Balancing the Federal Budget: A Necessity

[edpell]

A balanced budget seems like a good idea to me. How about to you?

Currently the federal government borrows MORE than 50% of all the money it spends. I do not see why the average Chinese worker will want to work hard forever just to buy US and Japanese debt paper.

In order to balance the federal budget we would need to cut military, social security and medicare more than in half. I understand the pols will keep borrowing from the hard working Chinese until they wise up, no complaint there, but then what?

 

[Char. Limit]

Raise taxes, the extra revenue going solely to the national debt.

The moment a politician suggests that, he or she will have my vote.

 

[edpell]

how about cut spending? until we have a surplus that we can use to start paying the debt?

 

[drankin]

Raise taxes, the extra revenue going solely to the national debt.

The moment a politician suggests that, he or she will have my vote.

Your vote and a handful of others. But that's it. Noone is going to get voted in suggesting to raise taxes.

 

[Ivan Seeking]

A balanced budget seems like a good idea to me. How about to you?

Currently the federal government borrows MORE than 50% of all the money it spends. I do not see why the average Chinese worker will want to work hard forever just to buy US and Japanese debt paper.

In order to balance the federal budget we would need to cut military, social security and medicare more than in half. I understand the pols will keep borrowing from the hard working Chinese until they wise up, no complaint there, but then what?

Or, we increase the GDP so that the debt is relatively insignificant. One major step towards doing this is to stop importing oil.

What really matters is the ratio of debt to GDP - effectively our debt to income ratio. Unfortunately, right now, due to the failure of the financial system and the resulting severe recession, deficit spending is unavoidable. Later, when the economy is healthy again, this has to be slowed or stopped. It should also be noted that a certain level of debt is considered to be good, according to some economic theories.

Two critical issues are the cost of medical care, and Social Security benefits. Of the two, the rising cost of medicine [health care] is the greatest immediate threat. That is why Obama has focused on this issue.

China has no choice but to finance our debt because they need our markets. Given that they are getting our jobs, it only seems fair. They are just as screwed as we are - the US is too big to fail. If we went down, the world would go down with us.

 

[Ivan Seeking]

Something else to consider and a corrolary to the other thread about energy: Oil is one of the primary reasons that we have many of the problems that we do. For example, our foot print in the ME is the result of our need for oil. In fact, Carter, of all people, was ready to use tactical nukes to protect our oil interests in the ME. So we are in fact willing to fight a nuclear war over oil. How siginficant is that? What would that do for the economy?

How much might military spending be reduced if oil were not in the equation?

A bit of history: According to two war historians - Miller, War Plan Orange; Willmott, Empires in the Balance - Pearl Harbor was attacked in order to protect Japan's oil interests in the East Indies.

The use of fossil fuels also negatively impacts the GDP through health problems related to pollution. This comes in the form of health care costs, in addition to lost productivity.

 

[hamster143]

Currently the federal government borrows MORE than 50% of all the money it spends.

No, it does not. In FY 2008, tax revenues were 2.52T, spending was 2.98T. We had a balanced budget and even ran a surplus for several years under Clinton administration.

Once the economy recovers, a complete pullout from Iraq and Afghanistan (assuming we don't get into any new expensive wars), plus a complete repeal of Bush tax cuts, should be sufficient to close the gap.

In the long run, we should start thinking about raising the Medicare/SS eligibility limit from 65 to 68 or 70. These programs were instituted when the ratio of retirees to workers was significantly lower than it is today.

For example, our foot print in the ME is the result of our need for oil.

We get most of our oil from Canada.

 

[russ_watters]

how about cut spending? until we have a surplus that we can use to start paying the debt?

There is a famous quote about democracy dying when politicians realize that they can bribe the people with their own money. I don't remember how it goes exactly, but you get the point - we're pretty much there. Government spending spirals for any/every democracy as a result of this principle.

Yes, these days I'm pretty pessimistic about the odds of western civilization's survival. We may have 100 years left at this rate, but possibly a lot less. The only way out is for people/politicians to bite the bullet and start giving the people back that scary freedom called personal responsibility by cutting social programs.

 

[russ_watters]

Or, we increase the GDP so that the debt is relatively insignificant. One major step towards doing this is to stop importing oil.

How much and how fast, exactly are you talking about here, Ivan? The deficit for 2009 was about $1.4 trillion ( http://content.usatoday.com/communities/theoval/post/2009/10/620000005/1 ) and the GDP $14 trillion ( http://www.google.com/search?source...&rlz=1T4ADBF_enUS311US311&q=united+states+gdp )
...and we import about $0.38 trillion in foreign oil ( http://www.google.com/search?source...ADBF_enUS311US311&q=united+states+oil+imports @ $80)

So foreign oil is a pretty small part of the problem and the scope is such that even assuming stagnant spending (and our current President is increasing spending very quickly) it would take at least a decade to get back to a balanced budget.

 

[hamster143]

How much and how fast, exactly are you talking about here, Ivan? The deficit for 2009 was about $1.4 trillion ( http://content.usatoday.com/communities/theoval/post/2009/10/620000005/1 ) and the GDP $14 trillion ( http://www.google.com/search?source...&rlz=1T4ADBF_enUS311US311&q=united+states+gdp )
...and we import about $0.38 trillion in foreign oil ( http://www.google.com/search?source...ADBF_enUS311US311&q=united+states+oil+imports @ $80)

You realize that it's a fluke and no one intends to run trillion dollar deficits indefinitely, right?

If you want to talk about numbers, be sure to compare the cost of borrowing that money, which is essentially interest on the deficit (10-year treasuries go for about 3.5% ... therefore last year's deficit will cost future taxpayers $50 billion/year), versus lost productivity due to the recession (we're currently 5% above healthy unemployment rate, so, to the tune of $700 billion/year).

 

[russ_watters]

Once the economy recovers, a complete pullout from Iraq and Afghanistan (assuming we don't get into any new expensive wars), plus a complete repeal of Bush tax cuts, should be sufficient to close the gap.

No it wouldn't. We still have Obama's $787 billion stimulus...and your assumption that general spending has/will tracked with gdp increases over the past 10 years. They haven't.

 

[russ_watters]

You realize that it's a fluke and no one intends to run trillion dollar deficits indefinitely, right?

I didn't say he would. But what Obama does intend is to run substantial deficits through his entire stay in office, for however long we keep him arround. According to the CBO, his current plan calls for never less than a 2% deficit and a total of $4.8 trillion over the next 8 years, more than doubling the current national debt: http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf (page 11).

 

[hamster143]

No it wouldn't. We still have Obama's $787 billion stimulus...and your assumption that general spending has/will tracked with gdp increases over the past 10 years. They haven't.

The stimulus will be largely spent by the end of 2010.

 

[hamster143]

I didn't say he would. But what Obama does intend is to run substantial deficits through his entire stay in office, for however long we keep him arround. According to the CBO, his current plan calls for never less than a 2% deficit and a total of $4.8 trillion over the next 8 years, more than doubling the current national debt: http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf (page 11).

That link seems to be trying to forecast deficits for the next 10 years, based on Obama's budget for FY2010 (which runs July 1, 2009 through June 30, 2010).

Here's what he does intend to do long-term:

Unfortunately, we are also inheriting the worst economic crisis since the Great Depression—which will force us to increase deficit spending temporarily as we try to jumpstart economic growth. This is an extraordinary response to an extraordinary crisis, and as we come out of this recession, we must return to the path of fiscal responsibility.

http://www.gpoaccess.gov/USbudget/fy10/pdf/fy10-newera.pdf page 14

Science tells us that it's the correct response to engage in deficit spending during recessions, when your economy is not functioning at full capacity. You incur some debt, but you stimulate the economy by reducing unemployment and increasing GDP, and that typically more than offsets the cost of stimulus. (It also tells us that direct spending is several times more effective, per dollar of deficit, than tax cuts.) But then you have to stop spending and start paying off your debt when unemployment is back down to healthy levels. In a way, Bush administration was justified in passing its tax cuts, even though direct stimulus would've been preferable. The real problem was that it failed to close the deficit when the situation improved circa 2004-05. And now, for some reason, the same people who pretended back in 2005 that everything was fine are suddenly rediscovering virtues of fiscal responsibility, even though this is probably the worst possible time to do so.

 

[russ_watters]

The stimulus will be largely spent by the end of 2010.

What is "largely"? It is a 10 year plan and he's behind in spending. Regardless of the trajectory, it is $787 Billion he intends to spend.

Also, I'm not sure what the point of that graph is, particularly since it ends at the beginning of 2008...

Here's what he does intend to do long-term:

...as we come out of this recession, we must return to the path of fiscal responsibility.

That's not a plan and in any case, we all know how bad Obama is at understanding economic realities and the effects of his attempts to deal with them (8% unemployment...). Heck, he may be saying his plan already does that. I, however, expect he is overly optomistic, has he has been so far...

However, if you're right and Obama really does intend to return to some fiscal sanity, he's either going to have to vastly increase taxes or vastly decrease spending and I don't really expect him to do either. He's going to have an election to win.

Science tells us that it's the correct response to engage in deficit spending during recessions, when your economy is not functioning at full capacity. You incur some debt, but you stimulate the economy by reducing unemployment and increasing GDP, and that typically more than offsets the cost of stimulus.

I'd like to see a citation of where "science" tells us that because the numbers I've cited say that "some debt" Obama is givinig us is a doubling of the federal debt, with no path to recover it in the next 10 years. I'm not willing to take on faith the economic knowhow of a President who thus far has been so wildly detached from reality.

There are different and competing economic theories out there. The one I subscribe to says the policies of Reagan helped get us out of the doldrums of the '70s and helped lead to the prosperity of the '90s

But then you have to stop spending and start paying off your debt when unemployment is back down to healthy levels.

Yeah - that's the part that I don't expect a democrat to do.

In a way, Bush administration was justified in passing its tax cuts, even though direct stimulus would've been preferable. The real problem was that it failed to close the deficit when the situation improved circa 2004-05.

The aftermath of 9/11 threw a real monkey wrench into the equation. He spent money on two wars and a new federal agency. It would have been a lot better if he hadn't done the Iraq thing, but due to 9/11 I don't think a balanced budget was a realistic possibility in his term.

And now, for some reason, the same people who pretended back in 2005 that everything was fine are suddenly rediscovering virtues of fiscal responsibility, even though this is probably the worst possible time to do so.

Virtually no one saw the bubble that was getting ready to burst on us.

 

[WhoWee]

Two critical issues are the cost of medical care, and Social Security benefits. Of the two, the rising cost of medicine [health care] is the greatest immediate threat. That is why Obama has focused on this issue.

The current "health care reform" legislation being discussed will not necessarily "cut" costs. Part of the strategy is to increase the number of Medicaid beneficiaries by nearly 20 million.

Medicaid is (largely) a state (expense) program. This is why the Attorney Generals of multiple states are outraged by Harry Reid's back room deal to pay for Nebraska's share of Medicaid - forever (in order to obtain a vote in favor of the legislation).

Passing the cost on to the states - who then need to raise taxes to cover costs - doesn't solve a thing...although it will increase costs to the states.

 

[WhoWee]

Something else to consider and a corrolary to the other thread about energy: Oil is one of the primary reasons that we have many of the problems that we do. For example, our foot print in the ME is the result of our need for oil. In fact, Carter, of all people, was ready to use tactical nukes to protect our oil interests in the ME. So we are in fact willing to fight a nuclear war over oil. How siginficant is that? What would that do for the economy?

How much might military spending be reduced if oil were not in the equation?

A bit of history: According to two war historians - Miller, War Plan Orange; Willmott, Empires in the Balance - Pearl Harbor was attacked in order to protect Japan's oil interests in the East Indies.

The use of fossil fuels also negatively impacts the GDP through health problems related to pollution. This comes in the form of health care costs, in addition to lost productivity.

This may not be the best place to make this post. However, given Ivan's post, has anyone else noticed the proximity of Yemen to Somalia and the escalating tensions with Iran?

What will happen to the price of oil if war breaks out between Israel and Iran? It's time to "drill baby drill" - like it or not!

 

[WhoWee]

Science tells us that it's the correct response to engage in deficit spending during recessions, when your economy is not functioning at full capacity. You incur some debt, but you stimulate the economy by reducing unemployment and increasing GDP, and that typically more than offsets the cost of stimulus. (It also tells us that direct spending is several times more effective, per dollar of deficit, than tax cuts.) But then you have to stop spending and start paying off your debt when unemployment is back down to healthy levels. In a way, Bush administration was justified in passing its tax cuts, even though direct stimulus would've been preferable. The real problem was that it failed to close the deficit when the situation improved circa 2004-05. And now, for some reason, the same people who pretended back in 2005 that everything was fine are suddenly rediscovering virtues of fiscal responsibility, even though this is probably the worst possible time to do so.

Were the COBRA extension (timed to the passing of "health care reform"), extended unemployment benefits, and funding for states to "save" state jobs real stimulus?

Also, if a construction worker is employed for 3 weeks on 1 stimulus project, then hired for 6 weeks on another stimulus project, then 4 weeks on a third - how many "jobs" were saved or created? Does 13 weeks of employment equal .25 jobs (13 weeks/52 weeks per year) or 3 jobs?

Like him personally or not, Bush was pro-small business and economic expansion.

When you refer to "people who pretended back in 2005 that everything was fine" - are you referring to Barney Frank and Chris Dodd (and other Democratic leaders who oversaw banking and Freddie/Fannie)?

 

[edpell]

There is a famous quote about democracy dying when politicians realize that they can bribe the people with their own money. I don't remember how it goes exactly, but you get the point - we're pretty much there. Government spending spirals for any/every democracy as a result of this principle.

Yes, these days I'm pretty pessimistic about the odds of western civilization's survival. We may have 100 years left at this rate, but possibly a lot less. The only way out is for people/politicians to bite the bullet and start giving the people back that scary freedom called personal responsibility by cutting social programs.

I would say there are several factors in play. First resource depletion and over population as described the the Club of Rome report "Limits to Growth" published in 1972. Along with automation and a mass of hungry people willing to work for food.

Change will not come by rational planning it will be a response to need. I am surprised this house of card (globally and nationally) has not fallen a long time ago.

Since the only tool the federal government has is war. I guess the solution to the pressing issue (what ever that may be) will be war (if the only tool you have is a hammer every problem looks like a nail).

How about this scenario Mexico runs out of oil. The Mexican government runs out of money. Massive migration starts from Mexico to the U.S. (more massive that is). The president orders troops to the border. It escalates to a war. At this point the federal government can starting doing things like building the new energy infrastructure regardless of the cost or hardship on the people. It can cut medicaid/medicare/social security as much as it needs/wants for the war effort. Yes, old people will die younger than under a rich system (this sucks I am 51). If there are regions of the nation that do not want to go along they can be killed. We are way past the rule of law and civil society.

 

[edpell]

It's time to "drill baby drill" - like it or not!

Drill where? Drill what? Please include hard references. Thanks.

 

[Ivan Seeking]

How much and how fast, exactly are you talking about here, Ivan? The deficit for 2009 was about $1.4 trillion ( http://content.usatoday.com/communities/theoval/post/2009/10/620000005/1 ) and the GDP $14 trillion ( http://www.google.com/search?source...&rlz=1T4ADBF_enUS311US311&q=united+states+gdp )
...and we import about $0.38 trillion in foreign oil ( http://www.google.com/search?source...ADBF_enUS311US311&q=united+states+oil+imports @ $80)

That number is a little deflated due to the economy. $500 Billion a year is a more accurate representation over the long term. We also had to pay for a massive bailout; pay for costs of war that the Republicans failed to include in the budget; provide a massive stimulus program. However, there is no doubt that the exportation of jobs is killing us. My point was that energy independence is the low-hanging fruit - it's a no-brainer. It also accounts for about 60% of our trade deficit. Beyond that, the number of jobs that energy independence would create would more than reverse the current employment crisis. So energy independence would be more siginficant to our economy than the current sum of job losses during the recession. To argue that is not siginficant is to argue that the current economic crisis is not siginficant.

 

[Ivan Seeking]

There is a famous quote about democracy dying when politicians realize that they can bribe the people with their own money. I don't remember how it goes exactly, but you get the point - we're pretty much there. Government spending spirals for any/every democracy as a result of this principle.

Yes, these days I'm pretty pessimistic about the odds of western civilization's survival. We may have 100 years left at this rate, but possibly a lot less. The only way out is for people/politicians to bite the bullet and start giving the people back that scary freedom called personal responsibility by cutting social programs.

After 100 years, the baby boom problem will be ancient history. Spending on social programs is a function of the population bulge moving through. The immediate solution is already taking place - we need young immigrants.

The fact is that the prosperity that we enjoyed for many decades had its roots in two massive government spending programs: The New Deal, and WWII. At the end of those programs, our debt to GDP ratio was 122%, which is much higher than it is now [we have linked this here many times already]. What is different now is that we are losing our manufacturing base; a problem that you have argued for seven years, isn't a problem. We are losing the capacity to create wealth through exports. Right now, one of the hottest exports is garbage, for recycling in China.

With a healthy GDP, we can handle the debt.

 

[Skyhunter]

Russ,

Obama was a professor of constitutional law. Too call him detached from reality because he failed to predict depth of the recession is not only an absurd conclusion, it is an ad hominem attack.

 

[Ivan Seeking]

Russ,

Obama was a professor of constitutional law. Too call him detached from reality because he failed to predict depth of the recession is not only an absurd conclusion, it is an ad hominem attack.

Yes, the Republicans left a bigger mess than anyone realized. That is hardly Obama's fault.

I remember one Republican strategist on the McLuaghlin group commenting early on that Obama's stimulus was "enough to make a corpse sit up". Well, it barely sat up, so we were apparently left with less than a corpse.

 

[edpell]

So the OP question how do we balance the budget. One theme is grow the economy. Fair enough. How do we get to a point where we have the same growth rate China has (about 8%)?

 

[Skyhunter]

There are different and competing economic theories out there. The one I subscribe to says the policies of Reagan helped get us out of the doldrums of the '70s and helped lead to the prosperity of the '90s

So you favor deficit spending and redistributing the wealth to the wealthy?

 

[Skyhunter]

So the OP question how do we balance the budget. One theme is grow the economy. Fair enough. How do we get to a point where we have the same growth rate China has (about 8%)?

By rebuilding our energy, transportation, residential, commercial, and agricultural infrastructure.

If we want to reverse the trend in atmospheric CO₂, we may need more than 8% growth.

 

[Skyhunter]

Yes, the Republicans left a bigger mess than anyone realized. That is hardly Obama's fault.

I remember one Republican strategist on the McLuaghlin group commenting early on that Obama's stimulus was "enough to make a corpse sit up". Well, it barely sat up, so we were apparently left with less than a corpse.

FDR made the same mistake. It wasn't until the government increased deficit spending for WWII that the depression ended.

 

[edpell]

If the federal government were to build out the new energy infrastructure at a cost of say 20 trillion dollars (owned by the people) that would provide lots of stimulus. Enough?

remember the TVA is was initially planned to be much bigger (ten projects) but got killed down to one project

 

[Skyhunter]

If the federal government were to build out the new energy infrastructure at a cost of say 20 trillion dollars (owned by the people) that would provide lots of stimulus. Enough?

remember the TVA is was initially planned to be much bigger (ten projects) but got killed down to one project

So far 30 billion of stimulus money has leveraged 52 billion in private investment, creating 900,000 jobs. The key is the private investment. If you can get 5 private for 3 public, then 6 trillion in 10 years gets you a total of 16 trillion invested. That is a lot of juice for the economy.

Now I am not suggesting these ratios will hold up, but I don't think they will drop below 50/50, and could go much higher, say 3 to 6 seven or even 8. As the initial investment starts paying off, with the right policies in places demand could drive investment higher.

 

[WhoWee]

Drill where? Drill what? Please include hard references. Thanks.

Where and what? OIL/gas ---> Everywhere in and around the US!

...and let's not forget about shale
http://dailyreckoning.com/oil-shale-reserves/

 

[Skyhunter]

When you refer to "people who pretended back in 2005 that everything was fine" - are you referring to Barney Frank and Chris Dodd (and other Democratic leaders who oversaw banking and Freddie/Fannie)?

How soon we forget.

The Republicans controlled the House, Senate, and White House in 2005.

Nice try though.

 

[mheslep]

...Currently the federal government borrows MORE than 50% of all the money it spends.

No, it does not. In FY 2008, tax revenues were 2.52T, spending was 2.98T.

Yes, in 2009, it did. US deficit for 2009 was http://www.nytimes.com/2009/02/27/us/politics/27web-budget.html" , total budget was $3.1T.

We had a balanced budget and even ran a surplus for several years under Clinton administration.

Yep, and under the Gingrich Congress.

We get most of our oil from Canada.

Not most. US domestic supply is still far larger than any single US import supplier.

http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html"

• US Domestic http://www.eia.doe.gov/emeu/steo/pub/contents.html"
• Canada 2.4
• Mexico 1.2
• Saudi Arabia 1.2
• Venezeula 1.0
  ...

 

[mheslep]

So far 30 billion of stimulus money has leveraged 52 billion in private investment, creating 900,000 jobs. ...

Source?

 

[mheslep]

FDR made the same mistake. It wasn't until the government increased deficit spending for WWII that the depression ended.

Or, it was taking 16 million men off the street for four years and thus off the unemployment rolls that ended the depression.