Transcript U.S. Debt & Deficits: A Budgetary Crisis

U.S. Debt & Deficits:
A Budgetary Crisis
Dr. Dennis Foster 8/22/2012
Part I. The Problem.
Debt:
Part I. The Problem.
Deficits:
Part I. The Problem.
Context? As % of GDP.
Part I. The Problem.
Part I. The Problem.
Unfunded
federal
“liabilities”
= $60+
trillion
The good news is
that the people
who are really
going to be mad
about this have
not even been
born yet.
Part I. The Problem.
Ever hear of business cycles?
Part II. What is to be done?
• The “fiscal cliff” scenario
–
–
–
–
–
–
Bush tax cuts expire
Expand AMT
Reduce Medicare reimbursements
Sequestration spending cuts
Expiration of some unemployment compesation
Some “Obamacare” taxes kick in
– Net effect … ~$600 billion decrease in deficit.
– … and decrease growth 0.5%. Another recession?
Part II. What is to be done?
• Simpson-Bowles
–
–
–
–
Spending cuts ($200 b/year)
Tax increases ($100 b/year)
“Public option” in Obamacare to costs
Reduce entitlements
• farm subsidies, student loans
– Rearrange Social Security
• raise taxes, raise retirement age
– Expect debt cut by $4 T. over 10 years
– … means the debt will grow by $6+/- trillion!
Part II. What is to be done?
• Ryan Budget
– Target spending to 20% of GDP.
• details on cuts …
– Target taxes at 19% of GDP.
– Retool Medicare as central feature
– CBO figures budget balanced in 2030 (!)
– … debt grows until then, but shrinks as %GDP
– … assuming no recessions for next 18 years.
Part II. What is to be done?
• Bush - Privatize Social Security
• Gramm-Rudman-Hollings
• Grace Commission
• Obama - 2011 SOTU
Part II. What is to be done?
• What does the budget look like?
Part II. What is to be done?
• Where does the money come from?
Part III. Why little/nothing will get done.
Part III. Why little/nothing will get done.
Lessons from Public Choice Theory
• The study of collective choice using standard
economic assumptions - people are rational and selfinterested; incentives matter.
– Politicians want to win elections.
– To win, you must cater to various voter blocs.
– To be successful, you must trade votes.
• legal vs. illegal bribes
– To minimize opposition, separate spending and tax decisions.
– Concentrate benefits; spread costs.
• exception - tax the rich (rhetorically)
– Rhetoric is important.
– Embrace the long run, but promote the short run.
– The knowledge problem made manifest.
Part III. Why little/nothing will get done.
Lessons from Public Choice Theory
• What should we expect from the budget “crisis?”
– Politicians will claim disaster looms, or not.
– Politicians will choose to do as little as possible.
• even if events catch up with their choices; Greece …
– Politicians will claim to have solved problems, when they
haven’t.
• What will happen?
– A “sustainable” path will be found; it won’t be.
– At the next recession, the magnitudes will be much worse.
– more “European-like”
– This may/may not follow a serious inflation problem.
– At the time of crisis, we will have to accept pain.
Part IV. Thinking outside the box.
The 19% Solution
Part IV. Thinking outside the box.
A Balanced Budget Amendment
Part IV. Thinking outside the box.
Ron Paul - Would you opt out?
• Pay some low rate . . . 10%
• Take no government (fed’l) assistance.
Gary Johnson - Balance now.
• Cut subsidies & earmarks.
• Reform entitlements.
• block grants
Part V. In the long run …
Rethink the role of government
• Recognize that government is crude, incapable,
inefficient, wasteful, corrupt, immoral, unjust.
• Adopt the notion that government should be as small
as possible and as decentralized as possible.
• Allow people to solve their problems voluntarily in an
environment of property rights.
• Embrace the free market as a mechanism that
promotes diversity, mutual respect, individuality, and
as the ultimate expression of democratic values.
http://www.usdebtclock.org/
[8/16/2012]
Sources
•
U.S. Treasury data on debt:
http://www.treasurydirect.gov/NP/BPDLogin?application=np
•
St. Louis Fed FRED data base:
http://research.stlouisfed.org/fred2/
•
Public versus Gross debt:
http://en.wikipedia.org/wiki/United_States_public_debt
http://en.wikipedia.org/wiki/File:Holders_of_the_National_Debt_of_the_United_States.gif
http://www.treasurydirect.gov/NP/BPDLogin?application=np
http://www.clearonmoney.com/dw/doku.php?id=investment:commentary:2011:02:19gross_vs_net_government_debt_--_a_tedious_topic_with_important_practical_consequences
•
Components of government budget:
http://useconomy.about.com/od/fiscalpolicy/tp/US_Federal_Budget.htm
http://en.wikipedia.org/wiki/United_States_federal_budget
•
Gross Domestic Product information and data:
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
•
Debt data:
http://www.fms.treas.gov/finrep11/citizenguide/fr_citizen_guide.html
•
Debt and deficits as a percent of GDP:
http://www.npr.org/templates/story/story.php?storyId=112339032
Sources
•
The “fiscal cliff:”
http://www.convergentwealth.com/dollars-and-sense/shadow-fiscal-cliff
http://en.wikipedia.org/wiki/United_States_federal_budget
•
Simpson-Bowles:
http://en.wikipedia.org/wiki/National_Commission_on_Fiscal_Responsibility_and_Reform
http://www.bloomberg.com/news/2012-06-14/in-praise-still-and-again-of-simpson-bowles.html
•
Ryan budget:
http://en.wikipedia.org/wiki/The_Path_to_Prosperity
http://blogs.wsj.com/washwire/2012/08/11/what-is-the-ryan-budget/
•
Debate on Social Security:
http://en.wikipedia.org/wiki/Social_Security_debate_in_the_United_States
http://www.npr.org/templates/story/story.php?storyId=4164384
•
Grace Commission on government waste:
http://en.wikipedia.org/wiki/The_Grace_Commission
http://www.nationalaffairs.com/doclib/20060406_issue_078_article_5.pdf
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Senate Republicans’ Balanced Budget Amendment:
•
The CAP Act:
http://www.corker.senate.gov/public/index.cfm?p=the-cap-act
http://cnsnews.com/news/article/senate-gop-unites-behind-strong-balanced-budget-amendment
Sources
•
Gary Johnson on the debt and deficits:
http://www.garyjohnson2012.com/issues/spending-and-the-deficit
•
The 19% solution:
http://reason.com/archives/2011/02/14/the-19-percent-solution
•
Gramm-Rudman-Hollings:
•
John Stossel interviews Ron Paul on his “opt out” idea:
http://www.youtube.com/watch?v=ZgIY4IxBSXM
http://en.wikipedia.org/wiki/Gramm%E2%80%93Rudman%E2%80%93Hollings_Balanced_
Budget_Act
U.S. Debt & Deficits:
A Budgetary Crisis
Dr. Dennis Foster 8/22/2012