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Deficit Shrinking: Good News Where We Can Get It

Good news: the federal budget deficit has entered a period of rapid decline as the economy slowly recovers, the cost of overseas wars falls, and the sequester bites. For 2013, we’re looking at a projected deficit of $759 billion, or 4.7 percent of GDP. The FT:

Throughout Barack Obama’s first term in office, the recession and the stimulus that was enacted to combat the crisis pushed annual deficits above $1tn each year, reaching a peak above 10 per cent of GDP. But under his own policy prescriptions, Mr Obama sees budget deficits gradually shrinking over the next decade, to 2.1 per cent of GDP in 2023.

We’re happy to see this, but we have never thought that the short term budget deficits following the recession were the country’s big problem. It’s the unsustainable path of entitlement spending.

We don’t actually think that the way to fix those long term deficits is by imposing a crippling austerity program. Above all, we face a health care problem, and putting the health care system on the road to real reform would go a long way to helping. Unfortunately, it’s at the level of long-term fiscal problems and effective health care reform that this administration has missed the boat, so the long-term outlook remains problematic.

But in the meantime, we’ll take good budget news where we can get it.

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  • Jim__L

    “Mr Obama sees budget deficits gradually shrinking over the next decade, to 2.1 per cent of GDP in 2023.”

    Um. Doesn’t our typical business cycle involve one or two recessions in any given ten-year period?

    If there’s one thing we can count on in economics, it’s that fact that projections that assume smooth curves are going to be wrong.

  • wigwag

    “Unfortunately, it’s at the level of long-term fiscal problems and effective health care reform that this administration has missed the boat, so the long-term outlook remains problematic.” (Walter Russell Mead)

    The Administration has missed the boat: so have congressional Democrats and congressional Republicans. Missing the boat seems to be an occupational hazzard when it comes to American health care. I am no Obama fan, but Via Meadia’s silly attempt to pin most of the blame for the health care mess on the current Administration is malarkey.

    Obamacare/Romneycare is certainly no panacea but it is far better than the old system which left tens of millions uninsured. It’s also better than the system proposed by congressional Republicans which would have provided disincentives for preventative care while enriching the stinking, hulking intermediaries known as insurance companies.

    There are solutions but both political parties are too dumb to see them. We need to disintermediate health care. We don’t need Government, the Democrats favorite intermediary and we don’t need insurance companies, the Republicans favorite intermediary. Intermediaries raise costs while providing little of value. Eliminate them and health care becomes cheaper and better.


    • LivingRock

      I absolutely agree with the conclusion about disintermediation.

      But to clarify, about 85% of the U.S. population has health insurance. Indeed, that does leave roughly 48 mil uninsured. But that should not be used as a scare tactic that all these people are sick and miserable so any reform that gives them coverage is good reform. I think that is partly what led to the blind passage of the Obamacare. Which is basically throwing those supposed poor, poor sick folks into a broken system. Those people deserve better access to coverage and care. But they deserve it through organized reform that empowers consumers to demand value and get the style of coverage they need; disintermediation would do well in accomplishing that.

      And I’ve yet to see an actual serious reform proposal from the Repubs. Are you talkin’ Ryan’s Premium Support?

  • bpuharic

    This administration hasn’t ‘missed the boat’ because there’s no boat to be missed. As Paul Krugman pointed out, our long term sustainable debt is about $460B.

    The long term burden is one of massive entitlements for the 1% rather than the middle class. TBTF subsidies alone rack up $100B, along with lower capital gains tax rates, including the carried interest deduction, etc. It’s time to stop bellyaching about the producing class…i.e. the middle class and stop the class warfare that is a de facto austerity program.

    • Parker O’Brien

      Novel approach to class warfare. By your measure, politicians who don’t actively attack high income earners are engaging in class warfare against the middle class. If you’re not with us, you’re against us, such is the tribal mentality of the hard left… But please continue to discriminate against minorities in favor of imagined majorities, it illuminates the immorality behind the ‘fairness’ doctrine.

      • bpuharic

        Given the fact ‘high income earners’ have used the govt to line their own pockets after a MASSIVE failure (TARP anyone), I’d say the middle class has exhibited forebearance in the current situation.

        The 1% continues, unabated, to transfer every single dollar of income to its own pocket while the middle class continues to get nothing except platitudes from the right about what failures we are.

        • Parker O’Brien

          Coercive transfers can only happen with the assistance from the state. You are arguing for expanding the very system that enables the functions you rail against.

          • bpuharic

            No, I’m arguing for isolating the state from the power of the market and returning it to the people. A radical notion, given the right’s contention that our govt should not be 1 man, 1 vote, but 1 dollar, 1 vote.

          • Parker O’Brien

            So you are arguing for deregulation? Nope. You are arguing that the government should direct capital and business decisions rather than the markets. You just disagreed with the ways it operated previously. No one on the right has ever argued that votes should be contingent on their wealth, but rather that those who wish to participate in our democratic process are free to express their first amendment rights, even if you disagree with them.

          • bpuharic

            Incorrect. I’m arguing the govt should, as Adam Smith argued, regulate business to preserve and protect the market rather than letting rent seekers, such as leveraged buyout kings (e.g. Mitt Romney) run away with unproductive profits.

            And yes, the right has explicitly argued, with the “Citizens United” decision that corporate persons have unregulated ‘free speech’…a ridiculous idea.

          • Parker O’Brien

            Do you know the New York Times is a corporation that engages in unregulated free speech? Why should they be granted that exemption, but not others? Do you realize that by restricting political speech to individuals, it only allows the super wealthy to engage in political speech. ‘Corporations’ are simply conglomerates of individuals that can pool their smaller resources in order to have a larger aggregate affect. Think Sierra club.

          • bpuharic

            Ah, the sleight of hand, eh? Uh…BP and Exxon are not the 4th estate. There’s a difference. There’s no reason these companies should lobby to the detriment, as Adam Smith pointed out, of the public interest. He was wise enough to see the hazards. Funny how the right, which has enshrined the ‘invisible hand’ as gospel, has ignored his critical comments in this area.

            Corporations are no such things at all. Stockholders have little or no say in what corporations do. The Sierra club, et al, are minor players

          • Parker O’Brien

            Like Crossroads GPS, or Club for Growth? I’m serious though, why does the NYT get to engage in unregulated free speech, but BP doesn’t?

          • bpuharic

            Ever hear of the freedom of the press?

            no…I didn’t think so. The right thinks the bill of rights is limited to the 2nd amendment.

          • Parker O’Brien

            Exactly my point! Why does the NYT get to engage in press, but BP doesn’t? Some are more equal than others?

          • bpuharic

            How much oil did you say the N Y Times produces?

            There’s a difference between an oil company and a newspaper.

          • Parker O’Brien

            Can’t an oil company put out press releases? Why are those treated differently? So you are saying some are more equal than others…

          • bpuharic

            Yeah some are more equal than others. That’s what the constitution says. Don’t like it? That just makes you a conservative.

          • Parker O’Brien

            Well at least you’ve admitted the logical conclusions to your ideology. I guess we’ll leave it at that; the left believes in unequal treatment under law.

          • Tom

            Ahem…Congress shall make no law…abridging the freedom of speech, or of the press.

          • bpuharic

            Ahem. Exxon is an oil company. Not a publication

          • Tom

            What part of “Shall make no law..abridging the freedom of speech” is unclear?

          • bpuharic

            The part saying that corporations are people. They’re not. It’s a convenient legal fiction

          • Tom

            And yet, they are still made up of people.

  • Kavanna

    It’s unlikely that the federal deficit will fall below 5% of GDP for fiscal 2013 or 2014 — these are overly optimistic projections. It is striking that the sequester has done not much to growth — it chugs along at about 2%. The deficit projections keep using overly positive growth estimates.

    Starting in fiscal 2015 and thereafter without prospect of reversal, the federal deficit will rise and keep rising, because of entitlements.

    That doesn’t include a recession, which is likely over the next three years. Nor does it factor in that OMB, CBO, and Fed projections are usually too optimistic.

    Krugman is not an economist, but a ranter. The breakdown of central banker fantasies is coming. The first scene is coming in Japan.

    • bpuharic

      Krugman’s not an economist? Guess that’s why he won a Nobel prize

      in Economics.

      And one of American’s leading central bankers…Alan Greenspan..was a principle architect of our current situation.

      • Parker O’Brien

        Wow, people still listen to Krugman!? This is the man who
        argued for many years in early 2000s’ that the Fed needs to lower interest rates in order to foster a bubble in the real estate market. Yes, Greenspan implemented the policies that Krugman was calling for, but that shouldn’t absolve Krugman. But you can go ahead and get your advice from someone who advocated policies that led to the biggest crash since the great depression, the rest of the left does.

        • bpuharic

          Perhaps we should listen to the conservatives who are worried about crowding out with all the demand we have right now.

          • Parker O’Brien

            They aren’t worried about crowding out consumer demand, but investment, and yes it has been empirically proven that government spending in certain industries has crowded out private investment.

          • bpuharic

            How do you crowd out investment if no investments are being made due to low DEMAND?

            And no, with rates at 0% there is no crowding out.

          • Parker O’Brien

            I really don’t feel like educating you on basic macroeconomics… The money has to come from somewhere, in the case of government borrowing, it takes money from the future for consumption (which provides no return) and uneconomical production (Solyndra, etc.) Temporary short term gains at expense of long term prosperity.

          • bpuharic

            How can you educate me about something you know nothing about? You think businesses invest though there’s no demand? Good luck with that argument.

            Interest rates are at 0 because of low demand, not because the govt is manipulating them. If you disagree, look at the spending of the middle class, which hasn’t had a real wage increase in 30 years, and tell me where the money is coming from.

          • Parker O’Brien

            Please read a book about the monetary system. If there is no demand for money, supply of money should go down, just like every single other market… The fed is increasing the supply of money in the face of falling demand. This is counter to the market system.

          • bpuharic

            Unlike you, I HAVE taken formal education in economics and used Rudiger Dornbusch’s textbook. That’s why I know you know zip

            We are in a liquidity trap. We’re pumping in gobs of money and

            nothing is happening. That blows out the right wing Milton Friedman version of economics.

            You admit we have falling demand at ZERO percent interest. What do you think would happen if we allowed right wing economic mythology to take over and jacked up rates?

            Depression anyone?

          • Parker O’Brien

            You think we are getting out of this without a depression? All the Fed is doing is delaying the day of reckoning and making that day all the more dire when it comes. I’ll stick to Friedman, Hayek, and Von Mises, and you can throw your lot in with Krugman, and the bastardization of Keynesianism.

          • bpuharic

            Boy talk about hacks. The Austrian school is right up there with the Bros Grimm in terms of fairy tales

            You keep screaming about massive govt spending creating hyperinflation

            You’ve been screaming this for 5 years.

            Let me know when it actually happens. Because so far, your hack economists have been


          • Parker O’Brien

            Good thing all the Keynsian predictions have been right on par… Give it another 5 years, and maybe longer, but even Keynes acknowledged the truth behind Austrian economics. He just thought that there were short term adjustments that could diminish the displacement caused by the business cycles.

          • bpuharic

            Ah, so you’re right in the long term?

            Didn’t Keynes say in the long term we’re all dead?

            Why not just bump your failed predictions out, oh, say 50 years? Why stop at 5?

          • Parker O’Brien

            I didn’t stop at five, I said maybe longer. It’s simple, such policies will lead to their logical conclusion, but since I am not a prophet, I can not say when that will occur

          • bpuharic

            Especially if they never occur. The Austrian hacks have a simple version of economics for simple, right wing conservatives.

            The world, of course, is more complex. Which is why the hacks always get it wrong.

          • Parker O’Brien

            The world is very complex, which is why predicting the timing of future occurances is an impossibility. For both our sakes, I hope Austrian econ is wrong, but history hasn’t proven it wrong yet, and current events are far from played out.

          • bpuharic

            Well if it’s not wrong now in the face of the biggest govt deficits since WW2…any idea how you’d test it to see if it’s wrong? Perhaps a Martian invasion which destroyed the earth?

          • Parker O’Brien

            The current economy is proving Austrian economics correct, you do realize this right? The ‘recovery’ is not a typical recovery, as median income falls, employment levels drop, etc. Asset inflation caused by massive Fed intervention is a cause not a cure to our ills. Drinking heavier to postpone a hangover may work in the near term, but will only lead to a worse hangover down the road. The final decider will be the results when the music stops. If the Fed can’t control when this happens, things will get extremely bumpy.

          • bpuharic

            I guess the key prediction of AE is that it’s right even when it’s wrong

            The central prediction of AE was that we’d have hyperinflaiton in the face of high govt spending

            Well. We have HUGE govt deficit spending. Inflation?

            About 2%. And it’s been that way for years.

            So Austrian economics is wrong. Wrong. Its key prediction is wrong. The reason the right likes AE is because of its MORAL and RELIGIOUS conclusions, NOT its economics. AE says that the middle class, and poor, especially BLACKS, will get welfare and steal from the rich

            What we’ve seen is the rich steal from the middle class and the poor. Another failed prediction of AE…

            The music you’re talking about has been going on for 5 years

            You be sure and wake me up when it stops.

          • Parker O’Brien

            First off, CPI is not inflation. True inflation is much higher. But again, AE has said that polices of massive govt spending and easy money will lead to inflationary pressures. That these aren’t playing out in the manner you expect does not mean they are not existent. I could point to a plethora of assets that have had massive price inflations over the past few years and we’re seeing it play out again in the housing market currently. The music I’m talking about is the Fed’s easy money policies, and it’s still playing.

          • bpuharic

            Ah, ‘true’ inflation. That is kind of the fudge factor that you adjust to make your theory true, right? Doesn’t matter what the evidence shows; in 200 years time, it’ll be higher and that proves you right

            Who can argue?

            Assets always fluctuate. You haven’t assembled the data showing a run up in assets that AE predicts across the board since they don’t exist. No wonder you’re involved in special pleading

            Hayek was a hack.

          • Parker O’Brien

            If inflation was measured the same way as in the 80s’ it would be around 9%. Care to explain this discrepancy. Sorry that the inflation isn’t as clear as you would like it to be, but bubbles are sometimes hard to see, however I would point to the massive bond bubble as an example of inflation (potentially overvalued by trillions)

          • bpuharic

            So we overstated it back then. You keep begging that PLEASE PLEASE PLEASE accept inflation is higher

            Where? Bond bubble? You mean because the Fed is buying bonds? Gee. There are bubbles everywhere but they’re not showing up in interest rates

            So, again, you’re wrong.

          • Parker O’Brien

            Do you realize that interest rates are not dictated by the market, but rather set by the fed? Current interest rates are cause of the bubble. I’m not begging you to accept inflation is higher than the government’s CPI, that is the truth, but you don’t have to accept it. Do you realize government has a vested interest in keeping ‘official’ inflation lower than it actually is? Hence, every single ‘revision’ to inflation is downward.

      • Tom

        Said Nobel was for some pretty innovative work…in international trade patterns.

  • Parker O’Brien

    Remember the ‘post-recession’ years of Bush? Deficits topped $800 billion once in his entire term and there was a maddening outcry from every outlet in America. This is the first time Obama is projected to have a single year slightly below Bush’s worst, and it’s cause for celebration?? Further, the true cost of the debt, and therefore the extent of our deficit, is hidden by the artificial low interest rates. If we were at the historical rate of borrowing our annual deficit would be well above $1 trillion.

    • bpuharic

      Interest rates aren’t ‘artificially’ low; they’re low because there’s low demand. And Obama’s not spending more, we’re just taking in less. That’s why they CALL IT a RECESSION.

      Sheesh, don’t you guys know anything?

      • Parker O’Brien

        I suggest you study up on the function of the Fed and its current easing programs. Rates are set by the Fed and are artificially low because they are not supported by market fundamentals. Obama increase the federal register by nearly $1 trillion in his first year. While spending has slowed since this initial increase of over 33%, that does not absolve him of the massive increase he oversaw. Also, FYI gross tax receipts were at an all-time high last year…

        • bpuharic

          Market fundamentals? Like supply and demand? Since demand is low, rates are low

          That’s how economic fundamentals work.

          And Obama didn’t increase anything. In fact the biggest increase in social welfare spending in the past 10 years was Bush’s Medicare part D.

          So other than being wrong about everything, anything more you wish to add?

          • Parker O’Brien

            Let me lay out the numbers for you. 2008 budget was $2.9 Trillion, 2009 was $3.52 Trillion. My memory failed me earlier, I had thought
            08 was 2.7, so I overstated the increase, which is only 21%. Bush’s 2009 budget was a little over 3 trillion in spending and Obama increased it up another $500 billion. These are the facts, sorry for the hard truth.

            You don’t understand the monetary system do you? When interest rates go down, it increases the supply of money. During recessions, demand for money goes down, which would drive up interest rates, however the Fed is counteracting this market force with its policies in keeping interest rates low. Please take a basic econ course.

  • Corlyss

    “Wait for it!” as Radar O’Reilly used to say. The thundering and crashing thru the landscape you hear, headed for the deficit, is the catastrophic nation-destroying budget-eater, Obamacare.

    • bpuharic

      Let’s see…who had the larger budget deficit, Bush’s last budget or Obama’s?

      Gee…not good for conservatives

      • Parker O’Brien

        Bush last budget was for about 3.1 trillion.
        Obama increased it nearly $500 billion, meaning the deficit for the budget Bush
        proposed was under $1 trillion.

        • bpuharic

          Bush’s last deficit was 1.2T.

          Obama’s last was about 850B.

          And Obama rightly increased the budget to make up for the shortfall in demand in 2009.

          • Parker O’Brien

            Where are you getting your numbers? Just looking at Wikipedia’s basic numbers shows you are wrong.


          • bpuharic

            You DO realize 2009 was Bush’s last budget, right?

          • Parker O’Brien

            Yes, that’s why I linked 2009. Read the article and you see his budget is only about $3 trillion. Obama had 5 spending riders during his first term that increased it by nearly $500 billion. If the deficit was $1.4 trillion, then Bush is responsible for less than $1 trillion. Understand??

          • bpuharic

            the 500B was the stimulus package which every economist admits was necessary to prevent the continued right wing engineered collapse of the economy.

            And if Bush is responsible for 1T, that’s STILL more than the last Obama deficit


          • Parker O’Brien

            Man it’s tough to get through to you. A couple more pertinent facts; $300 billion in revenue was lost from temporary Obama tax cuts, so that puts Bush’s deficit below $700 billion if unmodified by Obama. Further, about $250 billion of the Bush budget was from the one time bail out of Tarp, another So if, as you say, Obama’s increase was due to a one time stimulus, and $250 billion was from one time Tarp, the federal budget should have drastically shrunk the following year, why didn’t it?

          • bpuharic

            Here you go. Here’s a nice analysis of right wing lies, such as the one you’re pushing now:


            And the reason the debt kept climbing was the economy was STILL SHRINKING

            Yep. Deficits go up when revenues go down. When right wingers blew out the economy and got rid of millions of middle class jobs, while bailing out the rich, they forget that deficits would go up

            But you wouldn’t know that since in the world of right wing magic, the market is always right.

          • Parker O’Brien

            2009 Revenue: 2.105
            2010 Revenue: 2.163
            2011 Revenue: 2.303

            Economy may have been in the dumps but revenue was climbing and the ‘one time’ expenditures were cooked into the books.

            Krugman advocated for the very policies that led to the crash, not sure how you can invoke him as a critic of those policies.

          • bpuharic

            Well golly. You’re wrong:


            Chart 3.

            And, again, I’m still waiting, after 5 years, for the Austrian hacks to tell us where hyperinflation is. It’s the cornerstone of hack economic theology

            And it’s wrong.

          • Parker O’Brien

            That chart shows revenue increasing…

          • bpuharic

            I guess being right wing means not learning to count. Any reason you think the2008 bar graph is lower than 2009? I mean, other than you don’t WANT it to be.

          • Parker O’Brien

            Chart 3 shows revenue. 2009 is a total of 2,198
            2010 is a toal of 2,216.5
            Math is hard…

          • bpuharic

            And 2008?

            Oh. Higher than both 2009 and 2010

            Thanks. I already knew that.

            Yeah math is hard when you cherry pick data to suite the talk radio crowd.

            And you just admitted Obama is growing the economy. Thanks. I knew that, too.

          • Parker O’Brien

            Yes, it was higher in 2008. In 2009 We had $300 billion in temporary Obama tax cuts for businesses and the economy was still in the dumps (subtract the tax cuts and revenue only dropped around $200 billion). The economy has been growing, but at the lowest post recession rate since the great depression, median incomes have fallen in real terms over the last 5 years, and employment levels are at all time lows. Good for Obama.

          • bpuharic

            Actually Obama extended the Bush tax cuts.

            More proof you know zip about economics? Financial sector recoveries…like this one

            ARE ALWAYS SLOWER than others. The Reinhart Rogoff study looked at EVERY SINGLE RECOVERY in the last 200 years. Financial sector recoveries take at LEAST 5 years

            So thanks right wingers. Your supply side myths gave us the deepest recession in 80 years

          • Parker O’Brien

            Friedman’s plucking model goes a long way to debunk the Rienhart-Rodgers premise. Further, their study actually show that financial crises have stronger recoveries, but due to the depth of the downturn, they take longer to recover from. This current ‘recovery’ has done neither. We are falling further behind our long term growth trend every single year.

            As I’ve said, prior, it was easy money that led to the recent crash, any ‘supply side’ myth you can point to, was a Dem proposal with bipartisan support.

          • bpuharic


            Milt’s been dead for awhile. The Reinhart Rogoff study is only a few years old, so unless Milt’s been resurrected his ‘model’ can’t explain anything.

            Financial sector recoveries are SLOWER than others. See that word? SLOWER. Kind of like the average conservatives. SLOWER….

            What led to the recent crash was the TWENTY THOUSAND PERCENT run up in credit default swaps because of deregulated financial markets.

            Unless, of course, you think that sixty two TRILLION in credit default swaps was an accurate and rational market value of their worth.

            Go ahead. Justify that.

          • Parker O’Brien

            Milt may be dead, but his theories are still relevant to today. Please look at the data. Recoveries from financial crises have a higher growth rate than non-financial crises, I believe it was 8.9% vs 6.7%. Rienhart measured the time it took to restore the country to their previous growth levels, and more severe downturns took longer to recover from, because there was more to make up for, however these recoveries were also more robust. The recent crash was a matter of incentives. The government created a system of very perverse incentives, the market responded and easy money fueled it to excess. There is no more heavily regulated industry than the financial sector, to place the blame on Wall St. is miss the roots of the disease.


          • bpuharic

            Well, no. Here’s a link to a discussion on the RR study:


            I quote:

            “advanced economies grow about one percentage less during the decade following a major financial crisis, like the one experienced in 2007-08, than after a normal downturn.”

            So, again

            you’re wrong.

          • Parker O’Brien

            Look at the numbers, recoveries after financial crises were stronger than non financial crises. The numbers you cite are aggregated over the recession years which are deeper and longer for financial crises. The end result is lower aggregate growth, since more years are spent in a recession, however, the growth after the recession is stronger.

          • bpuharic

            Uh, parker?

            the RR study looked at EIGHT CENTURIES of data. How much more data would you like to look at?

            And you DO know that a recovery is, by definition, NOT a recession, right? So when they looked at the numbers, they looked at growth AFTER the end of the recession.

            Keep spinning. Keep engaging in special pleading

            You have no evidence.

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