Hoisted from the Archives

By James Kwak

What was the budget debate about eleven years ago?

 

As you can see, that is the cover of the CBO’s March 2000 Budget Options report. (You can get it online, but without the cover.*) For most of the 1980s and 1990s, this report was called Reducing the Deficit: Spending and Revenue Options; this year’s version has reverted to that title.

The context for the picture above was the budget surpluses of the late 1990s. At the time, the CBO was projecting surpluses for at least the next twenty years, amounting to over $3 trillion in the first decade of the twenty-first century. (See the 2000 Budget and Economic Outlook, Summary Table 1.) And although most of the surpluses were off-budget (surpluses of Social Security payroll tax revenues over benefit payouts), there were supposed to be ten years of on-budget surpluses as well.

We all know what happened next: a (mild) recession, the Bush tax cuts of 2001 and 2003, the Afghanistan and Iraq Wars, and the Medicare prescription drug benefit, among other things. But the question for now is: did those surpluses really exist?

On an annual cash-flow basis, yes they did. The 2000 surplus was $236 billion, and only about $180 billion of that was due to the various Social Security and Medicare trust funds. (See Historical Tables 1.1 and 13.1 to the 2012 budget.) But on a long-term basis, the government very clearly had a budget gap. The CBO’s 1999 Long-Term Budget Outlook already had this now-familiar picture (p. 4):

As you can see, even if the government saved all of its surpluses — no tax cuts, no additional spending, just save the money for the future — the national debt would shoot up in the 2060s. At the other extreme, if the government gave back the surpluses, either through tax cuts or additional spending (but still balanced the budget for the next decade), the debt would spike in the 2030s. And the reasons were already clear: demographics and health care costs.

In other words, today’s long-term debt problems should not have been a surprise. And back in 2001 when the Bush tax cuts came up for a vote, every Congressperson should have known about these two pictures. That includes Senators Baucus, Feinstein, Kohl, Landrieu, and Nelson (Democrats), and Senators Blunt, Burr, Chambliss, Cochran, Collins, Crapo, DeMint, Ensign, Graham, Grassley, Hatch, Hutchison, Inhofe, Kirk, Kyl, Lugar, McConnell, Moran, Murkowski, Portman, Roberts, Sessions, Shelby, Snowe, Thune, Toomey, Vitter, and Wicker (Republicans), all of whom voted for the 2001 tax cuts (some of them as members of the House). (Sources here.) Senator Nelson and all of the Republicans (except Snowe and Thune) also voted for the 2003 tax cuts, too. Of course, John Boehner and Eric Cantor also voted for both tax cuts.

That doesn’t necessarily mean that the 2001 and 2003 tax cuts were necessarily bad policy (although I think they were). But it does mean that if these people are going to complain about the long-term deficit, they should admit to being part of the problem.

* Actually, you can now get CBO reports back to the 1970s online. The previous time I checked, the website only went back about ten years, which is why I went to the library for older versions.

12 responses to “Hoisted from the Archives

  1. jeff simpson

    It takes a special kind of myopia to be a politician, and also a lexicon packed full of erroneous entries. The spiraling cost of health care results from the anti-free-market limiting of the number of doctors by the AMA (through admissions quotas), and the absurdly structured patents awarded to big pharma following extensive, publicly funded trials. The word ‘defense’ has little to do with actual defending of the country, except perhaps in the sense that ‘the best defense is a good offense.’ Small government = no regulation and no protection of the commons and the commoners.

    The unsustainability of our current political course is apparent to most. Undoing the New Deal is coming, along with more toll booths, more interest, more fees, more mining, fishing, logging, and more binding arbitration. The cost of college continues up as loans help bid up the prices, this despite the abysmal economic prospects for new graduates.

    On the bright side, there are more riots to come in Europe, where the populace is less brainwashed.

  2. Moses Herzog

    James, this is one of your best posts. I hope you will repeatedly use these graphs from this specific document in ALL future blog posts on the budget deficit/national debt.

    In fact we should talk about it in context of the debt, not the yearly deficit. For two reasons. First, using the word deficit instead of debt, implies it is a problem which just occurred this year. And secondly, we should refer to it as debt because when it is referred to as “the deficit”, it ignores the fact that interest payments (incredibly burdensome interest payments caused largely by decades of tax cuts on the rich and large corporations) are now a huge part of the deficit/debt.

    Well, you know I could go on and on rambling about the hypocrites whose family names are mentioned above (minus Kwak, who is not a hypocrite).

    I could mention how some guy named Vitter s.c.rew.ed around on his wife and faced lesser consequences than an emotionally immature New Yorker taking photos and sending them over Twitter.

    I could mention how some Oklahoma Senator (the one not named Inhofe) tried to cover-up and negotiate a financial exit for his fellow C-street buddy Ensign s.c.rew.ing around on his wife with a Senate staffer, then that Oklahoma Senator having zero criminal charges filed against him for the cover-up.
    Please excuse 30 second advert. before the clips: http://www.msnbc.msn.com/id/26315908/vp/43025241#43025241

    http://www.msnbc.msn.com/id/3096434/vp/43029119#VpFlash

    I could mention how McConnell and DICK Shelby never met a Big Banker regulation bill they wouldn’t/couldn’t water down or kill. And now taxpayers are paying welfare for bankers because Republicans didn’t want any regulations for big bankers. Now DICK Shelby is trying to castigate and berate anyone nominated for the CFPB who doesn’t want to rub baby oil on the American Bankers Association’s back. Shelby also wants a TBTF bank crony for the Office of Comptroller of the Currency. That way Alabama taxpayers can subsidize Shelby’s banker buddies on their round of failures.

    I could mention Senator Grassley, the guy who thinks federal health insurance is too expensive for everyone but himself and his fellow Senators, in which case when supplied for U.S. Senators at very cheap co-payments, federal health insurance for U.S. Senators suddenly and instantlybecomes amazingly efficient in Chucky Grassley’s view.

    But none of those just things really relate directly to this post, I’d be identified as “trouble in river city” and some Rupert Murdoch thug with FOX news credentials would try to stick an eavesdropping bug in my posterior region. So I’ll just take the high road and show this graph in the two links below instead, which show the true cause of the increase in the last 2 years’ deficits.
    http://2.bp.blogspot.com/-8LVw3-YXt_A/TdWj8nQyUkI/AAAAAAAAQ1w/wGI39TSyujc/s1600/DeficitChart.png

    http://www.cbpp.org/cms/index.cfm?fa=view&id=3490

  3. James asks, “But the question for now is: did those surpluses really exist?”

    Since money doesn’t really exist, how could surpluses? Or deficits, for that matter.

  4. James, face it, John and Eric “ain’t admittin’ nothin’” needless to say. They are the dogmatic tax cutters who will live and die by that horrible sword. They are Norquitians through and through. These are not beliefs, they are dogmatic credos. Belief in the rectitude of tax cutting is not a part of the debate. We all know that or should. Logic doesn’t enter into it, and this is true of many, if not most hardset dogma. Economically they are a part of the neo-classical captitalists who believe in voodoo ecomomics from the old Chicago school, and no matter how many times the validity of it’s dogma is disproven, they rely upon it for their beliefs and opinions, and, sadly, their actions and obfuscations.

  5. Moses Herzog

    From Page 294—295 of a very insightful and perceptive man‘s autobiography. Those with a memory longer than 10 minutes (and don’t cheat by using Google) will quickly know whose words these are by deduction:

    “The second key at the convention was my acceptance speech. I knew this would be a crucial chance to reintroduce myself to a lot of Americans—and maybe my last chance if I didn’t get it right. It would be the most important speech of my career. We went through a lot of drafts and a lot of themes. One that ended up in the speech, famously, was this: ‘Let’s tell the truth. Mr. Reagan will raise taxes and so will I. He won’t tell you. I just did.’

    A lot of people have told me that was a mistake, and I notice no one has tried it since. But I thought it was right at the time and I still think so today. As a question of public policy, voters had to confront the need to raise revenue. The federal deficit in 1983 had exceeded $200 billion, a record, causing the highest real interest rates in history and creating huge debts for our children. It was hard to explain to people that, in effect, their taxes had gone up a lot, only they were paying in the form of higher interest rates, soaring trade deficits, and an explosion of payments on the federal debt.

    Then, as a matter of political style, I have always believed that voters respect honesty. We had spent a lot of time during the early stages of the campaign actually drafting a federal budget that was honest and balanced—an exercise that has seldom been repeated in subsequent campaigns—and I knew it would require higher revenues. Explaining that plainly to voters was a gamble, but I knew I would feel better about myself because I was telling the truth.”

    The speech he quotes of his own words is from 1984. The three bold print paragraphs above were copied directly from a Scribner (Division of Simon and Schuster) published book. If no one can guess who the man who wrote that was, I will tell later in this comment thread.

    Mr. _______, if you are out there, there was a young man just about to enter adolescence when you gave that speech. And your honesty set a great example to that young guy and many other Americans. Me and other members of my family appreciated it. And I for one, think you did the right thing, and will never forget it. I think God will bless you for it one day, if He hasn’t already.

  6. information is very good & interesting to read

  7. Owen Owens

    Beware of the man who wears to many hats and Juggles to many balls.

  8. Philip Pilkington

    If I were an American I’d vote Republican. Why? Because, Keynesian that I am, I know that they’d run budget deficits and promote economic growth through government spending.

    The Democrats cannot frame their arguments properly. They follow the ‘government off the private sector’s back’ argument to the letter — which is then used to beat them over the head fiscally by the Republicans. People see the results of the Democrats’ moronic economic policy (stagnation and/or speculative bubbles) and realise that its better to turn to the dishonest knaves that say one thing and do another.

    The US — as Japan has shown for years — needs large budget deficits. That’s the economics. The politics? You need a Reagan or a G.W. Bush. People that will say one thing and do another. Not some placid Democrat who can’t get his priorities straight.

    Vote deficits — vote economic growth — vote Republican!

  9. Philip Pilkington

    “People see the results of the Democrats’ moronic economic policy (stagnation and/or speculative bubbles)…”

    I should add to that the main component the voters see when ‘responsible’ Democrats get into power: massive private sector deficits. Or, to put that in non-economic terms: massive holes in their bank balance-sheets.

    From Randy Wray’s excellent post over at Naked Capitalism today — which runs through the real causes behind the present crisis — here’s the sectoral balances over the past few years for the US:

    http://www.nakedcapitalism.com/wp-content/uploads/2011/07/Screen-shot-2011-07-06-at-1.43.19-PM.png

    See those big blue minuses in the Clinton years? Yeah, that means that YOU are taking on debt because the government has decided that they want to run surpluses to tackle the quote-unquote ‘government debt problem’.

    Now look at the Reagan years. He was smart enough to run budget deficits so that the private sector could net save. Poor G.W. Bush tried to counteract the holes Clinton and his cronies punched in private sector balance sheets by running government deficits, but the damage was simply too great. Bush’s deficits could only do so much. The private sector — that is YOU — had to continue running into the red.

    Now Obama says that the government needs to tighten its belt because the private sector are doing likewise. Of course, that makes no sense — as even a cursory glance at sectoral balances or Wray’s article will tell you. But I think Obama wants the private sector to go into debt. It’s the only explanation. Democrats are completely enamored with high-levels of private debt. Them and their Wall Street friends just can’t get enough of it. Impossible private sector debt burdens need banksters to cook up funny securitisation instruments. So private sector debt is Godsend for them.

    And there are the poor Republicans. They pretend to go along with the nefarious Democrat-Wall-Street-complex plans to turn the private sector into debt-slaves, but we all know they’ll run those government deficits when they’re needed. Heroes — all of them.

  10. Moses Herzog

    Well, the answer to who wrote those 3 paragraphs, for anyone who is actually curious, is Walter Mondale. People wonder why politicians always tell lies. The simple reality is, it is the only thing 95% of people want to hear. So they get what they want—LIES. Walter Mondale was a fine man who would have done this country well, and most likely (though not 100% certainly) would have watched the fall of the Berlin Wall same as Reagan. Somewhere a long the way America no longer cared for truth telling politicians. Maybe it was when inflation took off under Carter (which had little to do with Carter’s policies). Maybe it was when they elected a proven liar in Nixon (see Checkers the dog).

    Americans elected an obvious liar, and then many were baffled when they reaped Watergate.
    Maybe it was just a slow cultural change and a loss in morality in general American society that became more obvious in our ballot choices. Whatever it was, Mondale was severely punished for telling people what they didn’t want to hear—the truth. I myself often think of the Jack Nicholson line from “A Few Good Men” when thinking of Walter Mondale’s ’84 Convention line:

    “Let’s tell the truth. Mr. Reagan will raise taxes and so will I. He won’t tell you. I just did.”

  11. Excellent (as usual) post James :-)

    Ref: http://en.wikipedia.org/wiki/United_States_public_debt
    http://en.wikipedia.org/wiki/Unified_budget
    http://en.wikipedia.org/wiki/Budget_Enforcement_Act_of_1990

    I cannot stress enough the damage that “Maximus Cowboy in Diapers” Georgie “Boy” Bush Jr. {(mint)(#43)} did to the country as a whole. The numbers I present are but a glance at an illusion, orchestrated by the Republican Party over a “8 Year Period”! Indeed, ~$5 tn. added onto the ‘National Debt’ in 8 years doesn’t tell the whole story…for whomever won the presidentcy (post cowboy?) was surely saddled with an astounding amount of debt spending, too right this sinking “Albatrose” gifted to a knowing, and incompedent democratic president on a silver platter.

    There was no way in hell that america was about to re-elect a Republican…therfore lets cut to the chase and say that whomever got the nod was a sure winner. The people had had enough,… but voted for a novice (2 Yrs. US Senator with a “No-Vote” conservative record?) to run the country, whereas Hillary would have at least,… had Bill at her side! In two short years Obama has added $3.5 tn. to the national deficit and counting,…and of that $3.5 tn. I truly believe $2.5 tn. of the $3.5 tn. should be retrodacted back to the “Mad Cowboy”! (JMHO)
    Did the wise guys (choreograph) all know this likely outcome, and if not did they purposely perpetuate the outcome if the puzzle wasn’t meshing? You betcha! Power only works for the “Purist”?

    Thankyou James, and Simon

    PS. Hoisted from the Gallows with a tightly woven fiat is not a pleasant way to expire?