Cause of Decline in U.S. Financial Position
Interesting discussion from of all places Wikipedia:
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Both economic conditions and policy decisions significantly worsened the debt outlook since 2001, when large surpluses were forecast for the following decade by the CBO. The Pew Center reported in April 2011 the cause of a $12.7 trillion shift in the debt situation, from a 2001 CBO forecast of $2.3 trillion cumulative surplus by 2011 versus the estimated $10.4 trillion public debt in 2011. The major drivers were:
- Revenue declines due to two recessions, separate from the Bush tax cuts of 2001 and 2003: 28%
- Defense spending increases: 15%
- Bush tax cuts of 2001 and 2003: 13%
- Increases in net interest: 11%
- Other non-defense spending: 10%
- Other tax cuts: 8%
- Obama Stimulus: 6%
- Medicare Part D: 2%
- Other reasons: 7%[2]
Similar analyses were reported by the New York Times in June 2009,[52] the Washington Post in April 2011[53] and the Center on Budget and Policy Priorities in May 2011.[54] Economist Paul Krugman wrote in May 2011: “What happened to the budget surplus the federal government had in 2000? The answer is, three main things. First, there were the Bush tax cuts, which added roughly $2 trillion to the national debt over the last decade. Second, there were the wars in Iraq and Afghanistan, which added an additional $1.1 trillion or so. And third was the Great Recession, which led both to a collapse in revenue and to a sharp rise in spending on unemployment insurance and other safety-net programs.”[55] A Bloomberg analysis in May 2011 attributed $2.0 trillion of the $9.3 trillion of public debt (20%) to additional military and intelligence spending since September 2001, plus another $45 billion annually in interest.[56]
The extent to which the deficit and debt increases are a cause or effect of wider systemic problems is frequently debated. For example, in January 2008, then GAO Director David Walker pointed to four types of “deficits” that cause the overall fiscal problem: budget, trade, savings and leadership.[57]
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Sources:
- ^ NYT-America’s Sea of Red Ink was Years in the Making-June 2009
- ^ Washington Post-Running in the Red-April 2011
- ^ CBPP-Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits-May 2011
- ^ NYT-Paul Krugman-The Unwisdom of Elites-May 2011
- ^ Bloomberg-Bin Laden Exacts Multitrillion-Dollar Toll on U.S. Taxpayer-May 2011
- ^ a b GAO-U.S. Financial Condition and Fiscal Future Briefing-David Walker-January 2008
- ^ CBO-Monthly Budget Review-October 2009
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August 2nd, 2011 at 2:50 pm
Data: 41% from the tax cuts for the rich. Go back to the Clinton era tax rates and we’re half way there
That clown, Brian Sullivan repeated the “Poor people don’t pay income taxes” nonsense that ignores all the other taxes Social Security which most American’s pay more of…
http://www.urban.org/publications/1001065.html
….that people pay when he tossed out the other “If they raise taxes on the rich to the Clinton rates, it will only get us so much!” So Clown, if we only get a hundred billion, we don’t want to touch it? Is that the Right Wing, roll-up-your-sleeves-so-I-look-like-I’m-working argument? Ridiculous.
Doesn’t anyone have the balls to throw that back in Sullivan’s mug on the air? What is CNBC, Fox News?
August 2nd, 2011 at 2:54 pm
All well and good, but now we need constructive solutions, and those are severely wanting. Meanwhile . . . . Europe has very quickly emerged front and center once again. One gets the idea that we have a dam that is springing just too many leaks.
August 2nd, 2011 at 3:00 pm
And after all of that, the actual debt service as % of gdp is less than it was in the 80s…and interest rates just keep cratering! That context is never mentioned. 24/7 “DEBT THREAT”
August 2nd, 2011 at 3:07 pm
If the numbers from the Pew Center report are correct, the Krugman quote exposes him (for the thousandth time) as the political tool that he is.
Not that I trust those numbers. Its too easy to fudge numbers, and how those ones were reached is unknown to me.
August 2nd, 2011 at 3:27 pm
And the tea-hadist insisted that the deficit reduction plan should exclusively target that 10% of the problem that came from “other non-defense spending”. We are ruled by people who appear to be challenged beyond ability by 5′th grade math problems.
August 2nd, 2011 at 3:27 pm
Note how the ideologue Kurgman [sic] reverses the priority of the Pew Center figures, leading off with ‘Bush tax cuts’ since that is his decade-long, foam-at-the-mouth partisan obsession.
Kurgman, I predict, will become the first Nobel Laureate to publish his work primarily in comic books, after the New York Times-Titanic (the only other place where a tedious hack such as himself can get into print) goes down in flames.
One could find more intelligent economic commentary by querying random straphangers on the A train.
August 2nd, 2011 at 3:48 pm
machinehead;
Talk about the pot calling the kettle black. Krugman mentions the two “optional” causes before the once that were not caused by direct decisions to increase debt. He use the two wars rather than the broader “defense spending” so he correctly place Bush tax cuts above Bush wars. But I guess when you start with the conclusion then looking a little closer at the facts is not something you need to do?
August 2nd, 2011 at 3:53 pm
US Budget Deficits Bush versus Obama
Bush Deficits……………………………….Obama Deficits
In Billions……………………………………..In Trillions
2005 318……………………………………2009 1.41
2006 248……………………………………2010 1.29
2007 160……………………………………2011 1.65 (e)
2008 456……………………………………2012 1.19 (e)
NOTE: Bush #s Billions; Obama #’s Trillions
* * * * * * * *
From Martin Feldstein, “Why is America’s Budget Deficit So Large”
“Looking ahead, the CBO projects that enacting the budget proposed by the Obama administration in February would add $3.8 trillion to the national debt between 2010 and 2020, causing the debt-to-GDP ratio to soar from 62% to 90%. That $3.8 trillion net debt increase reflects a roughly $5 trillion increase in the deficit, owing to higher spending and weaker revenues from middle- and lower-income taxpayers, offset in part by $1.3 trillion in tax increases, primarily on high-income earners.
Even this enormous increase in the projected deficits and debt underestimates the fiscal damage that the Obama administration’s budget, if enacted, would inflict. The proposed budget assumes that non-defense “discretionary” spending (which requires congressional approval, unlike so-called “mandatory” spending like Social Security pension benefits, which continues to grow unless Congress changes the benefits) will rise by a total of only 5% in the decade 2010-2020, implying a decline in real terms and no scope for new programs. The annual level of defense spending is projected to decline by about $50 billion in each year after 2012 – a very optimistic view of US military needs in the decade ahead.
Shrinking America’s budget deficit to prevent a further rise in the debt-to-GDP ratio from its current level will require reduced spending and increased revenue. That increase in revenue can be achieved without raising marginal tax rates, namely by limiting the amount of tax reduction that individuals and businesses can achieve from the various “tax expenditures” that form an important part of the US tax code. But that is a subject for another column.
On the expenditure side, however, the prospect that the national debt could double during the next decade is just the start of the fiscal problem that the US now faces. The budget outlook in subsequent decades is dominated by the increasing costs of Social Security and Medicare benefits, which are projected to take the debt-to-GDP ratio from 90% in 2020 to 190% in 2035. Fundamental reform of these programs is the primary challenge for America’s public finances – and thus for the long-term health of the US economy.”
August 2nd, 2011 at 4:03 pm
Machinehead: so the Bush tax cuts were the second (or third, depending on whose numbers you use) leading cause of the deficit, out of 9 factors. That’s a lot more “fair and balanced” assessment than the Teahadist’s fixation on the Obama stimulus, which comes in at a distant 7 out of 9.
I can name a lot of calls that Krugman got right, in the face of intense criticism from the Faux Noise Machine:
1) The Iraq war was a scam
2) The real estate boom of the 2000′s was a bubble
3) The Bush tax cuts would not ultimately generate increased tax revenues, and would in fact lead to federal budget deficits
4) The Obama stimulus and and various QE’s would not result in hyper-inflation (have you checked 10 year T bond yields recently?)
Can you name a single major call he got wrong?
You may not like his politics, but for the sake of your portfolio, I hope you secretly follow his economic advice.
August 2nd, 2011 at 4:08 pm
Independent Research. How is the 2009 Obama’s deficit?
To paraphrase: The 2009 fiscal year began nearly four months before Obama took office. The budget for the entire 2009 fiscal year was largely set in place while Bush was still in the White House.
http://www.cato-at-liberty.org/dont-blame-obama-for-bushs-2009-deficit/
August 2nd, 2011 at 4:08 pm
If your sources are wikipedia, bloomberg, and the nytimes would you expect anything but left wing drivel?
And seriously, wikipedia?
Our expenditures are outpacing our revenue, and our projected debt does not take into account sharply (or even just) higher interest rates.
It’s time for the dogma to stop, it’s no longer time to call names and posture, it’s time to get down to business–and our government is basically going on vacation.
The tax “cuts” are just giving people back what they earned. The two wars (one justified, one stupid) are what they are and the money is spent (and notice not a single lefty decries attacking Libya?). Medicare and Medicaid have exploded while socialist attempts at “stimulating” the economy have ignored demand in an economy so heavily dependent on the consumer.
No more drivel today please.
August 2nd, 2011 at 4:20 pm
I’m going to miss all those scary debt ceiling buzzwords –Deadline, Hostage, Financial Terrorists
Doh! Krugman is keeping it going:
The President Surrenders
http://www.nytimes.com/2011/08/01/opinion/the-president-surrenders-on-debt-ceiling.html
August 2nd, 2011 at 4:26 pm
If you want some grown up perspective take a look at a chart from 1950-2030(projected) of federal deficit in relationship to gdp.
Maybe those tea party “terrorists” have a point.
August 2nd, 2011 at 4:57 pm
Machinehead: so the Bush tax cuts were the second (or third, depending on whose numbers you use) leading cause of the deficit, out of 9 factors. That’s a lot more “fair and balanced” assessment than the Teahadist’s fixation on the Obama stimulus, which comes in at a distant 7 out of 9.
‘Depending on whose numbers you use’? I am using the Pew numbers at the top of this post, as clearly stated. The Bush tax cuts are listed as No. 3, as in three, a trio. How many fingers?
Then you cite an unnamed ‘Teehadist’ who (you claim) is fixated on Item no. 7. If you can’t or won’t identify this person, then he or she is just a straw man that you made up. [Perhaps you were referring to an amorphous group, but if so, your punctuation is as shaky as your rhetorical skills.]
August 2nd, 2011 at 4:58 pm
BR, maybe we need a timeout on the Federal budget posts as they seem to bring out the crankiness in everyone. For me, I want to go back to the time of my youth (the 1950s) when we rode bicycles without helmets, played at the schoolyard without parental supervision, and had a marginal tax rate of something very high (90%, can’t be sure) and were warned to beware of the military industrial complex. I was too young (and a Democratic family kid living in an area surrounded by Republicans) to appreciate that “I like Ike.”
To all the Krugman bashers, he uses his blog to provoke just like everyone else (including those of us who respond to blog posts). His scholarly writings are still worth 10 pounds of claptrap that you find in 99% of the blogosphere.
August 2nd, 2011 at 5:09 pm
I downloaded the historical tables from the CBO a few years ago, summed all the defense spending in the social spending from the Bush years, and here’s what I got:
Defense: $295->665B$, up $360B, 222%
Social spending: $1032->$2288B, up $1257B, 222%
Ratio: Social spending grew at 3.5X the rate of defense spending.
August 2nd, 2011 at 5:12 pm
@FS and the other doomsters; please explain in 25 words or less why 10 year bonds are now at 2.64%. I would really like to see your answer.
August 2nd, 2011 at 5:13 pm
IndependentResearch (That’s a laugh!),
A) Much of the deficits during the previous administration were OFF BUDGET, which Obama promptly put ON BUDGET. The trillion dollar deficits were there during the previous administration, they just lied about it.
B) hankest corrected your faulty chronology, unless you do not comprehend fiscal years ?
C) Martin Feldstein is a RightWing hack. Go look up all his failed predictions and goofy economic theories.
August 2nd, 2011 at 5:31 pm
machinehead says: “Then you cite an unnamed ‘Teehadist’ who (you claim) is fixated on Item no. 7. If you can’t or won’t identify this person, then he or she is just a straw man that you made up. [Perhaps you were referring to an amorphous group, but if so, your punctuation is as shaky as your rhetorical skills.]”
C’mon, give me a hard one!
Just for starters:
Ever heard of Michelle Bachmann?
“REP. MICHELE BACHMANN: This is the Obama deficit, Obama debt, due to Obama spending. And President Obama is overspending by 1.5 trillion this year and we can’t do that. People know that the spending is what’s causing the trouble in this country.” Face the Nation, 6/26/11
How about Fox News?
“HANNITY: He lies about the Supreme Court decision in the Citizens United case. I think the biggest lie of the night, “Well, we saved 2 million jobs.” You’ve lost 4 million jobs. You know, he seems to be concerned about a massive deficit — he created it.” 1/28/11 edition of ABC Radio Networks’ The Sean Hannity Show
“PERINO: Their plan right now is to demagogue the Republicans’ plan to actually try to do something about the debt. And when Nancy Pelosi talks about the debt, it’s like oh, really? Where do you think it came from in the last three years? Not that it didn’t accumulate over the decades. But in the last three years, they’ve doubled it. [Fox News, Fox & Friends, 6/6/11, emphasis added]”
BTW, you never responded to my challenge to find a major bad call by Krugman.
August 2nd, 2011 at 6:05 pm
The proposed spending cuts over the next 10 years will not even pay for the interest on the current debt. As this posting shows, the interest owing on the federal debt will exceed $450 billion this year, setting a new record
If interest rates increase to historically normal levels as seen in the early 2000s, interest owed on the debt could well rise to $960 billion annually, more than what is spent on Social Security and Medicaid in a year.
This is, to put it mildly, a rather pitiful deal and will be the cause of the ultimate decline.
August 2nd, 2011 at 6:10 pm
@hankest Says:
“Independent Research. How is the 2009 Obama’s deficit?”
Gotta agree. 2009 belongs in the Bush column.
How much of the “Obama deficits” were structurally built in prior to 2010 and beyond?
August 2nd, 2011 at 6:18 pm
The real economy is like some poor guy who’s had two major heart attacks in the last eleven years struggling uphill with a trunk full of rocks on his back. And just to add stank to it, more rocks are continuously being added. Sooner or later he’ll topple over and not get up. Not even a twitch. We are finding out, if we didn’t know already, that a horrifically unbalance, massively debt impaired economy that’s being continually looted, doesn’t function very well. For most people that is. For the looters its great, for the lootees-not so much. And we waste our time arguing about which thieves we prefer. The whole thing is just so perfectly bad that you have to just stand in awe of how fucked we are.
August 2nd, 2011 at 6:51 pm
“Independent Research. How is the 2009 Obama’s deficit?”
Indeed, the rationale for blaming Bush for the deficits under Obama is a lot stronger. After all Bush received a budget surplus from Cllinton and delivered a wrecked economy with trillion dollar deficits to Obama.
August 2nd, 2011 at 6:53 pm
@DrungoHazewood,
Actually the burden of the debt is much lighter now than during Reagan and Clinton.
http://moneyland.time.com/2011/07/15/the-u-s-is-not-drowning-in-debt/
August 2nd, 2011 at 7:23 pm
[...] The Big Picture — Cause of Decline in U.S. Financial Position [...]
August 2nd, 2011 at 7:37 pm
By the way, Krugman doesn’t need me to defend him.
Watch this debate from Sunday’s This Week on ABC, in which he OWNS George Will and Grover Norquist, not by shouting and screaming empty slogans a la Fox News, but with real facts and figures:
http://abcnews.go.com/ThisWeek/video/roundtable-part-budget-endgame-14198610
http://abcnews.go.com/ThisWeek/video/roundtable-part-ii-default-impact-14198848
Then just for good measure, Mohammed El-Erian of Pimco, one of the principals of the biggest bond fund in the world, and nobody’s idea of a leftist fellow traveler, gets on and agrees with Krugman that while deficit reduction is imperative for the long run, job-creating fiscal stimulus is critical for the short run:
http://abcnews.go.com/ThisWeek/video/interview-mohamed-el-erian-14198815?tab=9482930§ion=1206874&playlist=14199142
August 2nd, 2011 at 7:42 pm
Machinehead has it right.
Krugman constructs a “First,… second,… third…” according to his political views.
The list fits neither chronology nor scale.
The deficit is more Bush’s fault than Obama’s. Doesn’t change the fact that Obama is sucking.
August 2nd, 2011 at 7:56 pm
Are those the Bush defecit numbers as budgeted? Let’s not forget the wars were all done outside the budget as emergency appropriations so his published defecit would be number smaller.
Interesting how the media and the right have turned this into the number 1 priority until today. Tomorrow, it will be back to the real issue of jobs and economic growth and the right will fight every good idea that the admistration might have.
The job and wage growth issue is a real problem. Somehow the middle class needs to extract more from the ownership class via wages instead of borrowing. We don’t really have unions anymore, so I’m not sure how that’s going to happen especially with outsourcing and technology dragging down wage growth.
The stimulus should have been focused more on building economic capacity (infrastructure) than on bailing out the states. Short term unemployment may have been worse, but the added capacity could have helped with long term growth.
August 2nd, 2011 at 9:01 pm
Cause of Decline in U.S. Financial Position:
1. George W Bush.. and anybody who voted for him or didn’t vote against him
August 3rd, 2011 at 3:13 am
DeDude,
Thanks for the link!
August 3rd, 2011 at 3:19 pm
“Note how the ideologue Kurgman [sic] …”
He’s been correct about more than anybody else. In my book, the ‘idealogue’ is the person who overlooks the facts becasue of ideology. Which would be you, it seems.
August 3rd, 2011 at 9:22 pm
About CBO´s forecast, I say: Man plans, God laughs.
BR; Dan Gardner´s new book ¨Future Babble¨ gives great account of our experts´follies when predicting the future. Looks like our pal Paul Krugman even has problems predicting the past!
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BR: Read this 2005 piece:
August 3rd, 2011 at 11:39 pm
@DebbieSmith: you are right on! Even a modest increase in future interest rates would wipe out all rosy forecasts!
@Bob A: can you name one, just one please evil in our planet´s life past, present and future not directly attributable to bad oil man Bush?
August 22nd, 2011 at 4:48 pm
One thing always amazes me. “Obama’s deficit” obviously includes spending from wars and programs (the Bush tax cuts, Medicare prescription drug plan etc.) that were launched in the Bush administration. Certainly, the “stimulus” program should be on Obama’s side of the ledger along with other things he initiated, however, the debt keeps piling up from things like the Bush tax cuts and, for example, the Iraq war, which were courtesy of the Bush administration. This seems to escape many of the folks who keep talking about “Obama’s deficits.”