Larry DeBoer on Budget Deficits and the National Debt

Everybody’s Favorite Economist (tm), Larry DeBoer, has a good post at Capital Comments about the nation’s budget deficits, the national debt, and the likely consequences of austerity measures during a recession.

Big future deficits are a problem. Big deficits now, not so much. They’re the result of the recession. Tax revenues are way down because of all that unemployment. Spending is up, partly because of added entitlement payments, and partly because of the government’s stimulus spending. But deficits during a recession help. The extra spending and reduced taxes increase the sales of goods and services, which give businesses a reason to employ more people. Without the deficits, unemployment would be even higher.

With unemployment near 10 percent it wouldn’t do to try to reduce the deficit now. The federal government tried that during 1937-38. With the unemployment rate still at 14 percent, the Roosevelt administration cut spending, and Social Security taxes were first collected. The deficit was reduced to near zero – and the economy dropped into recession. Unemployment rose to 19 percent.

We do need a long-range plan to reduce deficits to less than 3 percent of GDP. We need to balance the budget eventually. But not now.

Comments

  1. Dave says

    I don’t agree that the defecit is due to the recession. The deficit is due to 6 years of republican majority who simultaneously cut taxes on the wealthiest Americans, while executing two wars. (one of which under false pretenses). Saying that the defect is due to the recession is like trying to attribute the house burning down by arson as “natural causes.”

  2. says

    Wait, a trillion dollars to conduct a useless war in Iraq–that’s entirely independent of the “Defense” budget and burgeoning counterterrorism expenditures–doesn’t count as an increase in spending?

  3. says

    If you’re doing manly stuff like killing folks or blowing stuff up, it doesn’t really count. It’s mostly a concern if you’re doing pansy stuff like feeding people.

  4. says

    I’m opposed to the War in Iraq as much as anyone here– in terms of foreign policy philosophy, mistaken ideas of cause/effect in the “War on Terror”, and its expense. But in terms of dollars over a decade, that’s still small potatoes compared to the money they’re blowing on everything else.

  5. says

    Do you know of anywhere that gives a fair representation of where the increases have been by type of expenditure over the past 10 years or whatever?

    $x military
    $y TARP
    $z infrastructure construction

    or something like that?

  6. says

    Total Federal spending, FY 2010, is estimated at $3.555 trillion. One trillion dollars over eight years is then 3.5% of the annual budget. That ain’t small potatoes when it comes to expenses. It’s what the average US household spends on clothing annually.

    And–compare nudism–it’s the same percentage whether or not one supports the war in Iraq. And it’s 3.5% added to the Budget while expressly cutting the taxes which will eventually pay for it. (I’ll be fair, here, and allow as how the tax cutters insisted that doing so would raise total revenues, if they’ll be fair and admit that once again this proved to be a sham.)

    So: either tell us what programs larger than 3.5% of the Budget should be cut in their entirety, or explain what you mean by “spending” and why your ideas about excess trump other people’s. I’ve listened to this for thirty-five years now; I’ve watched two Deficit Hawk presidents spend us further into the poor house, and I’ve watched the party which styles itself Fiscally Responsible and Pro-Small Government run screaming from the electoral consequences of putting their words into actions, at least without subterfuge. I’ve seen both parties rubber-stamp Defense budgets that sail beyond extravagance, common sense, or the most expansive definition of Mission conceivable, and I’ve heard the howls of protest when Carter cut the B-1, or Clinton tried to bank the Peace Dividend. Amorphous complaints about “spending”–i.e., the spending other people want–haven’t done a goddam thing. Be specific. Defense spending + military pensions and benefits + service on the Debt they engender is sixty percent of the annual Budget. Is that a big enough chunk to start on?

  7. Marycatherine Barton says

    So true, DR. And re Dave’s statement, Bush was not that naive; both of his wars, he executed under false pretenses.

  8. says

    CBPP is as “liberal” as Heritage is “conservative”, so maybe it’s a good balance. In any case, it seems odd that the CBPP graph starts in 2009; it’d more helpful if it started in 2007 (at least for context). The “Bush era tax cuts” are assumed to continue past 2010– quite an assumption. (And that sure makes their graph look more “impressive”!) The “Bush era tax cuts” also presumably include both the rate cuts and the “stimulus”-type Keynesian tax reductions. The former is attractive; the latter is not– and bear a striking resemblance to the continuing/failed Bush/Obama “stimulus” spending. It’d be nice to see CBPP and Heritage separate out those two.

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