The Correct Diagnosis

May 17th, 2011 at 6:30 pm

In my opening post to this new blog, I pointed out that a top objective was to correct false assertions regarding economic arguments.  Well, allow me to outsource to my CBPP colleague Paul Van de Water.

If we’re going to meet the fiscal challenges we face, we’ve got to accurately diagnose the problem. The much-circulated CBPP analysis sorting out the factors behind the increase in the deficits provides just this diagnosis and does so in one friendly graph (see figure).

Now, the plot thickens.  The conservative Heritage Foundation went after the analysis claiming that we cherry-picked the Bush tax cuts, the wars, and the recession as the main factors explaining the increase in deficits over the next decade when we could just as easily have picked Social Security or Medicare.

But as Paul’s rebuttal makes clear, before Bush cuts, etc. took place, non-partisan budget analysts were predicting surpluses based on spending and revenues including, of course, the entitlements.

“Heritage charges we arbitrarily picked certain elements of the budget to blame for the deficits, saying one could also single out Social Security and Medicare to explain the entire deficit.  Yes, the costs of Social Security and Medicare will rise over the next decade as more baby boomers retire and health care costs continue to rise.  But Heritage misses the key point: Analysts knew this would happen back in 2001; their forecasts of large surpluses over the following two decades took those increases into account.”

It’s Diagnosis 101: if something changes—in this case, predictions of surpluses to deficits—don’t look for the ongoing stuff you already knew about.  Look for something new to the system, in this case, the cuts, the wars, etc.

Print Friendly, PDF & Email

7 comments in reply to "The Correct Diagnosis"

  1. marc sobel says:

    If you cut taxes enough, you will always have a deficit.

  2. Joe says:

    Wouldn’t it be more informative to chart the absolute spending levels for various factors over a period of say 10 years? Just chart the spending and revenues separately year by year for 10 years and see what that tells us.

  3. readerOfTeaLeaves says:

    Following Joe’s recommendation, I’d add a few others:

    By starting the chart at 2009, with the wars in place, it is easier for the Heritage Foundation to whine. Because when the chart starts, the war is already present.

    So they don’t like the chart? They want to whine?
    Fine. No problem.

    Redo the chart. Extend the left axis out to about 1996, a good four or more years BEFORE the Iraq and Afghanistan wars ever started. Start that chart clearly before we had those unpaid for, expensive wars.

    That way, we can all see the rise and development of the yellow and orange lines, from out of nowhere in 2003, to where they are today, and projecting forward.

    Then add in a layer for Medicare, and one for Medicaid – BEFORE the Bush giveaways to pharma, as well as afterward.

    Just for giggles, I’d add in some images of Clinton, Bush, and Obama to show just ‘whose watch’ those out-of-budget wars happened on — AND then to top it off, I would find some way to note in to the whole graph that when Obama came into office, he put those wars ‘on the books’ (IIRC, Bush had made them ‘invisible’ in terms of budget discussions).

    So to do that… maybe ‘comparison graphs’: one with the Bush view (make it only about 50% visible, or even only a ghostly 20% visible) and then contrast with Obama’s willingness to be ‘100% visible’ including the wars into the Federal budget.

    That ought to really get some knickers in a bunch at the Heritage Foundation, but it would make for a much more informative and accurate graph.

    (Bear in mind that about 1/3 of the US adult population is illiterate, but these same people look at weather charts, baseball graphs, and stock tickers with full comprehension. So get more mileage out of your graphs — the current one is good for policy wonks, but the general public’s eyes will probably glaze over….

    Now, if in that ‘yellow layer’ you put a light background showing tanks and guns, and in the ‘blue layers’ you had light background images of houses and/or banks, THEN you’d be aiming at members of the general public. Because then you’d be ‘layering’ information with data in a way that would probably be more helpful to more non-readers.

    In other words, abstract pictures of graphs aren’t as helpful as ‘layering’ the content.

  4. Thomas Bub says:

    We frequently hear of the up-coming baby-boomer retirement apocolypse but not much of the projected revenue from 401k plans being converted to income and the taxes levied against those plans. Would this not offset some of the projected deficits or are these already calculated in those projections?

  5. Bob Wyman says:

    Heritage folk should read what CBPP published in 2002: See: “SOCIAL SECURITY AND THE TAX CUT: The 75-Year Cost of the Tax Cut Is More than Twice as Large as the Long-Term Deficit in Social Security” by Peter Orszag, Richard Kogan, and Robert Greenstein

    In that note, they wrote: “if the tax cuts take effect as scheduled and are continued after 2010, …, the long-term drain on the budget will exceed the long-term benefit to the budget of eliminating the entire Social Security shortfall.”

  6. Richard says:

    Parrying their thrust, you’re falling victim, like so many others, to their fallacy of composition. The question isn’t really about the spending; during economic restriction, government spending is good. It’s how that money is spent, and its efficacy in producing jobs and prosperity to revive the domestic economy that’s important. The vast majority of the current spending is outflow: extremely little is being productively invested domestically. Unfunded wars are squandering it overseas, as are corporate subsidies. Privatization and tax cuts for the wealthy are outflows, getting siphoned off without any circulation. Outsourcing by these corporations is outflow of productivity, with no domestic spending to revitalize what’s been lost. It may not be politically fashionable within the beltway, but these concepts would enjoy enthusiastic acclaim around the rest of the country.

  7. Richard says:

    edit: Policies to reverse these flows and spend effectively, productively, would receive acclaim around the rest of the country.