Charting the Way Back to Factville: Fiscal Version

April 24th, 2013 at 1:19 pm

One of the stated goals of OTE is to help us find our way back to Factville, but man, it’s not gettin’ any easier.

Here’s a US Senator (Tom Coburn) from yesterday: “the fact is, our country is headed toward bankruptcy” (from CQ News, no link).

In fact, the fact is that this is factually incorrect.  To the contrary, according to a recent, detailed analysis by GS researchers, the budget deficit is falling faster than was expected, as the rate of spending is falling and receipts are rising.  There are, of course, growing deficits in our future, but they have everything to do with health care spending and nothing to do with bankruptcy.  Preserving current cuts–Coburn was explaining why he was blocking legislation to replace the sequester–will only make it harder to escape the current slog in which we’ve stuck for a very long time.

The first figure shows government spending—two-year changes of 12-month averages, to smooth out the bips and bops—falling sharply, in part due to slower-than-expected Medicare spending, something I’ve focused on a lot here as it has obvious long-term implications if it sticks.  Not only is spending growth historically low, but a) these are nominal dollars; factoring in inflation would further reduce their growth rate, and b) because of the averaging and two-year look-back, the sequestered cuts aren’t even in here much at all.

spend1

Source: GS Economic Researcher, Issue 13/16

So please remember this figure next time some fact-basher starts going on about our out-of-control spending.  And yes, what you see in the figure is intimately related to the all that unemployment with which we’re stuck.  In fact, spending may grow even more slowly next year due to planned cutbacks in unemployment insurance to the long-term unemployed.

The next figure shows the shrinking budget deficit, again, a trend I and other have cited incessantly.  For the Coburn’s of the world, it is an inconvenient truth, but the line is clearly headed in the opposite direction of his claim.  I mean, I of course rejected “bankruptcy” and other hawkery nonsense when the deficit was growing, as it was clearly growing in response to the downturn, as it should.  But really, shouldn’t folks like this have to make up some new BS (and I don’t mean Bowles-Simpson) when the trends reverse course?

def1

Source: same as above.

Finally, note that the pattern of the fiscal drag on GDP growth is bass-akwards in terms of smart policy, which is what you get when you depart from Factville and jump on a nonstop toward Austeria.  We’re zapping large percentage points from real GDP growth this year, while the US economy is still struggling to hit escape velocity.  And the fiscal drag fades in later years, when presumably we’re doing better.  We need to be CDSHs—cyclical doves, structural hawks—but we’re getting it backwards.

fadingfisc

Source: same as above.

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3 comments in reply to "Charting the Way Back to Factville: Fiscal Version"

  1. Sam East says:

    Thanks for all your great work in pushing for a rational dialogue in American economics and politics!
    Is it possible that Colbert’s piece:

    http://www.businessspectator.com.au/article/2013/4/22/european-crisis/how-well-remember-reinhart-and-rogoff

    and now Henry Blodget may finally call out the austerians for what they are?

    : http://finance.yahoo.com/blogs/daily-ticker/economic-argument-over-paul-krugman-won-150247189.html?vp=1&l=1


  2. tyler healey says:

    The Tom Coburns of the world don’t care about facts, data, or anything else that occupies the minds of intelligent people. Their narrow goal is to shrink the federal government. If facts get in the way of that goal, then facts need to be neutralized.

    It is time to stop giving any respect to these people. They may be senators and congressmen, but that only shows how easy it is to become a senator or congressman. You can be an ignorant moron with selfish, greedy intentions and still become a member of the United States Congress. You’ll receive a >six-figures salary and extraordinary benefits for the rest of your life. Let this be a lesson to all the underachievers out there. Keep underachieving at everything but lying, master the art of deception, and you too can one day be a federal politician. They’ll name buildings after you!


  3. Rima Regas says:

    You, Paul Krugman, Joe Stiglitz, and every other economist could spend 100% of their time on every TV station refuting the likes of Coburn by showing proof that we are nowhere near bankruptcy – could not go bankrupt – and Coburn and his buddies will keep repeating the lie. Why? Because too many of our citizens think the economy of the US and their bank account are balanced the same way.

    Keep repeating yourself, though! The repetition is needed. Badly.

    So, thank you.

    I’ll now go share and tweet this piece.


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