NationStates Jolt Archive

http://www.bloomberg.com/apps/news?pid=20601087&sid=aB0FYEQkR4Es&refer=home
Obama Plans to Reduce Budget Deficit to $533 Billion by 2013

Feb. 21 (Bloomberg) -- President Barack Obama plans to cut the U.S. budget deficit to $533 billion by the end of his first term by increasing taxes on the wealthy and cutting spending for the war in Iraq, according to an administration official.

Okay, so the US is looking at an extended period of negative or low economic growth, with consistently high unemployment rates. The federal government has to deal with the states verging on bankruptcy in some cases. There is a banking rescue, a mortgage rescue and an auto rescue on the cards already. There was talk about improving access to healthcare, I recall. Oh, and don't forget a massive stimulus package and this whole idea of a "Green Economy" that doesn't need as much foreign oil, and of course much more decisive military action in Afghanistan.

So I think we can all be reasonably confident that the US budget is not going to be back to 3% deficits for some time, right? I mean, we'll have to look at the precise figures they'll propose when the planning actually comes out, but still...this is massively overoptimistic. Much the same in fact as the multiplier they used to calculate the proposed benefits of the stimulus package, which was 1.5, when empirical research tends to put it below 0.8 and in cases similar to the current one (ie liquidity trap-type financial chaos) close to zero.

So why do you think the Obama administration is saying this? Is it an overdose of hope or an overdose of hype? Wouldn't it be better if he just came out and made it clear to everyone that he can't realistically be expected to worry about deficit reduction?

1. He says he's going to "tax the rich".
2. You're not allowed to imply in any way that Obama is going to fail, or is doing anything wrong, here on NSG.

Much the same in fact as the multiplier they used to calculate the proposed benefits of the stimulus package, which was 1.5, when empirical research tends to put it below 0.8 and in cases similar to the current one (ie liquidity trap-type financial chaos) close to zero.

got any cites for this research?

1. He says he's going to "tax the rich".
If you read the article, the basic idea is to tax certain forms of income, mainly investment returns, at the income tax rate as opposed to the capital gains tax rate.

Even if we were to assume that this would normally earn lots of extra cash, exactly where are these investment returns (http://www.businessspectator.com.au/bs.nsf/Article/Market-$pd20090224-PJV6S?OpenDocument&src=sph) supposed to come from over the next few years? They're not going to be anything like the stuff we'd come to accept as normal.

If you read the article, the basic idea is to tax certain forms of income, mainly investment returns, at the income tax rate as opposed to the capital gains tax rate.

Even if we were to assume that this would normally earn lots of extra cash, exactly where are these investment returns (http://www.businessspectator.com.au/bs.nsf/Article/Market-$pd20090224-PJV6S?OpenDocument&src=sph) supposed to come from over the next few years? They're not going to be anything like the stuff we'd come to accept as normal.

Shh. You're pointing out that the emperor has no clothes.

Shh. You're pointing out that the emperor has no clothes.

Quit pretending you know what he's talking about.

got any cites for this research?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880868

Less formal:
http://online.wsj.com/article/SB123258618204604599.html
http://business.theatlantic.com/2009/02/an_interview_with_robert_barro.php
http://www.businessspectator.com.au/bs.nsf/Article/Lacy-Hunt-$pd20090129-NR997?OpenDocument

Snip

Brought it up with my Economic history professor. And for point of reference he is a fan of Supply side economics, so not really a fan of Obama.
His predictions are that the deficit will shrink during Obama's administration.
reason
1. Stimulus package is a one time deal. (now if there is one every year god knows)
2. Peace dividend from Iraq. as we leave
a. saves 100 billion a year
b. increased revenues as people working over there largely do not pay taxes
3. The deficit has a natural period. Polices affect how much the peak and troughs are but the period still happens. Bush's presidency fell during a peak in deficit, Clinton fell during a trough in deficit (or peak in surplus).
a. most common theme in mathematics is reversion to trend.
So those three conditions in place the reduction of the deficit seems reasonable.

1. Stimulus package is a one time deal. (now if there is one every year god knows)
That's a point, although the package contains tax cuts and spending staggered over several years.

2. Peace dividend from Iraq. as we leave
a. saves 100 billion a year
b. increased revenues as people working over there largely do not pay taxes
Some of that will be cancelled out by the supposed increased effort in Afghanistan and the money it will cost to rebuild the units that come back from Iraq and need refitting. At any rate, 100 billion is less than a 10th of the deficit.

3. The deficit has a natural period. Polices affect how much the peak and troughs are but the period still happens. Bush's presidency fell during a peak in deficit, Clinton fell during a trough in deficit (or peak in surplus).
a. most common theme in mathematics is reversion to trend.
That makes no sense. Budgets aren't some sort of sin-function, they're discreationary decisions made by governments subject to certain constraints. The reason Bush made such a deficit wasn't because it happened to be a "peak period", but because he cut taxes and spent money with both hands. Obama will continue to do the latter (to a greater extent still) and find himself in an ongoing recession.

Worse, this cycle with peaks and troughs is not even particularly visible in the data (http://www.headybrew.net/images/content/budget_deficit_or_surplus.gif) itself. I really don't know where your professor could have gotten this idea from.

If overly rich people like McCain gets taxed so much they can only keep two of their five houses, I don't think there'll be too many complaints from the rest of us.

people are panicking over 2 things--the economic collapse and the insanely high deficit.

so he is acting on both of them.

is it a good idea? beats me but at least he is getting a variety of opinions on the subject.

Quit pretending you know what he's talking about.

In terms of economics, NL leaves me (and I'm guessing most of us) in the dust. I'll readily admit that I know next to nothing about economics.

But Obama is a politician. A slick one. And we all know a bit about that. He promises big because that's what politicians do. He'll even do a few things that could be expected to get to a deficit reduction like that. At the end of his first term, he'll probably be able to say that his policies should have done it except for 'factors outside of his control' or some other rational sound bite.

Sometimes I think that the real wars are fought on the economic level, and right now, the US empire is falling apart. Could this deficit reduction be a sort of longer-term attempt to shore up US economic defenses?

You know, confidence is good for the economy. The perception of reality often means more than the reality itself. Many people have confidence in Barack Obama's ability, and as a skillful politician, if he can convince those who don't to have confidence, that's probably the most powerful weapon in his arsenal.

I also think that people who run around like chickens with their heads cut off shouting doom and gloom for no other reason than he wasn't their candidate, ought to be locked up as terrorists. ;)

Edit: One further note: I count myself among those waiting to be convinced. But I am convinced he has the ability to convince me.

...

thanks. working my way through the imf paper, but barro's argument i've already seen. i'm with krugman and delong, at least part of it is stupid. namely,
I have estimated that World War II raised U.S. defense expenditures by $540 billion (1996 dollars) per year at the peak in 1943-44, amounting to 44% of real GDP. I also estimated that the war raised real GDP by $430 billion per year in 1943-44. Thus, the multiplier was 0.8 (430/540)
its kinda hard to fully stimulate the economy when everyone has to tighten their belt because there is a war on.

Many people have confidence in Barack Obama's ability

But, unfortunately, I'm not so sure this is the case for the people that matter.

I'm sure he'll halve the deficit next year, as long as there isn't another retarded bailout package.

The deficit was below $600 billion for 7 of Bush's 8 years (even though it was absurdly high) and is only that high last year and this year because of bailouts. No bailout=2/3 of the yearly deficit goes away.

So...he's going to cut our deficit in half....while spending billions of dollars... I want whatever he is smoking.

But, unfortunately, I'm not so sure this is the case for the people that matter.

All people matter. Whether people spend money or horde it is going to have a huge impact on the economy.

So...he's going to cut our deficit in half....while spending billions of dollars... I want whatever he is smoking.
Nah, he wants the deficit in four years to be half of the one this year. All he needs to do, is spend a shitton this year, and then spend less every year thereafter.

I'm sure he'll halve the deficit next year, as long as there isn't another retarded bailout package.

The deficit was below $600 billion for 7 of Bush's 8 years (even though it was absurdly high) and is only that high last year and this year because of bailouts. No bailout=2/3 of the yearly deficit goes away.

And the budget had ZERO deficit for (IIRC) four years before Bush. Then Bush insisted on a trillion dollar tax cut for the ultra rich, causing that $600 billion deficit. Undo that trillion dollar tax cut on the ultra rich, and nearly all of the deficit goes away.

"Feb. 21 (Bloomberg) -- President Barack Obama plans to cut the U.S. budget deficit to $533 billion by the end of his first term by increasing taxes on the wealthy and cutting spending for the war in Iraq, according to an administration official."

He believes he can make-up for all his extraordinary spending and pay-off a good deal of the deficit by simply increasing taxes, and cutting spending on one of two wars while still partaking of both? :tongue:

quit pretending you know what he's talking about.

:D


a

So...he's going to cut our deficit in half....while spending billions of dollars...

yes. what part is difficult to understand?

And the budget had ZERO deficit for (IIRC) four years before Bush. Then Bush insisted on a trillion dollar tax cut for the ultra rich, causing that $600 billion deficit. Undo that trillion dollar tax cut on the ultra rich, and nearly all of the deficit goes away.

It would, if it were not for the fact that other than the War in Iraq, Obama is increasing spending in virtually every category.

yes. what part is difficult to understand?

Well see...that billions of dollars has to come somewhere, and I doubt that even if you tax every rich person in America to death, that we'll get anywhere close to paying off the billions of dollars. So, we'll have to borrow the money from other countries (China), and give them an I.O.U. Since we had to borrow that money, that will drive our deficit up. Understand now?

Well see...that billions of dollars has to come somewhere, and I doubt that even if you tax every rich person in America to death, that we'll get anywhere close to paying off the billions of dollars. So, we'll have to borrow the money from other countries (China), and give them an I.O.U. Since we had to borrow that money, that will drive our deficit up. Understand now?

paying off what? i think you may have missed what it is he is actually proposing to do...

Edit: One further note: I count myself among those waiting to be convinced. But I am convinced he has the ability to convince me.

Does that really take effort?

LG: Convince me!
The President: Here is a plate of tacos!

It would, if it were not for the fact that other than the War in Iraq, Obama is increasing spending in virtually every category.

seems like the reasonable thing to do

Nah, he wants the deficit in four years to be half of the one this year. All he needs to do, is spend a shitton this year, and then spend less every year thereafter.
It'll be interesting to see what Pelosi et al have to say about that.

Well see...that billions of dollars has to come somewhere, and I doubt that even if you tax every rich person in America to death, that we'll get anywhere close to paying off the billions of dollars. So, we'll have to borrow the money from other countries (China), and give them an I.O.U. Since we had to borrow that money, that will drive our deficit up. Understand now?

You're confusing debt with deficit. He's not looking to pay off the debt. He's looking to reduce by half the number that it increases by every year.

You're confusing debt with deficit. He's not looking to pay off the debt. He's looking to reduce by half the number that it increases by every year.

Ahh I thought deficit = debt. Ahh my bad, thanks for the correction.

Ahh I thought deficit = debt.

. . . . .wow

Does that really take effort?

LG: Convince me!
The President: Here is a plate of tacos!

Well, I won't settle for any less than three tacos. *nod*

Well, I won't settle for any less than three tacos. *nod*

What about two and a half?

What about two and a half?

half a taco is an abomination to god and creation.

You're confusing debt with deficit

i have been somewhat confused by how often that mistake gets made. it crops up everywhere, and i just don't get it.

i have been somewhat confused by how often that mistake gets made. it crops up everywhere, and i just don't get it.

Well, a budget deficit can increase debt. And they both begin with D.

i have been somewhat confused by how often that mistake gets made. it crops up everywhere, and i just don't get it.

Lack of education.

its kinda hard to fully stimulate the economy when everyone has to tighten their belt because there is a war on.
Well, the belt-tightening is going on right now as well. It's not about price controls or war-time rationing this time, but about household deleveraging. And perhaps a more applicable example would be Japan in the 90s, where stimulus packages (not sure about the various multipliers on those) essentially kept the economy out of recession by some slight margin for as long as they were active, and as soon as they ended the recession started again. There was no lasting effect, which is probably the thing to be worried about most as far as this package was concerned as well.

But whatever the case may be, Barro's analysis is useful because it clearly outlines the logic behind the multiplier, and the big leap of faith you're making when you use a figure above 1 in your calculations. 1.5 is just kinda out there.

I'm sure he'll halve the deficit next year, as long as there isn't another retarded bailout package.

The deficit was below $600 billion for 7 of Bush's 8 years (even though it was absurdly high) and is only that high last year and this year because of bailouts. No bailout=2/3 of the yearly deficit goes away.
Hence why I mentioned in the OP all the things Obama has on his plate that are either absolutely necessary or truly central parts of his political platform. And the bailout packages aren't one-off payments, they're ongoing commitments that lock up significant parts of the budget for some time, and we certainly haven't seen the last of those yet. There is no way to fix the financial system, the mortgage situation or the car industry without spending a lot more yet. And that's not even talking about the falling tax revenues as a result of the contracting economy that won't necessarily be counteracted by just increasing rates for some group of people, or the increased government spending on welfare and poverty-reduction programs that is going to be necessary over the next few years.

i have been somewhat confused by how often that mistake gets made. it crops up everywhere, and i just don't get it.
Not a lot of econ education, like Smunkee says. One of the very first lectures we had the difference between a stock and a flow hammered into us.

Well, a budget deficit can increase debt. And they both begin with D.

of course, we could also plug in 'donuts' up there

...and now i demand that people begin confusing debt and donuts

seems like the reasonable thing to do

Spending? No, it is not. It might work if Obama withdrew from both wars: if half of our deficit can be attributed to war and taxes, then the wars have to fully stop--especially if we are proposing to increase spending elsewhere at the same time.