Yesterday, I was on Pete Dominick’s Sirius XM Satellite radio show (audio below). A caller asked about how to close the deficit. His comments revealed that his concern about the deficit was merely a ruse, a tool to be used to achieve very different goals.

If you are truly concerned about deficit, then what you must do is (eventually) raise taxes and cut spending — that is how you balance the budget.

Current deficit is now ~$550B, down from over $1.1T (Clarification: FY 2013 deficit = $650b, 2014 deficit estimates = $568 billion). Ian Shepherdson, the chief economist of Pantheon Macroeconomics, wrote “We are baffled by the idea that the pace of deficit reduction needs to be increased, given how rapidly the picture is improving already.”

If the tax cuts from 2001, 2003 were repealed, half of that deficit goes away.

If the FICA cap is lifted from $113k and allowed to rise to $250k or $500k, SS is solvent for 75 years.

If the US no longer spent the equivalent of the next 20 countries COMBINED on Defense, a huge chunk of the deficit goes away.

The US now spends 2X what most developed nations spend on healthcare. If you are concerned about the long term debt, than you must develop a system that radically lowers US health care costs, bringing them into line with what other industrialized nations spend.

You cannot tax cut your way to fiscal solvency in a weak economy any more than you can spend your way there in a slow recovery. However, you can make the deficit worse with poorly timed tax increases or poorly timed spending cuts.

My read of the current situation is that it has nothing to do with the deficit. The past votes of the current Deficit Peacocks reveal that it is not important to them. Unfunded tax cuts (2001, ’03), expensive wars of choice (most recently, Iraq), and unfunded entitlements (Medicare Part D) reveal that most of the people currently clamoring about the deficit have precisely zero interest in reducing it. They are merely using the deficit as a tool to pursue their ideology.

The current debate has revealed two things: Some people very much want a MUCH smaller government, including much lower taxes. But, they know that is very unpopular among the broad public when you start specifying what to actually cut. It is an ideological goal with which most of the country disagrees. So, the argument that appears more reasonable is to come out against deficits.

Have a look at Center of American Politics – Statistics and Numbers on American Politics from Esquire. While there are some areas of overlap, its pretty clear that the Tea Party is so out of step with most of the USA.

Want to fix the deficit? Then make the hard choices to cut spending and raise taxes (even if you implement this in later years).

Want to have a much smaller US government? The way to do that is not with the deficit or the debt ceiling or other misdirected tactics — instead, try having an honest debate on the subject, and see if you can convince a majority of your fellow Americans to that view . . .

 

~~~

Stand Up with Pete Dominick XM Satellite October 16, 2013

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

Category: Mathematics, Politics, Really, really bad calls

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.

66 Responses to “The Truth About the Deficit”

  1. Internet Tourettes says:

    The Tea Party doesn’t care about the deficit. What they care about is the end of the large intrusive government that they see sapping their freedom and rights by providing education to their children, making sure that their food safe, and the maintenance of their roads. The deficit is just a proxy issue to rationalize the senseless agenda that has been fed to them from Heritage Action and other conservative organizations…

    The biggest lesson I have learned living and working here in DC has been that the person speaking rarely is the one who is behind the issue and that the issue raised is never what they really want.

    • Jonathan says:

      While I agree with you that the Tea Party doesn’t care about the deficit and they want a much less intrusive government, I disagree with you on the “senseless agenda that have been fed to them”.

      Government has become such a power monstrosity that the constitution has been all but thrown out the window completely. Amendments have been ignored (Amendment 1 and Amendment 2 get a lot of attention, but I think Amendment 10 is the one really being stepped on), and the power has been transferred to the Fed from the states and the people.

      The Tea Party is a representation of a group of people that are tired of it and are finally speaking out and taking a stand against it, however small they may be. Their message was originally more of a libertarianism I could agree with.

      Unfortunately their message has been muddle recently by the religious right inserting their two cents on abortion and immigration into the mix in the name of the Tea Party. Perhaps that is what you meant by their senseless agenda.

      • Internet Tourettes says:

        If you were to replace “Government” with “Congress” I would agree with you. Every Federal Agency has congressional oversight either via it appropriations or its regulations as enacted by congress in the form of a bill which became law. When you say Federal Agency you should think of the congressional committee that has oversight over the agency, they are the enemy you seek. Our Government, as defined by the amended constitution, (and yes it is ours) is based on the three branches counteracting and balancing one another in a dynamic fashion to ensure that the operations of the federal do not infringe on the rights of its citizens. What we experienced over the last couple of weeks was a concerted effort to both undermine the basis of the balance of power as defined in the constitution and to circumvent the protections that the constitution affords so that the legislative process is balanced between the congress, executive branch, and the Supreme Court. I am relieved that even with the revision of house rules, intense lobbying by special interest groups, and a few members of the congress acting in a totally self-interested manner we (Our Government) was able to meet its constitutional (14th amendment) and legal (the prompt payment act) obligations.

        As to the Tea Party, I agree with the original genesis of the Party as described by Rick Santelli in 2009 but the Tea Party today has morphed in to something else espousing not personal responsibility (Like Rick Santelli described) but rather a libertarian free market and destruction of the basic social systems that make America a first world country. I’d think very carefully and objectively as to what you hear from the Tea Party “leaders” (I thought it was supposed to be grass roots….) these days which was the intent of my original post……

    • willid3 says:

      what they really seem to want is go back to pre great depression government. or maybe go back to 18th century. where they were a majority of the US. of which they aren’t any more, not even close

  2. Moss says:

    Absolutely agree with this assessment. The words debt/deficits could be used interchangeably.

    They are merely using the deficit as a tool to pursue their ideology.

  3. MayorQuimby says:

    Meaningful cuts in defense or healthcare mean massive job losses which is never going to happen, politically speaking.

    Yes, our living beyond our means very much includes employment levels.

    • msnthrop says:

      I’d venture that some portion of the defense folks could be transitioned into infrastructure building projects in the US without too much pain…also there is a significant amount of fat that goes to the CEO’s/administrations of defense and healthcare companies that could be trimmed before cutting into the bulk work force.

  4. [...] Barry: The Truth About the Deficit  (TBP) [...]

  5. ilsm says:

    US should spend 2% of GDP which is its NATO obligation, 2% is not spent by anyone else in NATO except the UK.

    US don’t need anew dozen ship super carriers of the CVN 21st century class just because the F-35 needs to be hauled around the world on a ship….. with a kluged set of air defense tactics, techniques and procedures because the navy cannot afford destroyers to keep all three of its navies floating around the empire.

    The new class will be as limited as the old class to go into places like 500 miles east of Formosa.

    Not that the war profiteers dream of fight China is anything but a Dr. Strangelove theory………..

  6. ironman says:

    BR wrote:

    “If the tax cuts from 2001, 2003 were repealed, half of that deficit goes away”

    This is correct – it’s primarily because this action would increase the amount of income taxes paid by low and middle-income earners. That, by the way, is a big reason why the ObamaCare exchanges aren’t really intended to work – by making it extremely difficult to obtain subsidized coverage, lower and middle-class income earners will be forced to pay higher income taxes as mandated by the PPACA law.

    “If the FICA cap is lifted from $113k and allowed to rise to $250k or $500k, SS is solvent for 75 years.”

    It’s not FICA, but rather just Social Security, since there already is no cap for Medicare taxes. This action would also significantly increase the amount of benefits that high income earners would collect from Social Security, given how those benefits are determined, while also exposing the program to increased volatility for its funding after the OASDI trust fund is depleted.

    “If the US no longer spent the equivalent of the next 20 countries COMBINED on Defense, a huge chunk of the deficit goes away.”

    There’s a lot of foreign policy here that would have to be junked to support this change, as the U.S. has agreed to provide military assistance to other nations in return for other things. That may not be desirable.

    The US now spends 2X what most developed nations spend on healthcare. If you are concerned about the long term debt, than you must develop a system that radically lowers US health care costs, bringing them into line with what other industrialized nations spend.

    The vast majority of U.S. health care expenses are concentrated in the senior (Age 65+) portion of the population, which is covered by Medicare. The taxes that support Medicare have never covered the program’s full costs, to such an extent that this single program may be considered to be the sole source of U.S. budget deficits since its inception, as Medicare beneficiaries pay the equivalent of just $0.33 for each $1 of subsidized benefits that they receive (the difference is far less in other nations).

    That extreme difference is a driving factor in the inflation of health costs, which once again, are concentrated in the Age 65+ Medicare-eligible population, just as you would expect would happen with such a generous subsidy where people don’t pay anywhere near the true cost of the benefit they receive.

    • willid3 says:

      not sure that the lower 99% got really that big a ‘tax’ cut from those tax cuts. after all going from 15% to 14% rates when you make as little as the majority do, isnt a lot.

      • Bridget says:

        In terms of dollars per person, you are correct, multiply those dollars per person by the numbers of people, and the majority of the Bush tax cuts went to lower and middle income people. Many of them were taken off of the income tax rolls altogether.

      • ironman says:

        It’s quite a bit more than you think. See this chart, which is based on data from the CBO. What’s important to pay attention to in the chart is the data related to the “extended baseline scenario”, which represents how the CBO expects things will play out under current law in the absence of congressional intervention.

        The 2012 extended baseline scenario assumed that all of the 2001/2003 Bush tax cuts would expire, meaning that the amount of revenue that the federal government would collect across the board from income taxes would increase significantly.

        The 2013 extended baseline was put together after the fiscal cliff tax deal at the beginning of the year, in which income tax rates for high income earners were increased to Clinton-era levels (actually above that once you add in other tax increases during the last several years), but the lower tax rates for low and middle-income earners were made permanent.

        In the chart, the reason the curve showing the increase in the nation’s debt over time shifts upward so much from 2012 to 2013 is because under the law as it stands now, the CBO recognizes that there will be no increase in the amount of income taxes collected from low and middle-income earners.

    • VennData says:

      The GOP added Medicare Part D under a veto-proof Congress they completely controlled with Bush’s eager support.

      …putting aside the “business party” stridently demands businessmen should be running Washington didn’t allow the Feds to negotiate prices in the deal…

      If the GOP were truly serious about ANYTHING they talk about they’d offer to end this program, which they created, that provides out-sized benefits to a sliver of the population without cost controls. if anyone EVER asks you about the deficit this is where you immediately lead the conversation.

      If the GOP is serious they will start with ending Medicare part D.

      • victor says:

        Medicare Part D is an unfunded social program; ACA doubles up on it, I thought you were all for helping the needy?

  7. constantnormal says:

    Barry Ritholtz for President! Emperor!!

    BR, why don’t you start another political party?

    Or reincarnate the Bull Moose Party (perhaps as the Bull Market Party)?

    OK, just one small detail … in what nation (or planet) were you born?

  8. Greg0658 says:

    carrot & stick approach
    where is Robinhood in this world
    worry ? what is in my control .. where is the push on a string if not by words, money direction, vote and/or a bullet

    if welfare is initialize’g breeding kids to assist survival
    if robbing and corruption exists to survive (power desire is another matter)
    if GDP is growing to talk about – and correct corruption (legal sense The Bar & its detectives)

    THEN we need to change the LAW 21st century forward to reduce waste of precious’s that will mean an OpSys in a central command socialism mode
    BUT that “carrot & stick approach” to force required work of the populace to beat nature and mankind is costing to much in an educated evolved human manipulated world
    ~~
    FACT on why gay/queer/homo marriage was/is shunned > raise’g kids is hard but required – in a world where life is a fight against another tribe, and growth in community wealth requires growth in population
    ~~
    China growth and collection of our paper .. one day we will wake up to our experience lost .. one day China will wake up to the outsourced pollution to fill our shelves .. I expect americans will do the right thing “Someday Soon” by Firefall
    http://www.youtube.com/watch?v=GXmkRTu05YI
    ~~
    there is no new world left on this globe – this is The Last Resort – get some self sustain’g land (or a Waterworld) – that moonbase is a long way off (if you even get invited for the trip)
    ~~
    Thanks 5th Estaters (but & don’t mess it up – powertrips & central command is hard)

  9. NoNonsense says:

    The system is broken – period, end of story. In theory there are things you could do to fix it but the politics will never pan out. As they say, we are doing nothing more than intellectually rearranging deck chairs on the Titanic.

  10. spraggin says:

    Thank You. This is the most rational statement I have read in 16 days. Sad how little our leadership knows about how economics or monetary theory works. Even more sad is how so many pundits hide behind what seems to be reasonable goals, but only to press a selfish agenda. Please keep the honesty and analysis flowing.

  11. krice2001 says:

    The Esquire-NBC News Poll you highlighted is an interesting read. It made me feel optimistic amidst the polarizing debates going on in Washington. I’m not sure that the poll found a “new” Center. It’s probably always been there but it’s the polarized edges that are easier to enrage and energize so they become the focus of politicians, the media, and those with an agenda.

    I agree that many of those focused on the deficit are often using it as a tool to achieve other objectives. It has to be true because many of the the same people have enacted many policies that increase the deficit.

  12. RW says:

    The deficit has a habit of growing when Republicans hold the purse strings and the economy tends to grow more slowly too. Funny that.

    What A Drag

    …I don’t think it’s unreasonable to suggest that extortion tactics may have shaved as much as 4 percent off GDP and added 2 points to the unemployment rate.

    In other words, we’d be looking at a vastly healthier economy if it weren’t for the GOP takeover of the House in 2010.

  13. DocPenguin says:

    Mr Ritholtz you have made a post that has finally gotten me out of years in lurk mode. A big amen from the back rows of the choir. Honesty is pretty hard to come by on this topic, thanks for the morning pick me up.

    Will

  14. tippet523 says:

    One Simple thing. Keep track of lifetime Medicare spending. When you pass away, before any inheritance is paid you pay back the government for the medical dollars spent.

    This would make folks think twice about the medical costs the last six months of their life and they would look at every bill and not just assume it is free. If someone has no estate then they would be exempt.

    But why should i inherit 500,000 after my mother has spent 250,000 in medical treatment meanwhile the rest of you pay to cover her expenses?

    Simple but would work.

    • willid3 says:

      so your in favor of death panels for your mother? of course the elderly have highere health care costs. the body tends to wear out over time. and only if you are lucky and have good DNA, and actually do take care of your self, will the result be different for you

  15. tippet523 says:

    a very simple Idea. Keep track of all medical expenses on medicare and when you pass away, or as a couple when the last passes away the government is reimbursed for total medical expenditures. This would keep folks looking at the bills during their lifetime and they would think twice about spending 250,000 in the last six months of their life if they knew it was coming out of the inheritance.

    if folks have no assets then they would not have to worry about it.

    This would have some impact on the deficit.

  16. Petey Wheatstraw says:

    Economics is (are?) political, and politics is about money. The two go hand-in-hand. Always have, always will.

    The problem isn’t debt (fiat currency’s sole purpose is to alleviate that), it’s distribution.

    If anyone wants a small, weak government (especially one based on theocracy and the rule of the gun), let them move to one of the many countries that have governments based on that model. Afghanistan and Somalia come to mind. (In those places, healthcare isn’t an issue, either).

    The debt is as much of a real problem to our country as monsters under the bed are to a child.

  17. louiswi says:

    Exceptional piece Barry!!
    Thanks for posting.

    As Charlie would say, “I have nothing to add”.

  18. carleric says:

    I suppose I am out ot touch with the “big” thinkers but it seems simple enough to me…just start stripping away the needless burdensome tasks that the unnecessary governmental bureaucracies have assigned themselves, send the unnecessary staff home, eliminate the regulations that are only meddlesome and represent some idiot’s bought and paid for agenda and move on. We simply have too much government and we despearately need less.. just my opinion and by the way this is a 20-year vet who strongly supports reducing the military and disengaging in foreign affairs. Who gives a crap if muslims kill muslims? Not I.

  19. eideard says:

    Great post. My wife called me from work to nudge me into reading it before I scheduled my blogging, this morning.

    The number of ignoranuses who believe SSA contributes to the debt points out the persistence of lies. I always like to referencet an [slightly] above average readership polled by the NY TIMES which responded with 76% agreeing with the one-sentence solution: Remove the cap on SSA.

    We’ll be good for social security until some time in the next century.

  20. ComradeAnon says:

    So, if I’m the CEO of a company and someone comes to me and says they want to cut expenses and I ask how and they reply they want to cut revenue, I should say no?

    • willid3 says:

      probably. unless of course you want to go out of business of course

      always wondered why some think just put a business executive in charge that will ‘fix’ the government.. really/ cause if you had a business executive in charge, they wouldnt cut expenses cause they could easily increase ‘sales.

  21. b_thunder says:

    There’s just one, but very substantial, issue with the statements like
    “Current deficit is now ~$550B, down from over $1T”
    that $1 trillion deficit was when the economy was near the recession/cyclical low, and now we’re likely near the ZIRP & QE boosted cyclical high (don’t forget $90B of Fed’s “remittance” back to the Treasury thanks to the size of its balance sheet.) So over the cycle the country adds a debt that’s several times larger than GDP growth.
    Question: how the heck are we going to pay it back if $550B deficit may be as low as it gets?

    • You answered your own question: The crisis caused much of the short term deficit ballooning, and the subsequent improvement in the econmy removed that.

      Thank you for demonstrating that the deficit is not a big issue

      • Bob K. says:

        That is not what he said. He said this is the best we get on deficit reduction, and he said debt stimulus is not producing positive GDP. I know Keynesians think there is never a downside to debt creation.

        The only reason we are benign is that the banks are hoarding reserves. This lasts until velocity hits a terminal number. It is and has been collapsing. When the recognition of this hits, banks either must begin to lend, or govt must directly inject more debt into the economy through stimulus or direct money to the people, at the same time rates or commodities rise because it will be correctly recognized as inflationary.

        This has been a great Chris Angel illusion, but end it will, and soon. Simply math.

        Also, I am in favor of cutting Defense and eliminating caps benefit taxes and higher taxes on income, but to suggest that there will be zero negative growth effects from that activity is naive or disingenuous.

      • LeftCoastIndependent says:

        Haha, deficits don’t matter. OK Barry Reagan, or is it Barry Cheney ? If you don’t think deficits are a big deal now, then just wait till interest rates go up. Can’t wait to see that budget fight on the Hill. And Central Banks can’t keep buying bonds forever, unless of course they lie about inflation. But sooner or later, the market always figures out the truth and the rigged game comes to a crashing end. Just look at history. We are living “The Mother of All Bubbles”. And don’t even think about taxing the lower and middle class more. They have seen deflation in their wages that has put them back 15-20 years. I personally don’t dare raise rents on them.

      • willid3 says:

        wrong Keynesians dont think that there is never a down side to debt. its a fact they think that when times are ‘good’ is when you cut debt. its just that some dont really want to admit that

      • b_thunder says:

        I thought that the whole idea was to run deficits when times are tough and (at least try) to pay them down when the times were better. The ideal example would be the late 1990s when the country run a surplus when economic cycle peaked.
        I don’t think that this time around it’s in the cards. Unless you believe that Bernanke/Yellen already have or will have effectively repealed the business cycle, it’s almost a certainty that the US Gov’t will run a deficit far in excess of GDP growth for every year of the current cycle. If we can’t break-even now, than when? And due to Boomers retiring (and the costs associated with Iraq/Afghanistan wars and the war veterans) the cost only going to be higher.
        This incremental debt can, of course, grow for many many years, while the Dow gets to 36000 (on the way to 100000) and 1% gets richer and richer and the rest fall further behind (that will have dire consequences when the music finally stops and social security checks will become worthless due to BLS COLA “calculations.) But the debt can’t grow forever, and it will stop. Probably sooner than most anticipate. This is not Japan. Market interest rates will not stay at zero for 20 more years.
        And if someone still thinks that taxes can be raised to pay for all this -gimme a break! Obama told the republicans today “Go win the elections.” He used this after winning the debt ceiling increase. Interesting fact: Obama didn’t use this electoral mandate to repeal Bush’s tax cuts. I wonder why… maybe because the millionaires that represent the interests of billionaires don’t really want to raise them!

  22. coleyc says:

    Large percentages of old people vote and the 10 year is yielding 2.6. Unless the former goes down and the latter goes up, we will march on to the land of rising sun.

    • LeftCoastIndependent says:

      Hit the nail on the head coleyc. And Japans debt to GDP ratio is over 200% now. The slightest rise in rates is probably going to do them in, which is highly likely going to trigger a world wide collapse.

  23. CSF says:

    It’s all about timing. Today’s problem is growth, whereas the deficit becomes a increasing problem after 2017 (roughly, according to the CBO).

    Let’s bargain, short-term for long-term. Democrats get less sequestration, and Republicans get a committee empowered to find some long-term health-care savings. Democrats spend more on infrastructure and education over the next three years, while Republicans get some long-term entitlement reforms. Democrats phase in a higher FICA cap, and Republicans get corporate tax reform with lower rates (and fewer exemptions). It’s time for Congress to put aside the ideology, wheel and deal, and laugh about it afterwards over a cold beverage.

  24. Fjames3 says:

    Current deficit is not $550B, through August it was $755B. Assume same spending for sept, FY2013 will be $825B.
    If interest rates were not manipulated (with QE) and returned to historical norm, the interest on the debt would grow from $400B to over $1T wiping out the gains you mention.
    If the stock market was not manipulated (with QE) government income would go down, the citizenry would feel even less confident in the system (Bloomberg Consumer Sentiment confirms Gallop http://twitpic.com/dhpm1p and this is with all the propping!)
    And through it all the banks get richer and richer. As Buffet said yesterday, ” Banks are in best shape I can remember.” Want to know why, watch this until you understand it http://www.youtube.com/watch?v=iFDe5kUUyT0

    • The 2013 deficit was around $650 billion, with final figures not yet available due to the shutdown. That’s down from nearly $1.1 trillion in 2012.

      Current projections for 2014 deficit range from $522 to $588 billion. I picked $550b as a round number.

      • flakester says:

        I believe that his point is that the deficit excludes off budget items, whereas the change in Federal total debt (around $750 billion) is a better and more inclusive picture.

        Even better is using GAAP adjusted data, which includes accruals. 2013 Q2 GAAP Federal government expenditures were $3.6 trillion (total including state & local was $5.7 trillion, and has been up every quarter since at least the 1970s) compared to total Federal receipts through August of just under $2.5 trillion. That’s double your ~$550 billion estimate

  25. briantheprogrammer says:

    I would like to put forward an alternative “truth” about the deficit.

    Both liberals and conservatives would like less government dependence and interference in the economy. Both agree that the way to get there is via austerity; proactive deficit reduction initiated by the government. The only difference between the two sides is the timeline for the austerity program. On the right they want immediate austerity and on the left they want to pace it out over years and years.

    The cruel irony of proactive deficit reduction is that it IS the root cause of the increasing size of government and the increasing deficits. It is also the root cause of the increasing demand for government welfare programs.

    Every single dollar government spends affords more freedom to the private sector, not less. This is for the simple reason that government spends a dollar that same dollar is earned by someone in the private sector. We all know that the more money we have, the more freedom we enjoy. Yet somehow this basic fact has been obfuscated by economists to the point where we don’t know up from down.

    The proper trading relationship between the public and private sector is as follows. Government should always be a seller (producer) of dollars and a buyer (user) of real goods and services. The private sector is always a seller (producer) of real goods and a buyer (user) of dollars. When we talk about a capitalist “free market”, what we mean is that the amount of dollars that the government produces (sells) in any year is determined by the amount of real services that the private sector is able and willing to sell to the government over that same year.

    If the private sector is expanding, this means that it should be ABLE to sell more goods to the public sector in each year. It also means that the private sector should be WILLING to sell more goods to the public sector. Why? Because the expanding productivity in the real economy leads to a RELATIVE shortage of dollars. The amount of real value in the economy gets ahead of the amount of money. This causes the government’s bid for a particular item to become the best bid available.

    To sum this up, If the private sector and not the government is permitted to determine the deficit level, the following things will be true.

    1) The government will run a deficit in every period where the real economy is growing.
    2) The government’s debt (total of all prior deficits) will be a measure of the real value in the dollar economy, and will rise accordingly.
    3) The government will be smaller and less influential in the economy than if government spending is artificially restricted by austerity.
    4) The private sector will earn more income and will be more “free” to direct production than if spending is artificially restricted.

    These are some of the reasons why I am terrified by the consensus around proactive deficit reduction.

  26. > The US now spends 2X what most developed nations spend on healthcare. If you are concerned about the long term debt, than you must develop a system that radically lowers US health care costs, bringing them into line with what other industrialized nations spend.

    This, plain and simple, is the elephant in the room in the years ahead in terms of cost and complexity to address. SS is relatively easy to address aside from the politics, and discretionary spending including defense will simply get crowded out.

    • willid3 says:

      and we get worse results too. but the rest of the developed world provides more care than we don. and its not better based on results

  27. gman says:

    If our military and healthcare spending were in line w/ the rest of the 1st world we would have a surplus problem.

    As a Keynsian I fully admit that doing that in the short run would CRUSH AG DEMAND..so be careful what you wish for..

  28. gman says:

    Tea Party just finished saying that an immediate “default on US debt would not be a big deal”..pivots immediately to saying we must have “more austerity now” to to avoid the slight chance of a “catasrophic default 50 years from now”????!!!???

    The whole deficit hysteria media complex is a SCAM!

  29. formerlawyer says:

    For politicians and citizens a good point to start is to learn what the US budget is and where it goes to (you can click on the image for a watermarked jpeg).
    http://www.timeplots.com/collections/catalog/products/death-and-taxes-poster-2014
    I am not sanguine about the reality-challenged voters or politicians getting a deal done however.

  30. armbar magoo says:

    Advice to the “new” Republican Party as given to Thomas Jefferson of the “old” Republican Party by first lady Abigail Adams:

    “ I replied… I have heard of a clergyman who upon some difficulty amongst his people, took a text from these words: “And they knew not what to do,” from whence he drew the inference,
    that when a people were in such a situation, they do not know what to do, they should take great care that they do not do they know not what.”

    Source John Adams, by David McCullough, p. 559.

  31. MarkCancellieri says:

    Raising taxes won’t help. Real (i.e. inflation-adjusted) tax revenue per capita has increased dramatically since 1980, even after the so-called Reagan and Bush tax cuts. The problem is that real spending per capita has increased even more dramatically.

    Also, the far higher levels of tax revenue (relative to GDP) of European countries has done nothing to solve their fiscal problems.

    The reason for this is because greater income doesn’t solve the problem of fiscal irresponsibility. Just look at all the bankrupt celebrities, athletes, and lottery winners. Greater income just allowed them to get into greater financial difficulty.

    The idea that we should give even more money to such financially irresponsible politicians strikes me as rather ridiculous.

    • If you want to close the deficit, the math is simple . . .

      • willid3 says:

        it is unless you dont want to acknowledge that for some reason.

      • LeftCoastIndependent says:

        Yes it is, but nobody wants to pay for it. They all think the other guy should pay.

      • MarkCancellieri says:

        Yes, the math is simple. You can close the deficit without raising taxes by just increasing nominal spending at a slower rate than the growth in nominal GDP. Tax revenues will grow naturally with nominal GDP, so tax revenue will grow faster than spending.

        In any case, my comment was more about the dynamics of why the fact that “the math is simple” truism is completely irrelevant. Politicians ignore the math. They spend more than they take in. It is pretty much universal. Increase tax revenue and they will just increase spending.

  32. Bob A says:

    How about if we simply bring our percentage of GDP spent on healthcare in line with Germany and Japan by reigning in the healthcare mafia that’s raping the country?

  33. Willy2 says:

    This post show that one B. Ritholtz has a number of blind spots as well. For a long time (from ~ 1994 up to 2008) the US federal budget deficit wasn’t a problem. Even funding the wars in Afghanistan & Iraq wasn’t a problem for the US gov’t, as they were effectively paid for by foreigners. Even the housing bubble from 2000 up to say 2007/2008 was funded for a significant part by foreigners.

    But the situation changed after 2008. Even now with the budget deficit shrinking the deficit remains a problem. Because those same foreigners are reducing their purchases of T-bonds since ~ early 2012. According to my info the shrinking foreign demand for T-bonds happens at a faster pace than the deficit shrinks.
    It reminds me of the situation in the very late 1970s when foreigners also started balking at buying T-bonds. Guess what happened then ? Higher interest rates any one ?

    In other words: US citizens SHOULD be worried about the deficit.

  34. armbar magoo says:

    Respectfully;
    “The problem is that real spending per capita has increased even more dramatically.”
    - as might be expected to combat a huge unparalleled recession and due to aging population.
    “Also, the far higher levels of tax revenue (relative to GDP) of European countries has done nothing to solve their fiscal problems.” This might be due to their early strong pursuit of austerity, cutting spending during the recession and even raising interest rates! What were they thinking?

    In my humble opinion, as others have offered, we need to prioritize, 1st strive for robust growth, then reduce the debt. It’s not rocket science and has been done before.

  35. taxman100 says:

    A little perspective:

    After working in the private sector for 25 years as a cost accountant and production manager, and then having the opportunity during the great recession to go to work for a large government project as a cost price analyst.

    I’m astounded at the level of scrutiny there is for each dollar spent on Government Projects. For each person trying to make a rational business decision to get something done, there are 10 people that’s sole purpose is to make sure the price was fair, that it was safe, that is was US sourced, that it was made to a small business, that it was environmentally friendly, that it followed the Davis bacon act, that it was planned, that is was controlled, that no money was moved between project activities, that is did not exceed the funding limit, that the records were signed, that is was the right quality, and it was audited before, during, and after by the DCAA and the GOA.

    Everybody including the subcontractors work with one hand tied behind their back. And every time some auditor writes a report that says the justice department spent $17 for a muffin, when the bill actually included the room, drinks and snacks for the day, it costs the government $100 million dollars to review every receipt that has the word muffin on it for every government agency. And for people that have had to do this their whole lives this seams normal !!

  36. intlacct says:

    Ironman says:

    “It’s not FICA, but rather just Social Security, since there already is no cap for Medicare taxes. This action would also significantly increase the amount of benefits that high income earners would collect from Social Security, given how those benefits are determined, while also exposing the program to increased volatility for its funding after the OASDI trust fund is depleted.”

    benefits net of investments is negligible to negative (12.4% investment vs. 15% benefit – payable in an average of 20 years…): http://www.ssa.gov/oact/progdata/retirebenefit2.html

  37. [...] I discussed yesterday, all of the noise about the deficits are not really about budget deficits at all. Rather, it was about a decidedly narrow ideology held by a small percentage of Americans. Their [...]