I thought it might be interesting and instructive to visualize the ongoing debate over how to solve our debt and deficit problems, so I’ve taken to FRED to put some of these issues in pictures.

Before getting to that, though, I’d like to go on the record to state that I think any politician — Democrat or Republican — who signs a pledge (any pledge) is making a huge mistake, for the simple reason that there are only two ways to deal with having made such a commitment:  either one abides by it, or one reneges on it.  It forecloses on the notion of compromise, the key ingredient to getting things done in Washington.  Beyond that, it’s fairly juvenile, and I look forward to the day when our politicians will bind themselves via pinky swears and/or double-dares.  Really, it’s all so third grade.

Second, let’s talk about whether we have a “spending” problem or a “revenue” problem.  Since politicians — up to and including President Obama — like to equate the federal government to the average family (a truly pathetic comparison), let’s look at it in that light:  Say your household is spending $70,000/year on a $100,000/year gross (pre-tax) household income.  Well, it’s easy to say you have a “spending” problem that would be solved if you took your spending down to, say, $40,000/year.  Conversely, though, you might also solve the “problem” by getting a new job for $140,000/year (not saying that’s easy, of course, but certainly possible).  The notion — espoused by countless politicians — that the problem resides solely on spending and not also on revenues is absurd on its face.  Catherine Rampell has a very nice piece about this over at the NY Times website:  “But there is, in theory, a happy solution to our debt troubles. It’s called economic growth.  No need to raise taxes or cut programs.  Just get the economy growing the way it used to.” Indeed.

Okay, that said, let’s look at some charts that crystallize our predicament.

Above are current government receipts and expenditures.  The area leading into 2001 recession — where the blue line breaks above the red — is the period during which we were running surpluses, which was regrettably very short-lived.  The gap now is, clearly, the largest it’s been during the period I presented, but it strikes me as absurd to try closing it solely by focussing on the red line while simply ignoring the blue (the position being taken by certain pledge-takers).  As commenter Joel826 pointed out in the recent Rosie v Krugman discussion, professor Krugman has correctly pointed out that Fractions Have Denominators!  Obsessing over only the numerator or denominator in any ratio instead of looking at both is — I’m sorry to say it again — juvenile, but seems to be exactly what some pledge-signers are determined to do.

Let’s look at the data above in a bit of a different context — expenditures and receipts as a percent of GDP:

Going back to 1947 (not seen in the chart above), expenditures have run, on average, 19.6% of GDP while receipts have run, on average, 18.0% of GDP.  Which is to say that, historically, we’ve generally spent a bit more than we’ve taken in relative to GDP (visible below).  (Again, the surplus is clearly visible in the area circa 2000, where the red line breaks above the blue.)

Relative to each other, here’s a historical look at how much we take in versus how much we spend:

It would appear we’ve peaked and begun trending lower here, although adding a trendline would produce a disturbing result, to be sure.  In any event, as expenditures decline (stimulus done, wind down the wars, etc.) and revenues rise, the chart above captures the essence of what Catherine Rampell was getting at in her story — we could grow our way out of our problems…if we could only grow!

Now here’s a look at the public debt and its relationship to GDP — Debt/GDP will surely soon cross 100%, as we have all been told repeatedly.  But again, I’m quick to point out that Debt/GDP is a ratio that is influenced by both its numerator and its denominator.  We can — and should — shrink the numerator while simultaneously growing the denominator.

I’ve got nothing profound to say about the situation, other than my belief that compromise always seems a better route than intransigence.

Category: Current Affairs, Economy, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

54 Responses to “Our Problem in Pictures”

  1. Mike in Nola says:

    Too much math and logical thought required to understand what you are saying. It’s back to the soaps or American Idol reruns for me.

  2. wally says:

    We have a ‘balance’ problem.
    We are a low-tax country with medium level social goals and high-class military ambitions. We also are caught with some public systems (ie: health care) that are paying retail prices while buying at wholesale quantities.
    We need to scale back some ambitions, cut out some middlemen and charge what we need to pay for what we provide.

  3. constantnormal says:

    You missed a FRED chart combination — try combining Personal Current Taxes (W055RC1) with Tax Receipts on Corporate Income (FCTAX).

    It’s a chart I like to trot out every time some asshat rants about how our poor, beleaguered corporations are being “taxed to death”.

    How DID we ever get through the 50′s and 60′s?

    Invictus: Thanks. Will have a look. Perhaps post-worthy for another day.

  4. Petey Wheatstraw says:

    I wouldn’t call paying off extortionists a compromise, exactly. So far, “compromise,” has pushed us about as far right as we can go.

    That we have let third-graders run the show is pretty much accurate.

    “But there is, in theory, a happy solution to our debt troubles. It’s called economic growth. No need to raise taxes or cut programs. Just get the economy growing the way it used to.”

    But this is not the old economy. This one does not have the rule of law or the highly-theoretical virtue of self-correcting markets behind it. This one, being based on debt for the people and wealth for the plutocracy, has zero velocity, and not enough energy to overcome its own inertia.

  5. BusSchDean says:

    What “wally” said. There are specific problem areas like an out-of-control health care trough that literally everyone is feeding from. As with the bailouts, gov’t is treated like a resource in support of many — even contradictory and self-canceling expenditures — for which literally no one is held accountable. It is difficult to unwind these tangles webs when we have a significant and ongoing problem with candor, transparency, and accountability in major social institutions (i.e., gov’t at every level, corporations, banks, unions, etc.). Sad.

  6. whskyjack says:


    You keep using those big words, you will obviously never make it in the political world

    ” Obsessing over only the numerator or denominator in any ratio ”


  7. Trevor says:

    Every time I see charts like this, I can’t help but be struck by how Clinton had moved the charts so far in the direction of improvement (the charts show that even Bush senior was trying to do the same). But, from January, 2001 (not September, 2001), it is clear that a switch occurs in the problematic direction. These charts are a devastating critique of a president from your, self-proclaimed, fiscally responsible political party.

    Wally says: “We need to scale back some ambitions, cut out some middlemen and charge what we need to pay for what we provide.”

    Hmmm, how about cutting out the stranglehold insurance companies wish to keep on their health care cash cows? Pushing the uninsured to emergency rooms is but one of the reasons that your nation’s per capita spending on health care is so high. Generalising (I admit): only those who can afford insurance have access to the very best health care that the U.S. has and can provide. The U.S. could significantly reduce its per capita health care costs and increase the overall quality by a radical change to the model you employ. The problem with attempting that is that there are too many vested, wealthy, hence influential, actors in the drama. So much for responsible government (fiscally or otherwise). :-/ (See Belgium and Canada for effective health care models.) Reducing complex discussions to hurled epithets like ‘liberal’ or ‘socialised’ is but part of this enormous financial problem. I wonder what it will take for your political system to realise that it has become one of main problems in the health of the nation, and how long it will take to arrive at that realisation. Paul Krugman addressed some of this, in the link Barry provided a couple of days ago: http://www.nytimes.com/2011/07/29/opinion/krugman-the-centrist-cop-out.html

  8. whskyjack says:

    Oh, btw, I like this post and will spread it around. But I’m a numbers geek and thought strange by friends and family.


  9. FS says:

    Although your math is correct and the charts are informative, your lacking context on the “spending vs. revenue”
    discussion. It’s not just how much, but what we are spending on (and what we’re not spending money on) that
    is the heart of the discussion.

    Government by it’s nature is inefficient, and should be limited. If you continue to raise revenue and increase the inefficiencies, you’re going to have a less efficient economy.

  10. Conan says:

    Lets use a hockey stick as a point of reference. From the late 70′s up to 2000 was the handle and had a fairly steady slope of growth. In 2000 the curve up started as control was being lost and a new trajectory was being made. My disagreement with your analysis is you are using this last decade of lost control vs the earlier time period from the handle of the hockey stick.

    It is fundamentally unwise to use a time period of complete lack of control from both parties as a point of reference to catch up to. I believe that if you were to extrapolate the time period of the handle, say 1980 to 2000, up through today you would see a much smaller gap in the two lines. This projects more normal expenditure slope and although the two decades mentioned were good, they weren’t perfect. However to chase what we have had in the last ten years is throwing good money after bad. There is no reason that we can’t live within the trajectory that I have just explained.

  11. Mike in Nola says:

    FS: Yes we should leave it all the the private sector with their efficient, low cost models like health insurance and banking.

  12. [...] The Big Picture — Our Problem in Pictures [...]

  13. Ted Kavadas says:

    Interesting charts; thanks for posting.

    With regard to the Federal Expenditures (the first chart shown) – if one expands the time horizon, one can see a “parabolic” pattern. This is seen in the 3rd chart of a recent blog post I wrote, as seen here:


  14. Petey Wheatstraw says:

    Somebody, someday, please show me an example of anything formerly run by the government and privatized that has been more efficient, less expensive, or more responsive to the demands of its customers than it was before privatization.

    It is only since we began listening to rank BS like this meme that we began our great economic decline.

  15. BusSchDean says:

    FS’s concern, of course, applies to any large bureaucracy. Truly competitive markets will wring out the inefficiencies of private corporations. When that does not happen they too become bloated and continue to waste investor and employee inputs (see, GM not so long ago, US Steel further back, etc.). It is important to note that efficient corporations can still cause damage (i.e., the credit bubble). Efficiency is not the only measure by which we value something, though it is important. Multiple players contributed to the credit bubble but the large banks and mortgage firms were particularly efficient at exploiting it and accelerating the negative impact.

    No market wrings out the inefficiencies of gov’t. That does not mean a smaller gov’t is more efficient or spends in ways that makes for a stronger economy or a “better” society (e.g., more healthy, more educated, etc.). Let’s get our causation right: a more efficient gov’t can achieve the same or more with fewer resources than a less efficient gov’t, and hence will be a smaller gov’t. That does not mean that by definition a smaller gov’t is more efficient. So while downsizing gov’t will limit waste it does not necessarily guarantee a much better result nor does it suggest how we will address ongoing issues (e.g., crumbling infrastructure, high price-per-benefit health care, etc.).

  16. MayorQuimby says:

    Gang….I’m ALL FOR growing GDP to help pay down debts. I’m just not for doing so with DEFICITS because they come at a net loss over the long term. You are taking $60K from the future to spend $50K today.

    IOW, you can’t eat yourself skinny.

    Now…if there were a major war or expansion into space or something big (huge) on the horizon then those deficits could be justified but I see no such things in the immediate future.

  17. Conan says:

    What happens in America when you max out your credit and there is no more collateral?? The Stock and Bond markets are leveraged up on the Shadow Market north of 25:1, the real-estate market has imploded by a third, so what is to be done??

    Well some of it will have to be written off and some of it will have to be paid down. The writing off portion is a one shot deal, the paying it down portion is a life style change.

    So folks if you don’t think that this doesn’t apply to government finances, fine I respect your opinion, but we will see in time how this pans out. I will celebrate 50 years old this year and do not expect to see Social Security, nor Medicare as we are accustomed to seeing it now, this will be written off by the government. I do not plan on retiring at 67 which is my adjusted full retirement age. This is a lifestyle adjustment and since my wages are not growing the government will have to make due with less taxes.

    This is all just a chain of bubbles, popping one at a time, first the Dot Com Bubble, then the Real Estate Bubble and now we are tasting the Government Bubble which will pop of it’s own incompetence to deal with reality in anything resembling a timely manner.

  18. BusSchDean says:

    MQ….I share some of your concerns but I want to point out that your analysis assumes: 1) a constant dollar value and 2) a relative dollar value. I would be very concerned if we allowed inflation to devalue future dollars too much but historically some inflation has been part of any growing economy. Interest rates were clearly held artificially low for a few years. Plus, the relative value of $60K in the future may, depending on wealth, not appear the same as it appears now. A $500K house clearly does not seem the same to someone just starting his/her career as it seems to someone who has enjoyed significant success (i.e., economic growth) future years into their career. Cuts, taxes, and growth seem to me an attractive combination.

  19. FS says:

    @Petey Completely off point. Whether it’s today’s announcement that insurers must pay for birth control with no copay or the latest bridge to nowhere or the 9 man road crews doing the work of 2, government is wasteful, and has expanded beyond what it can and should do. If you limit what government is doing, you have a more efficient economy. Period.

    @MikeinNOLA The fact that there are mistakes/errors/crooks in the private sector is a false argument. The point is our government is inefficient. If my kid does something stupid, saying it’s ok because somebody else’s kid did something stupid is ridiculous. As is your argument.

  20. NoKidding says:

    If Invictus’s car breaks down and he needs a new one fast:
    He decides how much he wants to pay for a car, then walks into a dealership and tells the salesman that number. The salesman agrees it is a good number and the deal is done. Very adult-like all around.

  21. BusSchDean says:

    FS…if you limit what gov’t is doing you limit the total amount of potential waste. You do not have by definition a more efficient economy. To do so would require that all or almost all gov’t activity constitute waste – a position difficult to support.

  22. NoKidding says:

    “Somebody, someday, please show me an example of anything formerly run by the government and privatized that has been more efficient, less expensive, or more responsive to the demands of its customers than it was before privatization.”

    Education. A nice private school a quarter mile from my house charges us $5k a year for each of my kids. The student-teacher ratio is lower, test scores are well above local averages, there is a dress code, and kids that can’t deal with the discipline get kicked out.

    I still pay taxes to support cost of $7k a year per student for public schools that fall short on my scorecard.

    This was a self-actuated privatization, and lacking an opt-out clause in my taxes it leaves me double-paying, but my kids get a better education for fewer dollars.

    Saying privatization never works is as stupid as saying government is never good.

  23. NoKidding says:

    ““Somebody, someday, please show me an example of anything formerly run by the government and privatized that has been more efficient, less expensive, or more responsive to the demands of its customers than it was before privatization.”

    UPS and FedEx vs the US Post Office. Amazon, eBay and every other major mail order retailer have not abandoned the USPS for no reason.

    Like my public/private school example, I am still forced to subsidize the postal service that I not only have little use for, but that harasses me with credit card offers and other junk mail I do not want and offers no “opt out” clause.

  24. FS says:

    @Mike-An apology for “ridiculous”-I was raised better.

    @Bus Actually I think by definition you DO have a more efficient economy. The private sector has a correcting mechanism, failure. I’m not arguing that it’s perfect and full of well meaning angels, I’m saying there is a point where failures end in that sector. That capital goes elsewhere.

  25. milkman says:

    Quimby….I’m with you….let’s raise taxes to pay for all the spending Bush did and Obama inherited…

  26. whskyjack says:

    Well, FS is making a religious statement of belief.
    5 min. on google can easily prove him wrong(Hint:, Medicare vs private insurance)
    but offering empirical evidence doesn’t win a religious argument.

    That said, the inefficiencies he points out aren’t government but bureaucracies in general. They tend to become more interested in preserving themselves and introduce inefficiencies to that effect. Which is why Medicare works so well. They do what government does best. Set policy and standards then they contract out the grunt work on a competitive basis.


  27. StatArb says:

    You can understand how Herbert Hoover felt and why history has treated him so poorly

    sadly , Obama = Hoover

  28. BigD173 says:

    Try plotting trend lines on your first chart — current expenditures vs. current receipts.

    I’m pretty sure you’ll see that current expenditures are WAY above trend while current receipts are only slightly below. Which would suggest to me that, while we have both an expenditure problem and a revenue problem, the expenditure problem is currently worse.

  29. BusSchDean says:

    Agree re: a correcting mechanism for failures in the private sector, though sometimes they take longer than they should. And we still have the problem of not “well meaning angels” willing to drive an wedge to exploit any possible crack that can then make problems much worse.

    Public sector spending has at times accomplished things the private sector could not and/or would not do but that actually made the private sector more efficient (e.g., rural free delivery, rural electrification, the massive expenditure on highways, even the GI bill — which played a key role in reviving the post-WWII economy). In each case you might have said “well a private company would have negotiated lower cost per mile of road” or something like that but in fact only the gov’t could make that type of commitment. It is, however, also true the gov’t waste tons of money (i.e., ineffective social programs, numerous military spending projects, poor purchasing oversight, etc.) and is subject to power plays by politicians and industry lobbyist.

    How do we keep that part of gov’t that has proven repeatedly to play a positive role in our economic development — as has literally every gov’t in every major economy in the world — and reign in the waste? Oh, and then of course there is the problem of people disagreeing on the relative value of one priority over another.

  30. FS says:

    @Bus Totally agree on that public sector is not only necessary but vital. But limiting it’s scope and power is necessary to make it as sound and effective as possible. I think the tea partiers have it right but I believe that it will make government better, not unnecessary.

    @Petey. Your derision of people who have religion is noted, and expected.

  31. MayorQuimby says:


    Inflation is not something that can be sustainably ‘set’ by gvmt. This is the fallacy that destroys the ‘inflate our way out of this’ meme.

    Look at housing. Do you think gvmt can make it go ‘up in value’ by printing money? Of course not. Oil prices and cost of living create a negative feedback loop.

  32. Petey Wheatstraw says:


    There still lines at the P.O. If FedEx and UPS were the only options, wouldn’t these people be forced into a much more expensive alternative? Even after any government subsidy, wouldn’t the net cost be greater?

    As for private school costs, are you making an argument against public education? I don’t know where you live, but in Northern Virginia, you’d be hard pressed to find equivalent private education for equal or less than we spend per public school student ($10K).

    Regardless of what is spent, per child, the cost of a public school system to taxpayers, individually, is lower. If education was privatized, we’d have the same situation we have with healthcare, in which some can pay the exorbitant cost, and some would do without.

    There was a time when our education system worked well, and provided a good ROI. Elsewhere in the world, there are examples of very well run public school systems. To say that government can’t do something that it has clearly done quite well in the past and which it currently does elsewhere is to ignore fact.

    All in all, I think public education was a good value up until the requirement(s) of a 2 income, consumption-driven family made parents drop the ball.

  33. Transor Z says:

    All I can wearily say to much of the commentary above is “Keynsian cyclical spending.”

    I do want to address something mentioned about public vs. private/parochial schooling. Private/parochial schools are exempt from IDEA requirements for disabled/special ed children requiring additional services. That burden is shouldered by public school districts, as is oftentimes costs of bus transportation and text books for kids in private schools.

    Yet another issue is simply the self-selecting aspect of sending kids to private/parochial school. I don’t know where the commenter above lives, but you’re going to be hard-pressed to find many $5k/year private schools in a metro area. Families that have the means to send kids to private school and do so are self-selecting out of the general public school population and tend to be families that place a higher premium on the value of education.

    So it’s a little easy to give private schools too much credit, in and of themselves. Our public school system is a national disgrace, to be sure, but it over-simplifies to attribute too much to the public-private sector schism. Public school test scores would be much higher if they could give entrance exams and exclude for behavioral reasons at the low threshold private schools can.

  34. Transor Z says:


  35. farfetched says:

    One of the key reasons ‘private’ insurance ‘appears’ efficient is that insurance companies, like many other ‘private’ efficiency examples, externalize costs and raise premiums without incurring consequences.
    For example, we praise our ‘private’ energy companies yet they are some of the most heavily subsidized of American business while externalizing costs in the form of pollution and resource destruction.
    Can anyone argue that BP (although not entirely a U.S. firm) has paid for the real damage to the Gulf?
    How about BP’s partners? Well, they weren’t rally partners where they after the spill. They were partners BEFORE and finger pointing litigants afterward.

    Insurance companies are not efficient. They externalize the cost of care for the poor and sick by keeping them out of the pool and forcing them into hospital ER’s where the cost is born by the taxpayer, which then reflects poorly on the ‘government’.

    So private vs government is a false choice. Government has some efficiencies of size and administration costs insurance companies don’t offer. For example, government doesn’t pay dividends or pay a CEO $14-$20 million dollars a year in salary. Government has to be accountable to the voter. No? Note the ‘death panel’ hogwash of the healthcare debate. Do we rightfully call the insurance companies out as death panels? Yet they make life and death decisions and kill people daily. And then of course we have the latest Kabuki theater of the absurd, the ‘debt limit’ debate in a fake effort to ‘control the size and cost of government’….until the next election where they divert our one second attention spans with some other trivial and unsolvable BS like guns, abortion or better yet, some unresolvable constitutional matter in order to divide the electorate. I can hardly wait for the ‘balanced budget amendment’ debates. Yet another unresolvable red herring. We might be better off running elections in the same format as American Idol.

    I agree with other posters, we should be looking outside the U.S. for examples of well run healthcare systems. If the worry is ‘efficiency’ then our comparisons should include some of the better hybrid systems that cost far less than we pay, have full coverage and provide better outcomes. Germany has such a system and there are others. Government would set rates based on means testing and insurance companies could administer to government standards. We could have the best of both. Private efficiency of admin and government efficiency of premium collections. I don’t hear one person saying the IRS doesn’t do their job efficiently, quite the opposite. With the government tax collectors the complaint is TOO MUCH efficiency. Funny how the mind works.

  36. Petey Wheatstraw says:


    Where in this thread did I express any derision for people who have religion? Not denying my disdain, only wondering why you bring it up.

  37. Petey Wheatstraw says:


    BR’s melt-up just melted down.


  38. FS says:

    @Petey You’re right, I was aiming at Jack, and missed his point as well. I will try to regain my focus.

    If you are derisive of people who have religion, you still have time to be healed :)……….

  39. Petey Wheatstraw says:


    thanks for the wishes, as I know they are extended in sincerity, but as soon as I see religion heal anyone or begin fixing itself, I’ll reconsider my lack of belief in the supernatural.

  40. FS says:

    Supernatural- pshaw. I was joking about the healing, but not all religion needs fixing, nor all religious people. Look around, in churches all across this country, people are doing good work. Same goes for people not attending, but I
    (not a scientific sample) have found more people who can commit to the betterment of “us” inside the pews.

    I do wish the best for you (and us).

  41. [...] Our national deficit problem in pictures.  (Invictus) [...]

  42. dmerkin says:

    Regarding “pledges,” the only reason voters like their politicians to pledge, or commit, to some ideal is because politicians are almost by definition willing to sell their souls for one cause or another to get re-elected. It’s only through a pledge that you can rely on a politician to not “vote for something before voting against it.”

  43. farfetched says:

    Reliable pledges:
    1. “I am not a crook”.
    2. “I did not have sex with that woman”.
    3. “No new taxes.”
    4. “No new taxes.”
    5. “Change you can believe in”.
    6. “I believe in the sanctity of marriage”.
    7. “Hooker? What hooker?”.

    8. The “Contract with America”
    a. Require all laws that apply to the rest of the country also apply to Congress;
    b. Select a major, independent auditing firm to conduct a comprehensive audit of Congress for waste, fraud or abuse;
    c. Cut the number of House committees, and cut committee staff by one-third;
    d. Limit the terms of all committee chairs;
    e. Ban the casting of proxy votes in committee;
    f. Require committee meetings to be open to the public;
    g. Require a three-fifths majority vote to pass a tax increase;
    h. Guarantee an honest accounting of the Federal Budget by implementing zero base-line budgeting

    Gotta love those pledges and contracts.

  44. NoKidding says:


    We’re off topic but if the moderator doesn’t mind…

    Re: post office lines, I think a lot of people don’t know better. The last time I went to ship some boxes I comparison shopped and was surprised by the difference between UPS Ground and the USPO. I think a lot of people do it because its what they’ve always done. The better argument against shutting down POs is the envelope-mail holes the private sector would leave in rural areas. I’d say roll the next 10 years of subsidy waste into fiber optic cables, and leave them with electronic bill-pay and a bonus more powerful resource.

    Re: schools, think about the data point you provided. You’re paying $10k a student, for probably a 20-1 student teacher ratio, in a tax free public building, with a curriculum (agenda) you have no say in. Assuming the teachers could be hired at 80k/yr average, pretty good for a carreer with 3 months vacation and where a relatively high proportion of the faculty quits early to raise their own family, thats 80k/classroom for the service and 120k for…? You don’t think the private sector can compete with that in a more accomodating environment?

    What stops most parents who care enough to do the research from going the private route is double paying. They already paid taxes to support a school system, so they balk at paying for it twice.

  45. GuinnessFan says:

    Just a small suggestion….for the long term spending /receipts data it might be visually more informative if you used a semi-log scale. It shouldn’t much change the conclusions that people draw, but it gives a little better perspective of what’s happening a percentage basis over the long term.

    Now, back to my regularly scheduled beverage.

    Invictus: Thanks for that. I’m such a creature of habit, it never dawns on me to consider semi-log. I must try to be more cognizant of that.

    Enjoy the beverage.

  46. DeDude says:

    We have long ago taken the government out of the things the private sector can do better. We have also taken government out of some of the things that the private sector can NOT do better. Utilities have time and again proven to deliver better and cheaper service when owned by the public rather than the private sector. Our over-bloated inefficient and mediocre private sector health care system perform way below the public sector systems in Europe. Our latest privatized wars have been unbelievably wasteful and expensive compared to wars back when we used privates paid $50/day to drive supply trucks rather than outsource it at a cost of $500/day. The 3 main expenses on the government budget are: social security, medicare and military/security. None of those are good candidates for private sector “efficiencies”. You may be able to get reduced expenses on those items in the private sector, but that would come at the expense of poor or disaster performance (in addition to the burden of cost of profit).

  47. Algae says:

    The last I heard, increased government spending generally has a long-term negative multiplier and more taxes generally has a neutral (at best) multiplier.

    For those who are for compromise, how much of GDP is too much when it comes to Federal deficit spending, and how much is too much when it comes to Federal taxes as a proportion of GDP, particularly privately-generated? While I’m at it, how little Federal taxes is too little?

    Is it always compromise for you in your life? If so, it appears that, when it comes to Federal taxes and spending, the compromise in the last century has tended in one direction–or maybe compromise is just a matter of the most recent matter (election, etc.) at hand?

    When it comes to our Federal debt, perhaps the real compromise isn’t by politicians, it is by bond buyers and holders. Using the family metaphor a bit more, if I don’t decide what my credit card limits should be, eventually my creditors will (usually too late for all of them). Perplexing, though, when the creditor/investor is loaning/investing in (what I was taught was) the riskless asset. Maybe we bond buyers are standing in the USPO line by habit, maybe it’s the least worst choice.

    For those who have great faith in the goodness of government (perhaps that is a religious belief?), help me out with a few government programs that are more effective and efficient than private operations? By the way, I agree that the preservation of our basic rights through a good justice system and a (modest) military might qualify here–anything else?

    Thanks for your insights and stimulation!

  48. philipat says:

    In your analogy, the family earning $100K Gross and spending $70K has a spending problem which could be resolved by getting a new job paying $140K. However, should the breadwinner be laid off andforced into a new job paying only $70K Gross, the family would be FORCED to cut spending to meet the new reality, temporary or otherwise.

    I rest my case.

  49. farfetched says:

    NoKidding writes:
    “You don’t think the private sector can compete with that in a more accomodating environment?”

    1. Public school teachers don’t make $80K.
    2. They are no where close to 20 to 1 ratios of students to teachers.
    3. If you actually get involved in civics and attend school board meetings or meet with your child’s teacher you have a surprising degree of control.
    4. Even with the fantasy numbers presented, one small classroom of autistic kids blows your thesis out of the water. Add some real world issues, no toileting, eating, speech skills, some hyperactivity, OCD, ADHD, physically challenging(violence) , vision problems, low to no motor skills, wheel chair bound, feeding tubes, etc. etc. etc.
    How do I know? My wife teaches special ed. in a small rural district.

    It isn’t three months off, but it takes two and a half months to heal and decompress. As a casual observer I can tell you there are more teachers, parapros and TA’s injured on the job than you can imagine. Like just about all jobs, you can’t really imagine what it’s like until you walk a mile in those shoes. Private schools won’t do this for multiples of the cost in a public school. It’s much easier to throw out the fantasy on a blog.

  50. GrafSchweik says:

    Petey, glad to see you back at your keyboard. :-)

    FS, if one breaks your argument down to its parts it turns out to be a theological one; an assertion of faith. I used to make the same one all the time in my ignorant teens and 20s so I know.

    The difference between us—unless you’re still in your teens or 20s—is you’re still treating you assertion of faith [government by its nature is always inefficient] as an axiom when it falls at the first empirical hurdle whereas I stopped.

    If you want to become Poli-Sci’s Euclid, you’ll have develop a lot more intellectual rigor than you’ve shown thus far.

    You’re trying to have your cake and eat it too. In my philosophy classes you would have been eaten alive…

  51. DeDude says:


    You need to listen to better sources. Different types of spending has different multipliers. Some types of private sector and some types of government spending have negative multipliers. Other types of spending (in private or public sector) have positive multipliers. Spending in government or private sector counts exactly the same in the GDP equation. For example, spending 50K on fixing your house or spending 50K on fixing a bridge will add the same 50K of consumption to the GDP and have the same multiplier to add additionally to the GDP by increasing money velocity.

    Similarly different types of taxes have different multiplier effects. Increased taxes on the consumer class is a bad idea with a negative effect on growth, whereas taxing the investor class at a time when they find their most profitable investments is in driving up a bubble in commodities has a very positive multiplier effect.

    Furthermore, the same activity can have different effects depending on where the economy is. Stimulus when unemployment is low can have a negative effect, just as taxing the investor class at a time when the economy is desperately short on investment money can be a bad idea.

  52. Algae says:

    DeDude–thanks! That’s why I’m listening here.

    I get that different types of expenditures, public or private, under different economic conditions, have different positive or negative long-run multiplicative effects on GDP. Sounds fairly random to me..maybe random enough to not be an effective public policy tool?

    If not, then what is it that keeps our elected (and their appointed) policymakers (who, I presume, know what you are talking about) from encouraging the rightly long-term-multiplying private or public investments, or through public or private negative multiplier influences, discouraging the wrong (e.g, bubble) economic conditions?

  53. [...] beget debt. Here’s a visual display of the deficit situation that recently ran in Barry Ritholtz’s blog The Big [...]

  54. DeDude says:


    It is but not impossible to predict and select effective stimulatory tools. The reason that is not done is that for a lot of politicians politics go before policy. Unfortunately most of the voters do not recognize when that happens and, therefore, the politicians who work for bad policy in order to gain political advantages are not punished at the next election.

    I am touching on some of those issues here: