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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (44341)	8/11/2003 5:57:27 PM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

The future's proper context is the past... Reproducing Al Hunt's available-to-subscribers-only WSJ deficit complaint, Brad DeLong posts a graphic which projects future deficits to 2013. He provides us with this interpretation: The problem is not this year's deficit or next year's deficit--big deficits in a time of near-recession and falling employment are a good idea. The problem is the deficits that will stare us in the face five, ten, twenty, et cetera years in the future: deficits that will slow economic growth and create the risk of turning our politics in an Argentinean direction Frankly, there are subtleties here Brad is missing. First, it's neither fair nor wise to project into the future without establishing a context. When we look over that context, namely the five decade history of real federal deficits and the real value of federal debt, we see a striking picture of consistent deficits. The real value of federal debt fell steadily thru the mid 1970's, and rose thereafter. A quick look at the graphs suggests the 1997:1 to 2001:3 experience was an anomaly. It may even have been a singularity or a perverse set of circumstances. Trying to reproduce this surplus might even be dangerous. Our attitude toward federal debt and deficit was not settled economics as of 1997:1. It is not settled economics right now. To illustrate, consider this depressing thought. Let's stipulate that any economy is always subject to a myriad of influences, and no single cause ever induces a single effect. That having been said, simulaton can sometimes find exceptional influences which, for all practical purposes, are the "cause" of certain events. I wonder whether such simulation techniques would reveal that the exceptional and singular Clinton Surplus of 1997-2001 was actually the cause of the recession from which we're now recovering? UPDATE: Then there's this from the JEC: Some observers argue that the tax relief packages of the last three years are the primary reason that budget deficits have replaced surpluses. This is incorrect. In fact, the large deficits reflect the near "perfect storm" that has rocked the federal government's budget: 1) revenues plummeted due to a weak economy and a sharp drop in the stock market, 2) spending increased due to two wars and new homeland security requirements, and 3) fiscal discipline weakened following the emergence of budget surpluses. These factors account for about three-quarters of the decline in the budget surplus. April 2001 was the high point for budget surplus forecasts. OMB then estimated a $334 billion surplus for fiscal year 2003, while it now estimates a $455 billion deficit...[E]conomic changes have been the primary cause of the budget deterioration in the current fiscal year. The weak economy reduced the size of the tax base, increased spending on programs like Medicaid, and revealed technical adjustments that needed to be made to the budget estimates. In all, those factors account for 53 percent of the changes in OMB' s projections, and none of them were due to legislation. Legislated spending increases and tax relief account for 24 percent and 23 percent of the reductions in OMB's projections, respectively (increased debt service costs have been allocated to each category). Estimates for other years by both OMB and the Congressional Budget Office (CBO) reveal a similar trend. (Emphasis added.) econopundit.com