Thursday, May 5, 2011

Components of fiscal shortfall

It's the economy, stupid.

2 comments:

Patrick_L said...

Pew's visual representation of the causes of fiscal decline (there are three really good charts, check all of them out):
http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Fact_Sheets/Economic_Policy/drivers_federal_debt_since_2001.pdf

As it makes clear, the second biggest explanation of the change in debt projections from 2001 to 2011 are the Bush tax cuts. Plus the Wars in Iraq and Afghanistan are tied for third. Most economists would also attribute some (not all, but some) of the share of the blame over the weak economy to Bush- his economic advisers, the Treasury Department, regulatory agencies in the housing and financial sectors, etc.- have significant oversight responsibilities for the economy. And in this case, the recession was heavily caused by the housing bubble and under- or inadquately regulated financial sector.

Obama hasn't tacked to fiscal austerity, but nor should he have while we were still suffering 9% unemployment and the worst economic decline since the Great Depression. Now is the time to start moving to consolidation of our debt- though most experts (and the fiscal panels) are still arguing for minimal cuts in the next year or two- the most important thing is establishing a 10-year or longer plan. President Bush on the other hand did the opposite of what Presidents are supposed to do in an economic uptick- he cut reveneus and spent money like crazy, including adding an unpaid-for addition to an entitlement program, and did not continue to add to the Clinton-era success of paying down our debt. This is particularly troublesome because we knew in the early 2000s, just like we've known for decades, that government spending was going to expand in outer decades because of the baby boom and a health care sector out of control. Once again, Bush did nothing ever to address these long-term drivers of costs (his Social Security reform proposal at the very least would have actually increased outlays in that program during the baby boom because his personal accounts would had to have been financed while young people were also paying for tradititonal Social Security for the baby boom locked into that program. Even his economic advisers agreed to that point).

Patrick_L said...

Oh, and I just read the Washington Examiner's statement and realized it's false. They quote Obama as saying:

"To give you an idea of how much damage this caused to our national checkbook, consider this: in the last decade, if we had simply found a way to pay for the tax cuts and the prescription drug benefit, our deficit would currently be at low historical levels in the coming years"

The Washington Examiner responds:
"According to a new Pew study out this week, this statement is simply false."

The Pew Study does not actually speak to Obama's timeframe- note he says "in the coming years." He is not discussing the past decade, which is what the Pew Study addresses. While Obama's statement
"our deficit would currently be at low historical levels" is hardly adequate considering our nation's long-term fiscal outlook, it is factually correct. Without the Medicare Part D program (whose costs balloon in future years- older people, rising health care costs, etc.) and the Bush tax cuts (which lower revenues); revenue streams and spending levels would be very close and put deficits at low historical levels "in the coming years."

The Washington Examiner in this case is factually incorrect, comparing an apple with Obama's orange statement and trying to say Obama was incorrect. If they actually addressed Obama's statement and turned to the evidence, as provided by CBO or other groups, they'd now that his statement was factually correct. It's a narrow and limited point that Obama's making so it's hardly a thrilling statement of fiscal discipline, but it is correct.