 2012 budget proposal doesn’t do this. Play with defense spending and other spending categories if you like (and I would), but a truly serious person needs to look at health care price inflation and taxation first and foremost to address the long-term deficit challenge.
<"Address" means "cut">
Not really. Address means stop the rate of growth.
Neither Krugman nor Thoma said don’t address military or Social Security. They have said that the hue and cry is out of proportion. Most of the yelling (since that is what we do) should be about healthcare.
All we need to do is hold the growth rate, but that is not going to be easy.
arne/coberly/PJR,
Sounds like we are in vigorous agreement here.
or, hell, it could even mean “understand what we are paying for and why.”
and cutting medicare without “cutting” health care costs doesn’t accomplish a damn thing. unless you just want old people to die because there is no mechanism for them to pay for their health care (insurance) in advance.
what is affordable if prorated over an entire working lifetime becomes not affordable if you wait until the person is at the most expensive time of their life in terms of health care and at the same time has no income.
20% of federal outlays is a big deal today, has been for 19 years since the RRussian brand of soviets went bankrupt. Krugman and Thoma are running up a flag that has been touted to protect the war profiteers for years, since they whined over Carter’s strict demands for accounting between congress and the pentagon.
Spinney, Sprey and I have had this discussion over the past 15 years.
Talk about percents or ratios wilfully hides the point that the pentagon congress cabal is buying stuff that are not worth the taxpayers’ dough, whether borrowed or taxed.
That is a severe problem whether the issue is 4.6% of GDP going to waste or a $38,000 per year pay check for a private out smoking (in my youth we called these guys skates) all day.
Then Krugman gasps back at the 148 odd dissents to his Friday “% outlays graph” with an even more corrupt roll out of % GDP.
As I said some of us have fought those red herrings for years.
The F-35 is useless but it is ideologically unsound (Soviet Republican Tea Party think) to kill it, if you killed a useless airplane you would be weak on the war profiteers.
O Tempores O Mores.
Instead of the usual slices of government spending, I find these useful (as a % of GDP):
Consumption — actual “spending”: down slightly since 1975, but generally flat, unchanged for the last 40 years.
Investment: Drastic decline — about 45% — from the 70s to the 80s, then mostly flat since.
Social Security: Remove the earnings cap on payroll taxes and it’s good to go for eighty years.
Medicare/Medicaid: If we don’t control health care costs — what providers *charge* — we are so f**ked.
Solve the above-inflation rise in health-care costs, and there is no budget problem.
Obama expended a hell of a lot of political capital on the right thing — I hope not fruitlessly/fecklessly.
Steve Roth
there is no need to raise the cap and “tax” people who won’t get SS benefits. The people who do get the benefits can pay for their own benefits, as they always have. If future generations are going to live longer than past generations they will need to pay a little more to cover their longer retirement. don’t count on them being able to work longer even if they live longer.
The little more it would cost them works out to about forty cents per week per year. yes it increases over time with inflation and general rise in living standards, but it will never be felt as more than forty cents per week would be felt this year.
I have spept on Professor Thoma’s statement of the problem.
Yes, health demands in the society are the problem. That ius bcause health demands will reverse the flow of outlat from corporate welfare, empire and militarism toward paying for the needs of an aging population, with its infirm and ill educated poor.
The flow will be from succor for a few million to taking care of scores of millions.
That is what this CBO blither shows.
I have slept on Professor Thoma’s statement of the problem.
Einstein said you can not solve a problem with the same mind you had before.
Some might say health and human services (entitlements) demands in the society are the problem. That is bcause these demands will reverse the flow of outlays from corporate welfare, empire and militarism toward paying for the needs of an aging population, with its infirm and ill educated poor.
The flow of wealth would be from excessive profits for a few million to taking care of scores of millions.
The solution includes realizing that every cent of corporate welfare and empire is pain on scores of millions.
You can use the CBO blither to not change anyone’s mind.
I have slept on Professor Thoma’s statement of the problem.
Einstein said you can not solve a problem with the same mind you had before.
Some might say health and human services (entitlements) demands in the society are the problem. That is bcause these demands will reverse the flow of outlays from corporate welfare, empire and militarism toward paying for the needs of an aging population, with its infirm and ill educated poor.
The flow of wealth would be from excessive profits for a few million to taking care of scores of millions.
The solution includes realizing that every cent of corporate welfare and empire is pain on scores of millions.
You can use the CBO blither to not change anyone’s mind.
ILSM, the data from the chart provided below is already 3-4 years old, taken in the good ole days of 07, but they are descriptive of the debt on interest problem.
The reason I claim it is already dated is because in FY 2010, total Federal revenues were ~$2.162T and mandatory spending was ~$2.107T, a small difference of $54B or ~1.5% of the 2010 budget. We are already at or passed the cut over point.
CoRev,
Here is the GAO audit of the federal debt for 2009
http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2009.pdf
Here is 2010 GAO aduit GAO 11-52.
http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2010.pdf
They did not do a out year chart the 2009 or 2010 audit.
ILSM, what is your point with providing in total two reports? Is there something more specific you wish to discuss?