Obama’s Budget
Isn’t it neat how Obama spends and borrows into oblivion but promises that the next president will throttle it back in 2018?
Obama’s new spending plan projects a deficit for the current budget year of $1.33 trillion, marking the fourth straight year that the deficit would top $1 trillion.
The spending plan projects the deficit would decrease to $901 billion in the 2013 budget year, which begins Oct. 1. That reflects $3.8 trillion in spending next year, an increase of 0.2 percent over this year’s expected outlays, and a 17.5 percent increase in revenues.
The deficits are projected to gradually go down to $575 billion in 2018, which would still be higher in dollar terms than any deficits run up before Obama took office. It would be below 3 percent of the total economy, however, and thus at a level economists generally consider sustainable.
His “explanations” remind me of those adverts that shout about how much you can “save”- by buying stuff that’s on sale.
As if spending was not the opposte of saving.
In any case, the spending and borrowing may continue until it can’t. So far foreigners have been willing to buy U.S. sovereign debt even though it pays practically no interest. But that could change quickly if they think they’ll be paid back in inflation-depreciated dollars.
With much of the national debt in short-term obligations, a rise in interest rates to more usual levels could be devastating to the federal budget.
Posted by .(JavaScript must be enabled to view this email address) on February 13, 2012 at 1539 hrs
I just continue to be amazed how Obama preached, passionately, fixing the deficit when it was 20% of the size when Bush was in office…now that Obama is in office and things are 5 times worse on annual spending deficit…nothing to see here.
What happen to the Senator Obama, threatening to refuse the debt sealing? I liked the Obama that was, at least pretending, to be a deficit and spending hawk.
Posted by .(JavaScript must be enabled to view this email address) on February 13, 2012 at 1710 hrs
Just curious, where is the “oblivion” in:
Obama spends and borrows into oblivion
Certainly you don’t subscribe to the failed school of economic thought that asserts that nations with sovereign currencies can “go broke,” are you?
Might I suggest a strong dose of Modern Monetary Theory as an antidote to that kind of 19th century gold bug thinking? You might find this piece, Monetary Theory and the Great Capitol Hill Baby Sitting Co-op Crisis, a little less turgid but equally informative.
Posted by Phil Scarr on February 13, 2012 at 1824 hrs
Clearly Phil missed the campaign speech of then Senator Obama who said Bush’s spending was unpatriotic.
Posted by .(JavaScript must be enabled to view this email address) on February 13, 2012 at 1845 hrs
You mean this one?
You know, there are all these Wall Street journal editorials and stuff: Obama wants to tax people.
I don’t want to tax people. I would love if we could just say, “You know what? Nobody pays taxes. Tax holiday for everybody.” I would love to do that.
The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents—number 43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back—$30,000 for every man, woman and child.
That’s irresponsible. It’s unpatriotic.
(APPLAUSE)
And so, yes, I am going to roll back those Bush tax cuts that give people like me, who don’t need it, a huge break. [Obama campaign speech, 7/3/08, accessed via Nexis]
Yes, well, the trouble is that nearly all of the deficit is due to the lingering effects of Bush’s policies.
Some critics continue to assert that President George W. Bush’s policies bear little responsibility for the deficits the nation faces over the coming decade—that, instead, the new policies of President Barack Obama and the 111th Congress are to blame. Most recently, a Heritage Foundation paper downplayed the role of Bush-era policies (for more on that paper, see p. 4). Nevertheless, the fact remains: Together with the economic downturn, the Bush tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.
It was the Bush Depression that was the primary driver of these deficits.
The actual revenue and spending totals for 2010 were $2.162 trillion and $3.456 trillion. So spending was $186 billion higher than if we’d stuck to the trend, and revenue was $681 billion lower. In other words, the giant deficit is mainly the result of the collapse in tax receipts brought on by the recession, not the increase in spending. Nice to know, huh?
Republicans can run from Bush but they can’t hide!
Posted by Phil Scarr on February 13, 2012 at 1910 hrs
Sorry, didn’t mean to get all political on you there. But seriously, from an economics perspective, American cannot, by definition, go broke.
Posted by Phil Scarr on February 13, 2012 at 1921 hrs
Although a sovereign nation cannot “go broke” in the same way that a household can, it can be forced to choose between:
1. Defaulting on its debt.
2. Diverting an ever-increasing share of GDP to debt service.
3. Inflating its currency (pay back debt with cheap dollars).None of these options is very attractive, as all have high political, social, and economic costs.
IF government spending always produced a positive multiplier effect then perhaps it wouldn’t matter, as more spending would grow GDP by some amount greater than the spending. BUT even if Keynesianism sometimes works, it does not follow that it will always work.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 0827 hrs
None of these options is very attractive, as all have high political, social, and economic costs.
Agreed, none are highly attractive, but some are more attractive than others. First, I would disagree that sovereigns will “default” on their debt. They can, in the end, always produce enough currency to cover the debt. That leads to point 3 which the Germans always point to will lead to “hyperinflation.” Yes, it can lead to hyperinflation under very specific circumstances, but, though the use of the monetary levers, it can be controlled.
The reality is we are currently in a huge revenue hole because of unemployment. The MMTers advocate a jobs guarantee with the government as the “employer of last resort.” So much productive labor is sitting idle that we can leverage it to produce public assets until such time as the private sector demand picks up again.
Frankly, we could do with a little inflation right now. The current 2% target is too low. We could also do with some NGDP targeting… But that’s another discussion.
Posted by Phil Scarr on February 14, 2012 at 0852 hrs
Sovereigns which do not hold their debt in their own currency have no option of producing currency to cover their debt, Phil Scarr.
We are not in a demand crisis and never have been. The acquisition of debt to produce unneeded public assets will continue to exacerbate our problems.
We need inflation like we need a hole in the head and the continued targeting of an inflation rate tied to the lowest possible indicator of inflation will considerably worsen our position.
Keynesianism and the idea of the planned economy are dead. We must now resort to reality based economics.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 0940 hrs
BVBigBro:
Sovereigns which do not hold their debt in their own currency have no option of producing currency to cover their debt, Phil Scarr.
What currency to you think Treasury Bills are issued in? Indian Rupees? Dutch Florins? But thank you for making my point.
We are not in a demand crisis and never have been. The acquisition of debt to produce unneeded public assets will continue to exacerbate our problems.
By what specific mechanism will that transpire? And if not a demand crisis, then please characterize the crisis for me.
We need inflation like we need a hole in the head and the continued targeting of an inflation rate tied to the lowest possible indicator of inflation will considerably worsen our position.
Are you suggesting we tie inflation metrics to volatile commodities like food and oil? How will that help?
Keynesianism and the idea of the planned economy are dead. We must now resort to reality based economics.
::snicker::
Posted by Phil Scarr on February 14, 2012 at 1003 hrs
Demand is not a root cause. Something causes lack thereof. Krugman acolytes….
::snicker::
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1013 hrs
The United States holds its’ debt in its’ own currency, Phil Scarr, much of the rest of the world does not. Their option is default; a default that will affect you and me.
We are, and have been, in a crisis of unproductive debt. There is no easy or fast way out. We now need to produce commensurate with our debt and expenditures and no amount of government expenditure will aid that process. As a point of pact, it prevents that process from taking place.
Trying to establish a money supply by chasing an inflation target was poor policy to begin with and it is poor policy now. Central planners cannot possess the information or foresight necessary to do so in a beneficial manner. We now have to move beyond that idea, hence the rise in popularity for dispensing with the Federal Reserve system or developing a currency not so easily manipulated by central planners.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1059 hrs
Demand is not a root cause. Something causes lack thereof.
Such as?
Posted by Phil Scarr on February 14, 2012 at 1105 hrs
such as….
Spending more money than necessary on energy…
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1112 hrs
Smeety: I’m sorry, I’m not sure I follow. Is that a market failure? Help me understand the mechanism you’re describing as it applies to deficits. Are you attributing a failure in establishing an equilibrium price of energy is the failure or are you dismissing the whole neoclassical paradigm in favor of a state-managed energy pricing policy? Surely supply and demand are adequate to manage energy, right? Or is it a question of inflation? Are you arguing for inclusion of energy prices in the CPI?
I’m confused…
Posted by Phil Scarr on February 14, 2012 at 1117 hrs
If my energy costs go up sixty per cent, what does that do for my demand for items I would purchase with my (less) disposable income?
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1120 hrs
There are only three possible answers. Demand up, down or same..Should be simple.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1127 hrs
Smeety: In the short-run, that may be true, but if you look at an inflation-adjusted chart of oil prices, you’ll see that, even today, we aren’t close to the peak. Obviously energy prices impact consumption in other areas but so does any volatile price. And in aggregate, all of those can contribute to a slow-down in demand. So it sounds like you’re agreeing with me that we have a demand problem?
Posted by Phil Scarr on February 14, 2012 at 1218 hrs
Now you are just squirming. With energy, supply is the problem and regulation is root cause.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1223 hrs
Smeety:
Now you are just squirming. With energy, supply is the problem and regulation is root cause.
Why is regulation the “root cause” of the “supply problem” (which is, of course a demand problem)? What data can you point me to that makes this case?
Posted by Phil Scarr on February 14, 2012 at 1241 hrs
To say that we have a demand problem is to say demand ought to be higher.
If we have a demand problem, Phil Scarr, then tell me what demand ought to be, for which products, and why?
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1300 hrs
A demand problem is inherently a supply problem? W.o.a.h.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1307 hrs
BVBigBro & Smeety: This is what an aggregate demand problem looks like. We are well under our potential GDP.
Posted by Phil Scarr on February 14, 2012 at 1330 hrs
Yes, Phil. We are all too familiar. Back to my point….demand is never root cause. Something always causes a lack of demand.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1333 hrs
1. A lack of GDP does not indicate an aggregate demand problem, Phil Scarr. Why ought demand be higher?
2. You did not propose an aggregate solution, you proposed a very specific solution: government spending on “public assets”. Please demonstrate a lack of demand for public assets.
3. You propose neither a method nor reason for “private sector demand to pick up again’. Please explain how spending on public assets will produce this result.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1336 hrs
BVBigBro:
1. A lack of GDP does not indicate an aggregate demand problem, Phil Scarr. Why ought demand be higher?
Perhaps there is some confusion as to the definition of Gross Domestic product so let’s go back to basics:
GDP = private consumption + gross investment + government spending + (exports − imports)
or
GDP = C + I + G + (X - I)
Potential GDP = the highest level of real Gross Domestic Product output that can be sustained over the long term.
The gap between actual Real GDP and potential Real GDP is the Output Gap. The way you fill the output gap is by stimulating demand for output. We do not lack capacity for output, we lack actual output.
Generally speaking, most central banks and other economic planning agencies attempt to keep GDP at or around the natural GDP level. This can be done in a number of ways: the two most common strategies are expanding or contracting the government budget (fiscal policy), and altering the money supply to change consumption and investment levels (monetary policy).
In both cases, fiscal and monetary, the effort to close the output gap takes the form of a demand-side stimulus of some sort. Government investment or manipulation of the money supply or interest rates to change investment levels.
2. You did not propose an aggregate solution, you proposed a very specific solution: government spending on “public assets”. Please demonstrate a lack of demand for public assets.
We should be spending on public works like drunken sailors. Money is, essentially free at this point (with real bond yields at zero or even below zero in some cases). We should be driving the G through the roof until the private sector picks up.
3. You propose neither a method nor reason for “private sector demand to pick up again’. Please explain how spending on public assets will produce this result.
Because the Government purchases goods and services from the private sector. I’m not talking about nationalizing enterprises here, I’m talking about public-sector demand on private sector supply. That’s what Keynes advocated and that’s what got us out of the Great Depression. Too bad President Obama’s forgotten that lesson.
Posted by Phil Scarr on February 14, 2012 at 1357 hrs
“The way you fill the output gap is by stimulating demand for output”.
No, it isn’t. Demand exists. The way you fill the output gap is by allowing supply to adjust to meet demand. Attempting stimulus merely prevents this from happening.We most certainly do lack capacity for output, or more precisely, the capacity to produce profitably at the clearing price. What will get us out of our current state of affairs is when we finally allow protected speculative investments to fail and be liquidated, what we knew had to occur all along.
We should not be spending like drunken sailors on public works. This money is not “free”. It is extracted from other uses in the present and in addition must be spent in a manner that positively increases the ability to pay this money back in the future.
Government spending will not get us anywhere. Increased government spending is merely consumed by exactly those elements of the economy that have proven unproductive. If spending money on those elements was productive we would not have suffered a recession in the first place. Stimulus did not get us out of depression. What got us out of depression was finally allowing market forces to establish a clearing price.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1501 hrs
BVBigBro:
The way you fill the output gap is by allowing supply to adjust to meet demand.
I believe that’s called “a recession.” Supply adjusts to demand (demand being the active force in that equation). Therefore, a lower demand resulting in a lower supply and an excess of productive capacity (as we have had for several years now) results in a recession / depression.Attempting stimulus merely prevents this from happening.
How? By what specific mechanism does raising G in the equation prevent this from happening?
We most certainly do lack capacity for output, or more precisely, the capacity to produce profitably at the clearing price.
Clearing price? Really? I didn’t realize we were living in 1927. The concept of the “clearing price” went out with the Model T. Keynes effectively destroyed the concept of the clearing price with the identification of sticky prices.
What will get us out of our current state of affairs is when we finally allow protected speculative investments to fail and be liquidated, what we knew had to occur all along.
I agree with you on this point. High levels of protectionism in the financial sector has created an untenable situation where large enterprises exist and have the capacity to take down the economy if they fail. We need tighter regulation on the financial sector, a return to Glass-Steagall for instance, to reign in the overreaching banking sector.
This money is not “free”. It is extracted from other uses in the present and in addition must be spent in a manner that positively increases the ability to pay this money back in the future.
You seem to believe that fiat currencies behave like specie currencies. I believe this is the fundamental flaw in your reasoning. They do not. Fiat currencies are, in effect, a monopoly supplied commodity of the government that is convertible for goods & services. It is a rejection of the labor theory of value because it is, in the end, the ultimate example of exchange value.
Modern Monetary Realism is based on the understanding that the society’s creation of the monetary system is for public purpose. We understand that while money is always a “creature of the state” the state is always a creature of the people. The state theory of money was first introduced by GF Knapp as “Chartalism”. This is derived from the Latin word “charta” which means token. This is used to describe the reality of modern fiat currencies as nothing more than a state issued token with no linkage to commodity based money. We do not reside in a system in which currencies have any linkage to metals therefore, such thinking is not applicable to a modern fiat monetary system, although such thinking has persisted and still clouds much economic thinking to this day.
That’s where I’m coming from.
Stimulus did not get us out of depression. What got us out of depression was finally allowing market forces to establish a clearing price.
Citation, please. Because without it, I’m calling “hogwash” on that statement.
Posted by Phil Scarr on February 14, 2012 at 1523 hrs
Mikey, who was your econ prof @ Northwestern?
I want to send him a screen shot of this thread:)
Astonishing!
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1915 hrs
Whatever makes you feel better. Stay classy, Troll.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1917 hrs
Smeety:
Whatever makes you feel better. Stay classy, Troll.
Troll? Mois? I think not…
Troll: One who purposely and deliberately (that purpose usually being self-amusement) starts an argument in a manner which attacks others on a forum without in any way listening to the arguments proposed by his or her peers. He will spark of such an argument via the use of ad hominem attacks (i.e. ‘you’re nothing but a fanboy’ is a popular phrase) with no substance or relevence to back them up as well as straw man arguments, which he uses to simply avoid addressing the essence of the issue.
Posted by Phil Scarr on February 14, 2012 at 1944 hrs
FactOrOpinion?: What do you find “Astonishing!” in the discussion? It’s pretty straight-up econ…
Posted by Phil Scarr on February 14, 2012 at 1946 hrs
Not you Phil. You just described FOO spot on.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 1948 hrs
Relax Phil. You are doing just fine:)
What’s astonishing is Smeety’s-aka Mikey-gibberish and the fact that he might actually believe that he is making sense.
You decide?
16.If my energy costs go up sixty per cent, what does that do for my demand for items I would purchase with my (less) disposable income?
Those sound like issues that are more concerned with individual elasticity of demand and fungibility to me?
What does that have to do with aggregate demand relative to GDP?
Yet Smeety is all to familiar with it?
In a pig’s eye:)
Come on Mikey prove me wrong?
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 2023 hrs
I agree with you on this point. High levels of protectionism in the financial sector has created an untenable situation where large enterprises exist and have the capacity to take down the economy if they fail. We need tighter regulation on the financial sector, a return to Glass-Steagall for instance, to reign in the overreaching banking sector.
Personally, I have this belief that a 21st century business acts significantly less capitalist than in the past, and this is a big portion of the problem. No one is yet to articulate very well, but ultimately the Tea Party and (some of) the OWS crowd are on the same page here.
You seem to believe that fiat currencies behave like specie currencies.
I’ve had this economic conversation here (face to face) with liberals on a number of occasions. Ultimately the liberal always brings it to currency. Some believe that currency is the primary distinction when running a government and running a corporation. At the end of the day, the liberals solution to failed policies is to print money. Phil is setting this solution up nicely.
As for FOO’s trolling (he has both a chip on his shoulder and an obsession with me)... my point with regard to the energy question is that ultimately it can be applied at a macro level. If a corporation is spending more than it should in any area, ie. health care (gov’t mandating coverages), wages, shipping, whatever .... there is potential to be more efficient, produce more product and GROW. If our President were to use his power to increase SUPPLY of energy and ultimately lower energy costs, there would be more disposable income, ie. GROWTH.
This shit is not complicated.
Posted by .(JavaScript must be enabled to view this email address) on February 14, 2012 at 2039 hrs
Smeety:
I’ve had this economic conversation here (face to face) with liberals on a number of occasions. Ultimately the liberal always brings it to currency. Some believe that currency is the primary distinction when running a government and running a corporation. At the end of the day, the liberals solution to failed policies is to print money. Phil is setting this solution up nicely.
MMT isn’t liberal or conservative (any more than neoclassical economics is liberal or conservative), it’s a model for how to describe an economic system. It’s like the assumption that markets are inexorably intertwined with capitalism. They’re not. During the 1960s and 1970s, Yugoslavia had a fully functional socialist market economy based on the same neoclassical principles we know and love with competition between firms just like the west. The difference was that the capital was owned collectively by the workers in the firms instead of external investors. You might give Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism a read. I just finished it. It was quite interesting. But I digress.
Business (or household) balance sheets and sovereign nation balance sheets are not the same. And the ability to be the monopoly issuer of currency is the key to that difference.
Posted by Phil Scarr on February 14, 2012 at 2054 hrs
FactOrOpoinion?: I don’t know what you and Smeety have going here, but I welcome any contributions to the discussion.
Frankly, I’m quite pleased with the quality of the dialog here on B&S. Thanks guys!
Posted by Phil Scarr on February 14, 2012 at 2056 hrs
he has both a chip on his shoulder and an obsession with me
Are you channelling Eddie Haskell?
Or just playing a more generic ankle biting victim?
Posted by .(JavaScript must be enabled to view this email address) on February 15, 2012 at 0718 hrs
None of the above. Stay classy Troll..
Posted by .(JavaScript must be enabled to view this email address) on February 15, 2012 at 0720 hrs
So you think we should let proected assets fall and be liquidated but don’t believe in the clearing price? That’s the clearing price in action. Keynes never defeated the concept, he mainly argues you could put off the day of reckoning, as we surely have attempted to do.
I’m not a big buyer into MMT, Phil Scarr. Spending is not production. All currency ultimately becomes a claim on the issuer and one cannot issue additional claims without devaluing existing claims absent a corresponding increase in production, not mere spending.
What we have seen and continue to see is best described by the Austrians. Not because Austrianism is some great all encompassing economic theory, but because they happen to be right about both the great depression and our current state of affairs. Their competitors explanations suffer from the facts of not predicting the recession and that were their explanations true everything should all be hunky dory now. As a result we see competing theories resorting to Austrian explanations while denying the theory, as your own citation does with his caveats about how money must be spent, i.e. cautions against malinvestment. I recommend a good rereading of Rothbard and a look at the pre-Keynesian 1930’s recovery.
Posted by .(JavaScript must be enabled to view this email address) on February 15, 2012 at 2128 hrs
Keynes never defeated the concept, he mainly argues you could put off the day of reckoning, as we surely have attempted to do.
Exactly right BBB:)
Slowing velocity has many advantages in promoting stabllity and an orderly restructuring.
Not necessarily a bad thing is it?
Posted by .(JavaScript must be enabled to view this email address) on February 16, 2012 at 0709 hrs
Anybody hungry?
http://www.dallasfed.org/news/speeches/fisher/2012/fs120215.cfm
http://www.youtube.com/watch?v=Li0no7O9zmE
Posted by .(JavaScript must be enabled to view this email address) on February 16, 2012 at 0744 hrs
“Orderly restructuring” normally means privating gains and socializing losses which has all sorts of negative consequences.
Posted by .(JavaScript must be enabled to view this email address) on February 16, 2012 at 0929 hrs
“Orderly restructuring” normally means privating gains and socializing losses
Certainly that would seem to currently be the case, but it need not be.
One need only glance at the so called private banking system to come to that conclusion.
When you have a system that allows money to be the loudest voice in the room it would be naive, at best, to expect a different result.
Posted by .(JavaScript must be enabled to view this email address) on February 16, 2012 at 0956 hrs
FWIW, The Washington Post has a piece on Modern Monetary Theory from Saturday’s paper.
Economist Tom Hickey has a response as well.
Posted by Phil Scarr on February 19, 2012 at 1608 hrs
I admit I am somewhat of an economics neophyte, but I read through the first (titled MMT)and last attachments from you Phil and it seems the basic questions you answered near the start of the thread are put back in to question by the explanation offered in The Washington Post piece cited above.
The question I would like you to answer (because you certainly seem to have a better grasp than I) is: What is the functional difference between ‘going broke’ and ‘defaulting’? I know there is a denotative difference, but what are the functional and connotative differences? The ultimate end of MMT is default if not well managed, and I think mgmt by the Gov’t of the last two decades does not fit the definition of ‘well managed’.
Without a quality answer from you on that, your whole position sounds like a snake oil sale. ‘By definition we cannot go broke’, but I am not saying out loud that according to the MMT theory I am espousing we could default and it would be the best thing we could do. Is it supposed to be some sort of consolation that our country chose to go broke(default, whatever) rather than print enough money to stave it off another day, week or month?
That whole portion arguing that a surplus is counter productive sounds ridiculous to me. I understand his explanation, but never a surplus means never decreasing your debt. That theory can only end in default at some point.
Posted by .(JavaScript must be enabled to view this email address) on February 20, 2012 at 1610 hrs
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