A long-run perspective on the U.S. deficit and debt

Federal Reserve Bank of St. Louis economist Daniel Thornton has a new paper looking at long-run factors in the U.S. deficit and debt. His graphs tell a familiar story, but one worth repeating.

Federal debt has been growing as a percent of GDP for the last 30 years.



Source: Thornton (2012).
Thornton1_jan_13.gif



Mechanically, that’s because spending went up relative to GDP and taxes did not.



Source: Thornton (2012).
Thornton2_jan_13.gif



In terms of explaining why spending as a percent of GDP went up, defense spending as a percent of GDP is about the same as it was in 1980, whereas transfer payments have grown significantly.



Source: Thornton (2012).
Thornton3_jan_13.gif



And within transfer payments, the growth has primarily come from Medicare and Medicaid.



Source: Thornton (2012).
Thornton4_jan_13.gif



To the extent recent declines in tax rates have contributed, one sees this primarily in the form of lower tax rates for the bottom four income quintiles in the following graph of combined income and Social Security tax rates.



Source: Thornton (2012).
Thornton5_jan_13.gif



The political impasse facing the U.S. arises from one simple reality: Americans want an increasing government contribution to health care, but don’t want to pay for it.

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40 thoughts on “A long-run perspective on the U.S. deficit and debt

  1. idaman

    I thought a large portion of the debt increase was due to asset purchases by the fed. Is this false? If true, what percentage of debt increase from 2008 on was due to asset purchases? Thank you

  2. steve

    You forget income distribution. Rate changes in the bottom quintile are meaningless as far as revenue is concerned. Small changes at the top produce a larger effect.
    Steve

  3. Joseph

    “To the extent recent declines in tax rates have contributed, one sees this primarily in the form of lower tax rates for the bottom four income quintiles in the following graph of combined income and Social Security tax rates.”
    It is worth noting that half of all after-tax income goes to the top quintile and that portion has been increasing dramatically over the last 30 years, from 40% to 50%. The declining tax rate for the lower quintiles has not kept up with their declining share of income, meaning they are falling farther behind.

  4. dilbert dogbert

    Our spending on the Dept of War is sustainable but the question remains: What should the level be considering the capabilities of the possible threats? Hard to see any near term conflict where the F35 would make a meaningful contribution. Same with our carrier forces.
    I understand our need to build currently unnecessary weapons system to maintain our design and manufacturing teams.
    It is great that we can use our resources to better the lives, hopefully, of our citizens. I have no objection to spending more on healthcare.
    I have no objection to an increase in taxes to do this.
    Thank god the cold war is over and the Muslim threat is small potatoes compared to the USSR.
    Now Global Warming is something that could rise to the level of the USSR.

  5. Brandon

    We are discussing the federal government’s expenditures and revenues. The fed, or the federal reserve system, is a separate entity. Indeed their assets have increased significantly since 2008, however, this does not increase the debt level for the federal government. The federal government also purchased assets through the TARP program in 2008 (originally the idea was troubled assets, then it became direct equity stakes in troubled banks). This, to my knowledge, has been made whole and every dollar lended has been paid back (although there may be some assets the treasury still holds under TARP, they have actually made some money on others, thus the fund as a whole is whole). Thus, to answer your question, it is false. No portion of the debt increase since 2008 has been due to asset purchases by the fed.

  6. Matt Young

    I might also mention that California has doubled in size in the last 30 years while having only two senators. I might also mention that undemocracies almost always grow broke. Finally, I bet the congestion studies on government flows will show multipliers way less than one in California, starting with the first Reagan tax revolt until the series of municipal bankruptcies today.
    We are doomed to fail, undemocracies always do.

  7. CoRev

    Gilbert Dogbert insists Global Warming is a problem still to be solved, but Ole Mom Nature has her own idea. http://www.woodfortrees.org/plot/rss/from:1998/to:2013/plot/rss/from:1998/to:2013/trend
    Or if you don’t want to use just one we can go to the Wood For Tree index which is an average of nearly all the data sets. http://www.woodfortrees.org/plot/wti/from:1998/to:2013/plot/wti/from:1998/to:2013/trend
    Dr Ben Santer and NOAA have claimed that periods of hiatus of 17 and 15 years respectively falsify the models, which is the of the AGW theory. Even James Hansen this past week admitted that there has been a 10 year hiatus.
    Before we hear the traditional “cherry pick” argument, what I am trying to show a shift in regime from warming to cooling.

  8. Rick Stryker

    Thanks. An excellent summary of the situation. The budget pressure is primarily caused by demographic changes that are pushing up spending on Medicare and Medicaid. Either taxes have to go up for everybody or spending has to be cut or both. It’s as simple as that.
    The current White House strategy is to keep Medicare and Medicaid largely unchanged, raise taxes as much as possible on upper income tax payers, and then raise taxes on everyone else once upper income tax hikes are tapped out. On the spending side, to cut costs they will attempt to increase even more government intervention and bureaucracy in the health care system. Also, they will attempt to reduce the defense budget.
    But then we’ll end up being a high tax country in a world in which the era of Pax Americana has ended. And the bureaucracy and intervention that they’ll put in will reduce quality of and access to health care.
    Instead, we need to set a total federal spending budget of something like 20% of GDP and stick to it. Then, we need to privatize Medicare and work to reduce the substantial government intervention that has already introduced substantial costs and inefficiencies into the health care system.
    Repealing Obamacare would be a great start. It’s a giant step in the wrong direction.

  9. RN

    How can you get this so wrong?
    Americans DON’T want an increasing government contribution to health care, they want access to affordable health care.
    The debt issue is about health care costs and our inability to rein them in.
    How can you get this easy one so disastrously wrong?

  10. Brian

    Rick: “Either taxes have to go up for everybody or spending has to be cut or both. It’s as simple as that.”
    No, it’s not that simple. Instead of arguing whether we should raise taxes or cut spending, all of us should be focused on getting the economy moving faster. Jobs. Jobs. Jobs. More economic growth will increase government tax revenues and decrease the amount we spend on welfare, unemployment insurance, etc.
    Yes, longer term we need to get health care costs down. But the outlook is much better if we can assume GDP growth of 3% versus the 2% we’ve been suffering the past few years.

  11. 2slugbaits

    JDH I would recommend that people look at Figure 8 in the Thornton study. Figure 3 is a bit deceptive because it aggregates all revenue sources, so over the long run it does indeed appear that expenditures are what’s driving the deficit train. But Figure 8 is a useful corrective because it shows that even though total revenues were fairly steady until the Great Recession, the federal income tax component fell precipitously after 2000. In other words, for most of the last dozen years total revenues were being supported by a large FICA surplus. Social Security was not the problem in the past, is not a problem today and won’t be much of a problem in the future. All of the problem in the outyears is related to healthcare costs. Here’s where I disagree with the tone of the Thornton paper. It’s not so much that people in the past weren’t willing to pay for government benefits (we did afterall run primary surpluses for several years in the 1990s), but that it doesn’t appear future taxpayers will be willing to pay for future benefits.
    Rick Stryker You start off by saying, “The budget pressure is primarily caused by demographic changes that are pushing up spending on Medicare and Medicaid.” But then a few lines later you contradict yourself and say that “…we need to set a total federal spending budget of something like 20% of GDP.” Huh? If the problem is driven by demographics, then why would you want to fix federal spending to some arbitrary percent of GDP that doesn’t match the demographic forcing??? This is nuts.
    You also go off the tracks in calling for privatizing Medicare. The policy goal shouldn’t be to just shed government spending and shift costs to those least able to absorb those costs. Privatizing Medicare along the lines of the Ryan plan increases both healthcare costs in general and the government’s cost. The Ryan plan is based on the convenient fiction that people under age 55 will cheerfully give up all of their Medicare contributions that they’ve been paying into since they started working at McDonald’s 40 years ago. Not gonna happen. Besides, that issue was settled in the last election. The Ryan plan lost. And repealing Obamacare would increase the deficit. Apparently you don’t recall that when the House tried to repeal Obamacare in 2011 their own rules required that they had to find offsetting savings because repealing it increased the deficit. Obamacare is a step in the right direction. It is a first step in lowering healthcare costs overall.
    CoRev I see that your understanding of climate change is as deep and profound as your understanding of Sweden. Climate change will increase government expenditures. You won’t be around to face those costs, but you will be responsible for those costs. If you wanted to be responsible for future generations you would support a carbon tax. Not only would a carbon tax reduce future costs associated with climate change, but it would generate some of the revenue shortfall.

  12. JDH

    RN: So your position is, you want more health care services, but you don’t want to have to pay so much for them? Sounds almost exactly like what I said.

    Please note that partisans on both sides claim they have the unique insight into how to obtain the same level of health care at a lower cost. But this refrain sounds to me like another version of the same stalemate. Some obstacle (call it the obstinance of the other side, if you wish) has up to now prevented that lowering of cost. Given that, the real choice is between less government-provided healthcare or more taxes.

    Pretending there’s a silver bullet to get away from that reality is in my opinion our core problem.

  13. CoRev

    2slugs, I see you can not comment without ridicule and snark. Look at the graphs I provided, and say we are warming. Moreover, with 16 years of stable temperatures (UKMet announcement ~week ago), and all data sets showing NO WARMING or cooling (RSS) we can no longer blame carbon. No blame on carbon for warming there is no need for a carbon tax.
    I don’t expect a nimrod (use both its pejorative meanings) to stay current with the science. Or, are you denying the data?

  14. benamery21

    I find it revealing that Thornton refers to 2007 as “peacetime” in talking about the “record” debt level for that year. For those with short memories we were engaged in two foreign wars at that time.
    I also find it hilarious that he thinks it’s appropriate to discuss the gross debt when talking about the unified deficit. I guess it makes for a scarier number if one’s aim is to demonize earned benefit payments. It wouldn’t suit his message to point out that $5T of that ‘debt’ is owed by income taxpayers to payroll taxpayers. Re-distribution upward has been proceeding apace for the last 30 years.
    No mention of the interaction of state and federal taxes and budgets, either.

  15. ppcm

    Very interesting paper as it takes care of the scientific interest of B Friedman
    « New direction in the relationship of between public and private debts » published in 1987. One may notice the inflexion point of public expenditures occurring around the same date.
    This paper delves into the period of the great moderation, the time of exuberance
    Fig 5 when the interest component of GDP is decreasing below 10 Pct and the public expenditures are picking up above 20 Pct.
    European fraternity club is much younger but it exhibits the pattern of higher public expenses and lower interest to GDP component. Looking at the figures and charts as supplied by the ECB data warehouse (Europe 17) the total public expenditures are lifted up in 2000, from 3 Trillions euros to 4.7 trillions in 2012.
    The interest component of GDP decreasing from 300 billions euros in in 1990 to 250 billions euros. The same interest component of GDP is even lower during the period of great moderation 2003 and after, 250 billion euros.
    Before a fossilisation of data and artefacts occurs, Europe was endowed with financial covenants embedded in its constitution,and gratified with many public functions in charge of compliances. It seems that malfeasances occurred, casting doubts on public functions and subsequently on any attempts to cover or to remedy to the existing structural weaknesses.
    On the bright side, this paper shows that sometimes economists are getting it right with their tangible doubts, but those rarely make a political career.

  16. Rick Stryker

    Brian,
    Yes, I was implicitly assuming that real economic growth will continue at something like its long term average. I certainly agree with you however that we should be looking for policies that increase the rate of potential GDP growth. That’s very hard of course. I’m more worried about potential GDP growth being reduced, which is one reason I don’t want to see the tax increases that could be coming if we don’t reform medicare.

  17. CoRev

    Joseph, using the term denialist is telling. What your article fails to tell us why and what caused those changes in slope. Instead, you and the article apparently rely on a mathematical artifact, a long term trend line based upon averages. Averages hide much of the details. Details needed to even identify the points to start the study of the whys and whats of change.
    When hard over advocates of the AGW theory, James Hansen, admit warming has stopped and points a finger at ENSO, then we can safely assume natural causes can and have overwhelmed the anthropogenic signal. When noted climatologists speculate that 17 and 15 years of no warming can falsify the
    models, the best implementations of the AGW theory, and when we have the UKMet, one of the major holders of the longest lived climate data sets, admit that they can see no warming for 16 years, then we can do some reasonable analysis of the AGW theory.
    When we see climatologist begin to shift attention from atmospheric gases to natural ocean impacts, see can see affirmation of the claim that natural causes are overwhelming the anthropogenic. There is a building shift in the science as it progresses. Does it mean the AGW theory is falsified? Not yet. But, it does mean that there are many questions still to be answered and the science is far from settled.
    Study the science and not biased articles.
    I do not intend to high jack this thread, so I do not attend to respond to more to this subject in the thread. This is a complex subject, far from settled, and study of the change points is telling us much more than reliance on a long term trend line hiding many of the details. Cherry picking? Pshaw!

  18. Anonymous

    JDH wrote:
    “In terms of explaining why spending as a percent of GDP went up, defense spending as a percent of GDP is about the same as it was in 1980, whereas transfer payments have grown significantly.”
    “And within transfer payments, the growth has primarily come from Medicare and Medicaid.”
    Thank you for this Professor.
    From your graph we can easily see that Social Security has been declining relative to GDP. We can also see that the growth of Medicare and Medicaid have had explosive growth since the government took over funding health care.
    Most people do not remember that health care insurance is one of few services that did not originate in the free market. Insurance companies realized that if they funded health care that the frivilous and fraudulant use of health care would explode as would the cost. Federal health care did not began to be promoted by the federal government until 1951 when employer’s contributions to group plans were declared a tax deductable expense.
    With the explosive growth of health care costs it is easy to see why the free market insurance companies would not get involved.
    But the explosion of heatlh care costs shown in your graphs are small change compared to the cost explosion that is taking place with Obamacare. The claim that nationalized health care will reduce costs is a lie by those who know and is gross ignorance by those who do not. History has proven the aversion to natioanlized heatlh care to be well founded.
    The citizens of the US have always opposed nationalized health care by over 60%. Normal people understand how destructive it is. It takes an economist to rationalize away the obvious. And only economists would interpret the obvious economic destruction as a signal that we need to expand such disastrous policies.

  19. Rick Stryker

    2slugbaits,
    There is no contradiction and nothing arbitrary about 20%. 20% as you know is the average level of federal spending as a percent of GDP over the post war period. That number implies a level of taxes and spending that have worked well for the country.
    I think we need to set a spending budget first because we need to provide the proper incentives for people to reduce costs. I’ve seen countless times in business situations in which people argue very cogently that their funding needs must go up not down. They will have very solid and seemingly incontrovertible reasons why cuts are impossible. The wise manager cuts anyway. I’ve always been bemused by how quickly people find efficiencies once they’ve been forced to do it.
    Health care is not different. The waste is enormous. Much of the waste and inefficiency has been created by all the government intervention. There is no reason health insurance should be tied to a job–that’s just an artifact of WWII wage price controls. Because employer insurance is tax advantaged, modern insurance is more of a pre-pay plan than insurance. And, there is no incentive to economize when the consumer of health care is not paying the bills.
    If insurance were like any other product, people would pay their expected health costs directly. They would also pay directly for bigger things like knee transplants, which would be financed like automobiles. Insurance would be for catastrophic events and would be much cheaper, as would all health care.
    Obamacare is a giant step in the wrong direction, because it increases the level of government intervention dramatically. You are crazy if you don’t think it will turn out to enormously increase costs, whatever the CBO says.
    The right recipe is: 1) set a budget; 2) introduce free market reforms into health care; and 3) privatize medicare by giving vouchers for insurance above a certain age.

  20. Michael Roberts

    Somebody says we are spending too much and not raising enough revenues – it is as simple as that. But that explains nothing. Government can easily raise more revenue without even touching tax rates if the economy grew faster (see the brief Clinton years). In the 1950s and early 1960s we had higher tax revenues, no or low deficits and low debt because the real economy grew at 4% a year instead of 2%. There would be no ‘demographic’ or ‘welfare’ crisis in public finances if the economy could deliver 1960s growth rates. Why it does not is the question.

  21. tj

    2slugs
    It’s not so much that people in the past weren’t willing to pay for government benefits (we did afterall run primary surpluses for several years in the 1990s), but that it doesn’t appear future taxpayers will be willing to pay for future benefits.
    Precisely. Logically then, current taxpayers are paying for current benfits. But, then you say –
    The Ryan plan is based on the convenient fiction that people under age 55 will cheerfully give up all of their Medicare contributions that they’ve been paying into since they started working at McDonald’s 40 years ago. Not gonna happen.
    People are not paying into a personal health account when they pay payroll taxes. Today’s taxpayers are paying for today’s beneficiaries, with the leftovers used to pay for other government expenditures. No one is giving up their benefits. Your hatred of conservatives prevented you from making your points in a logical manner.
    If you wanted to be responsible for future generations you would support a carbon tax.
    To be precise, it’s a carbon dioxide tax.
    2slugs It’s nice that you support raising the price of energy in a world where ~ 2 billion people lack access to cheap electricity, clean water and sanitary conditions. The easiest way to lift those ~ 2 billion people out of poverty is to provide them with cheap electricity. You choose to condemn those living in energy poverty to a life of continued squalor. Why? Because the global temperature “might” rise a degree or two in the next hundred years? You are willing to trade certain suffering TODAY for a forecast of gradual warming over the next 100 years. Really?
    There is plenty of wealth in the world to solve the problem of energy poverty in the next 50 years, unless we use a tax on carbon dioxide to divert that wealth to bloated and corrupt governments, so they can line the pockets of their green-suited cronies.

  22. Simon van Norden

    “Mechanically, that’s because spending went up relative to GDP and taxes did not.”
    Jim, do you think the role of growth and interest rates on the debt play any role in explaining variances in the Debt/GDP ratio over this period? Historically, I thought work by people like Mankiw or Sargent concluded these variables also contribute to our understanding of Debt/GDP ratios.

  23. 2slugbaits

    Rick Stryker 20% as you know is the average level of federal spending as a percent of GDP over the post war period.
    Ugh! You still don’t see where you are contradicting yourself. If, as you seem to agree, the coming demography is radically different than the demography of the post-war period, then the post-war average is also irrelevant because future spending must adapt to that coming demographic reality.
    The waste is enormous. Much of the waste and inefficiency has been created by all the government intervention.
    Much of the waste is due to rent seeking behavior on the part of healthcare providers…and I would agree that to some extent the government is culpabale. Making healthcare tax deductible is a bad idea; but even Obama’s weak attempt to tax gold-plated “Cadillac” plans met with all kinds of political opposition from both sides of the aisle, but especially from the GOP side (e.g., Wall St and the AMA).
    In his reply to poster RN our host JDH said, “So your position is, you want more health care services, but you don’t want to have to pay so much for them?” I thought it was interesting that he used the word “services” because it kind of fudges the distinction between healthcare inputs and healthcare outputs. We need to quit equating healthcare inputs with healthcare outputs. Other countries get much better healthcare results with far fewer healthcare inputs. Instead of looking at a fee-for-services approach (there’s that word “services”) we should be looking at outcome based Medicare payments. Oh wait…the GOP opposed that, remember? Death panels and all that.
    The right recipe is: 1) set a budget; 2) introduce free market reforms into health care; and 3) privatize medicare by giving vouchers for insurance above a certain age.
    Like that worked so well in the past. I’m part of the LBJ clan, so I’m naturally biased; but sometimes people forget why the government invented Medicare. It wasn’t because healthcare for seniors was so great that the government felt compelled to make it worse, despite what Barry Goldwater and Ronald Reagan seemed to think at the time.
    tj Medicare, like Social Security, is based on a compact between generations. Current workers agree to finance healthcare of retirees with the expectation that the favor will be returned when today’s workers eventually retire. So yes, today’s taxpayers are paying for today’s beneficiaries. The Ryan plan essentially breaks that generational compact. And really, healthcare savings accounts don’t really change that economic fact. Healthcare savings accounts are simply definitized claims rather than undefinitized. And private healthcare accounts are also biased because if your actual healthcare costs exceed the value of the voucher…well, too bad. And if your actually healthcare costs are less then the value of the voucher…well, thanks for the contribution. Vouchers are a suckers game. Menzie has discussed the Ryan plan extensively. If you still haven’t gotten the picture, then I don’t know what else to say. You’re just a believer in magic asterisks.
    It’s nice that you support raising the price of energy in a world where ~ 2 billion people lack access to cheap electricity…
    First, I think most of the burden should be borne by the developed nations. Second, many more billions will be adversely affected in the future. Apparently you don’t care about those billions of people. Finally, how many billions will die because of rising sea levels?
    There is plenty of wealth in the world to solve the problem of energy poverty in the next 50 years
    Sounds like you’ve been drinking the CoRev kool-aid. Waiting 50 years insures that climate change inertia will be irresistable and irreversible. I’m always amazed by conservatives who claim to profess deep concern about the debt we’re passing onto future generations, but yet somehow manage to find all kinds of self-deluding rationalizations denying the reality of global warming. You and others here have managed to convince yourselves that you’re doing future generations a favor by deferring the kinds of green changes we’ll need.

  24. Thomas

    It’s always fascinating to observe these kinds of Big Lies being perpetrated. The claim “defense spending as a percent of GDP is about the same as it was in 1980″ is of course an obvious lie, and it’s easy to prove it’s an obvious lie. Today national security spending runs about 1.2 trillion per annum. (It’s impossible to be exact because the Pentagon has never passed an audit, despite being required by law to do so.) This equates to 8% of total U.S. GDP. Compare with national security spending in 1980, which ran around 5%. As even the dullest kindergartener can tell, 8 is considerably more than 5. In fact, 8% is 1.6 times bigger than 5%. So since 1980, American national security spending can skyrocketed out of control.
    The effort to conceal this well-documented fact is wasted, yet must be made in order to avoid the obvious conclusion that most of our current annual deficit stems from America’s runaway out-of-control military-surveillance-national security spending.
    Following close on the hells of this lies come the even bigger lie: “The political impasse facing the U.S. arises from one simple reality: Americans want an increasing government contribution to health care, but don’t want to pay for it.”
    This is true in the same deceptive sense of the assertion “Five people died in WW II, so WW II obviously wasn’t a big deal.” It is technically true, but omits so many important considerations that it amounts to a lie by implication.
    The plain and well-documented fact of the matter about U.S. health care spending is that America spends twice as much of its GDP on health care as any other first-world nation, and for much worse health outcomes. So the truthful form of James Hamilton’s deliberately deceptive assertion should be: “The political impasse facing the U.S. arises from two simple realities: the American government has been captured by a wildly out of control miltiary-police-prison-surveillance-torture complex that spends like a drunken sailors and which Americans cannot politcally restrain, and that Americans want an increasing government contribution to health care, but don’t want to pay for it in its current form, yet because of massively entrenched interests like the AMA (which limits admissions to American medical schools to increase U.S. doctors’ salaries to double the amount of their French or German counterparts) and greedy corrupt hospitals and doctors and big pharma and medical devicemakers, cannot change to an efficient nationalized single-payer system that would make American health care affordable.”
    Such truths of course cannot be spoken aloud by American elites, lest they interefere with the agenda of starving the grannies in order to pay for more endless unwinnable foreign wars and bigger yachts and mansions for greedy doctors and hospital administrators and medical devicemakers.

  25. kharris

    idaman,
    Your question has been ignored, so let me give it a go.
    Fed purchases don’t cause debt or deficit. Deficits are merely the excess of outlays over revenue. The Fed is merely rearranging the ownership of the asset. The Fed could purchase up to the entire outstanding stock of Treasury debt without causing any new debt creation. Quite the contrary – since the Fed turns over its net earnings to the Treasury, most of the interest payment on Fed-held Treasury debt is returned to the Treasury, reducing the interest-payment component of federal spending.

  26. Anonymous

    “In terms of explaining why spending as a percent of GDP went up, defense spending as a percent of GDP is about the same as it was in 1980, whereas transfer payments have grown significantly.”
    In 1980 the US was locked into a long running military confrontation with the Soviet Union called the Cold War. This posed an existential threat to both nations.
    The failure to revert to a peacetime military budget is a major cause of the US deficit . The ludicrous War on Terror reflects our unwillingness to convert from war to peace .

  27. tj

    2slugs
    If you still haven’t gotten the picture, then I don’t know what else to say. You’re just a believer in magic asterisks.
    Strawman. Where did I say I supported vouchers?
    Finally, how many billions will die because of rising sea levels?
    If you claim that the rise in sea level is man made then why is the slope of sea level rise unchanged since 1850? Wouldn’t you expect an increase in the rate of sea level rise over the past 60 years?
    http://wattsupwiththat.files.wordpress.com/2013/01/image10.png
    Have you noticed that as the years tick by, the evidence builds that the degree of man’s contribution to observed global warming is less than feared? The world warmed by a degree over the past 100 or so years and we managed. We will manage the next 100 years IF the earth warms. In the meantime we could reduce an inestimable amount of human suffering with cheap electricity.
    You see, for Progressives, models of POTENTIAL future problems trump ACTUAL suffering TODAY.

  28. Ricardo

    The header to Thornton’s paper:
    The U.S. national debt now exceeds 100 percent of gross domestic product. Given that a significant amount of this debt is the result of governmental efforts to mitigate the effects of the financial crisis, the recession, and the anemic recovery, it is tempting to think that the debt problem is a recent phenomenon.
    This article shows that the United States was on a collision course with a major debt problem for nearly four decades before the financial crisis. In particular, the debt problem began around 1970 when the government decided to significantly increase spending without a corresponding increase in revenue. The analysis suggests that the debt problem cannot be permanently resolved without creating a mechanism to prevent the government from running persistent deficits in the future.

    Isn’t it interesting that the spending binge coincidentally began when Richard Nixon closed the gold window and broke faith with the world by refusing to redeem dollars in gold? Is it really a coincidence that suddenly deficit spending took over first place when the FED was given the power to print anything required to fund congressional spending? Is it a coincidence that while tax rates have declined the money supply and deficit have exploded since the dollar was delinked to gold?

  29. dwb

    “Medicare and Medicaid.”
    the rising health care costs as a % of GDP, combined with persistent structural deficits as a result, mean that eventually health care will need to be taxed more effectively. From the pre-tax deduction for employer health care to hospitals that are set up as non-profits and don’t pay income or property taxes, generally health care delivery is undertaxed relative to other economic sectors and also growing faster. Now, the wages and salaries of health care workers get taxed, but a far more efficient approach is to adjust taxes to reduce demand. After all, why should I get to pay for my LASIK surgery and tuck with pre-tax dollars?

  30. Anonymous

    Ricardo-
    “Isn’t it interesting that the spending binge coincidentally began when Richard Nixon closed the gold window and broke faith with the world by refusing to redeem dollars in gold? Is it really a coincidence that suddenly deficit spending took over first place when the FED was given the power to print anything required to fund congressional spending? Is it a coincidence that while tax rates have declined the money supply and deficit have exploded since the dollar was delinked to gold?”
    Not to mention the decoupling of wages and productivity… All this, yet “gold bugs” are crazy.

  31. Tudor

    “Not to mention the decoupling of wages and productivity… All this, yet “gold bugs” are crazy.”
    I wouldn’t say gold bugs are crazy, just that they live in a different reality than objective observers.
    For instance, most people would look at figure 1, above, and note that the line in the 70’s has a slight but clear downward slope. They would notice that the real turn occurs around 1982 or so with the rise of the Reagan-championed “starve the beast” conservativism.
    Of course, those facts don’t really fit your desired narrative, so you and Ricardo just mentally recode the data and tell your story as you like. To say the debt has been driven by Fed policies isn’t insane, just detached from reality.

  32. benamery21

    Thomas: I understand your 8 percent of GDP number aggregates security spending from different agencies…
    Have you performed a similar exercise for 1980 security spending?

  33. KevinM

    Participating in the thread hijack (I’d say who started it, but you can go check for yourself)…
    It’s nice to see:
    1) Published consensus is backing off. Climate sensitivity estimates are decreasing, and factors other than CO2 are getting more attention.
    2) Deniers are feeling a bit less marginalized. I see more willing to speak their minds into the wall of shouting and hand waving.
    Classy move to step down Corev. Others (not naming names, you can check for yourself) will blather on long after they’ve said all they have to say.

  34. John1025

    To Idaman on top: Concerning your remark about thing debt went up because of Fed asset purchases. Except when bank orders some physical money, all of the government’s spending is done on that big spreadsheet in the sky we call the “reserve system. Banks pay for their physical vault cash and coins with electronic reserve balances. Since vault cash counts as reserves, the bank’s reserve balance has not changed. When the government spends -let’s suppose they owe me a $1000, they send me a check or wire transfer. The fed deducts $1000 of $points from one of the two Treasury reserve accounts at the Fed. The Fed the electronically marks up my bank’s reserve account with $1000 of $points. Then my bank marks up my bank account with $1000 of $points. No new financial assets have been added to the economy because, although my banks balance sheet composition has changed — more reserves (assets) and more deposit (liability) the totals have not. Every thing is done by computer keystrokes. So, when the Fed buys assets it goes into the reserve system as “excess reserves” which are not counted as debt.

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