The Cyclically Adjusted Primary Balance Post-Tax Cut/Spending Bill

Not good. From GS Sunday.

And nary a peep from purported conservative deficit hawks and/or Tea Party folk.

41 thoughts on “The Cyclically Adjusted Primary Balance Post-Tax Cut/Spending Bill

  1. Not Trampis

    Republicans traditionally leave their Democrat successors a large structural deficit to fix up. They always seem to complain about how slow they are to clean it up ignoring the costs of what happens if that occurs.

  2. PeakTrader

    It seems, the Republicans are betting on a boost in growth before the 2018 election to keep the House and add to the Senate. Then, they’ll be in a position to tackle entitlement reform, which can reduce government spending substantially and generate more taxpayers.

    Unfortunately, the Trump Administration inherited a long Obama depression – a recoverless recovery – with an enormous amount of federal debt and ongoing huge annual budget deficits. It began the appropriate initial steps to get us out of this mess, but still has a lot more work to do.

    1. PeakTrader

      Republicans have some things to look forward to. As the labor market tightens and real wages rise enough, there will be more capital spending. Also, the aging capital stock will be upgraded. Entitlement reform can bring more people into the workforce to dampen a wage-price spiral. Moreover, the children of the Baby-Boomers (born in 1982-00) will be entering prime-age (35 to 54, after the Generation X Baby-Bust, born in the mid-‘60s to early ‘80s) and older workers will work longer, even without Social Security reform, to also boost productivity. Pro-business policies, e.g. lower taxes and less regulation, may add 0.5% to 1% in real GDP in 2018.

    2. Not Trampis

      How many mistakes.
      A depression is defined as a 10% drop in output. Didn’t happen under Obama. Obama inherited a Recession which could well have become a Depression except for what his predecessor and he did to fight it off!
      Even a cursory look at the above graph can see Obama reduced the deficit. Too fast IMHO.
      Faster growth does not affect the structural deficit only the cyclical one.
      I might leave it there.

      1. PeakTrader

        So many mistakes. A depression is depressed growth. Obama inherited a contraction and gave us a depression. The above chart reflects potential output, which we still haven’t reached. Obama restructured the economy, which made people more dependent on government and poorer.

        The massive stimulus plan failed to close the output gap, in part, because of excessive regulations and other anti-growth policies, including disincentives to work. It was one foot on the accelerator and the other foot on the brake. After several years of trillion dollar budget deficits, we eased off the accelerator, while firmly keeping on the brake. Even QEs couldn’t get us out of the ditch.

        We didn’t need a massive restructuring of the economy. We needed pro-cyclical growth – a bigger and faster tax cut, more defense spending, and fewer regulations. Then, when a real recovery was underway, we could raise taxes, cut spending, and increase regulations to slow the expansion to a sustainable rate. Putting the cart before the horse created a train wreck.

        1. baffling

          “Obama inherited a contraction and gave us a depression. ”
          i guess this should be expected from a failed banker who actually helped to cause that depression.

          “Unfortunately, the Trump Administration inherited a long Obama depression ”
          so lets get this straight. peak believes (or at least pushes the narrative) trump inherited worse conditions than obama-a depression versus a contraction. seriously, if this is your understanding of the economics of the day, your university should revoke the jr phd they granted to you so many years ago. you obviously did not earn it. what a laughingstock you are, ideological hack bottom feeder. go back to your russian troll house.

          1. PeakTrader

            You supported the policies of politician/lawyers, like Dodd and Frank, who went from one extreme in home loans before the crisis to the other extreme after the crisis.

            And, your cronies Obama-Reid-Pelosi failed to get a bounce from a severe recession, even after that huge spending spree in 2009–10, where they were suffering from “spending fatigue!”

            Trump has to deal with an eight year old recoverless recovery with federal debt almost maxed-out and a huge Fed balance sheet, along with a substantially weaker military. Too bad Trump didn’t run in 2008.

          2. baffling

            “eight year old recoverless recovery”
            actually the data contradicts your argument, as usual. typically, you use a false narrative to continue to promote your ideology. no wonder you got a jr phd from a wannabe program. you simply make up conditions to suit your argument. what a hack bottom trader. as i said, if you do not understand the state of the economy when obama took over versus trump, you are an idiot. if you did understand the condition of the economy and continue to make these statements, it shows you are simply a political hack. either way you are rather sad bottom trader.

          3. PeakTrader

            Baffling, #2 jr name caller, actually you reject any data that contradict your rigid ideology and create more lies to make up for it.

          4. baffling

            bottom feeder, show me the data which indicates trump has inherited a more dire economy than obama did from wbush. let’s be clear, that data does NOT exist except in the weird mind of bottom feeder. this is why you are called a political hack. just like trump, lying to advance your cause has become such a habit that you cannot actually distinguish truth from your own fiction anymore. no wonder you were not accepted into any phd program. my guess is you graduated because wealthy parents paid tuition in full. you fit the definition of a troll perfectly.

        2. pgl

          I see you have no clue what this issue is. It is about long-term financing not some one year bump in GDP. I would suggest you read two things before more of your uninformed right wing babble. Start with that Cato paper by Jeffrey Miron – at least he gets the issue. Then head over to Econospeak (or Angrybear) and read my critique. You might see that I rip John Cochrane who pretends to get finance (what he teaches at Chicago) but asks even dumber than you do. Brad DeLong has taken notice of Cochrane’s flip flop babbling as well.

          Of course I am inviting you to educate yourself on this issue. Me thinks you will disappoint as always.

          1. PeakTrader

            I know how that Angry Bear blog works. It’s an extreme liberal view. If you reveal their articles have more holes than Swiss cheese, they’ll eject you from that blog faster than you can say assault weapons ban. They will not tolerate conservatives, libertarians, moderates, etc. for long (only one writer needs a temper tantrum to get the other writers to vote a commentator out). It seems, to be run by decrepit old liberals with various mental problems. The have no shame in posting the most ridiculous liberal articles.

          2. PeakTrader

            At Angry Bear, non-Liberal commentators disappear without warning faster than Russian political opponents.

        3. Not Trampis

          Mate until you can actually talk about economics in an educated way then I will ignore your ignorant rants. By the way even the Regional Feds have found the ‘excessive regulations’ a load of old cobblers.

          1. pgl

            Peaky Boo cannot be bothered to read a paper that actually applies financial principles to the government budget issue because I mentioned the Angrybear blog which is too liberal for him? Lord – the paper I referenced and reviewed was written by Cato’s Jeffrey Miron – not exactly a liberal. But yea – financial economics is way too hard for Peaky Boo. The man is a complete fraud.

          2. PeakTrader

            Old boy, when you have something to say about economics, rather than fairy tales, let me know.

            By the way federal regulations alone cost the U.S. over $2 trillion a year.

            To assume none of it is excessive, and to add a lot more in a depression, is ignorant.

          3. PeakTrader

            Pgl, the #1 name caller, you provided two failed healthcare systems in your political con job.

            Next time learn a system that works well for everyone instead.

        4. pgl

          “We needed pro-cyclical growth – a bigger and faster tax cut, more defense spending, and fewer regulations. Then, when a real recovery was underway, we could raise taxes, cut spending, and increase regulations to slow the expansion to a sustainable rate.”

          Peaky Boo has written some really confused and contradictory things in the past but this one takes the cake. First of Peaky once claimed he was neoclassical but this is Keynesian. Hey I’m a Keynesian which is why I recognize his call for pro-cyclical policies is completely backwards. He is calling for fiscal stimulus when we are near full employment – which of course is pro-cyclical. The right idea would be to run counter-cyclical policies. In other words, do fiscal stimulus when we are below full employment. OK – Peaky thinks we are still below full employment which is fair and guess what he advocates? Less government spending naturally. Like I said – confused.

          Of course discussions of long-run primary surpluses envision long-term fiscal policy. When the government debt is 104% of GDP, tax cuts with more defense spending is exactly the wrong thing to do. But wait – Peaky thinks we should lower taxes now to raise taxes later? I guess he has never heard of the Barro tax smoothing argument.

          But back to the inner Keynesian in him. Cutting taxes for rich people today and later raising their taxes will do nothing to promote aggregate demand. I guess Peaky never heard of Barro-Ricardian equivalence or the Ando-Modigliani life cycle model of consumption!

          1. PeakTrader

            Also, I responded to your false assumptions before. So, I’ll just respond to one of them (again).

            Smoothing-out business cycles results in higher growth, because economic boom/bust cycles are inefficient both in the boom and bust phases, because of periods of strain and slack. Sustainable growth is optimal growth.

          2. baffling

            but peak, you are advocating policies which will exacerbate the boom-bust business cycle. your policies seem to change based upon who is in office, not where we are in the business cycle. sounds like a political hack to me.

  3. Moses Herzog

    I just had a weird late night experience.. So I almost walked to pick up the NYT at a University library, about 1.6 miles from my home. I like the cold air late at night, it feels cleaner when it’s cold. But it was near freezing. So a friend offers to drive me. I don’t wanna seem anti-social. He drops me off, I get 10 yards from the library doors and some polite black chick hollers out before I get to the push-open doors “they’re closed Sir”. I’m in near shock, but I don’t try the doors because she has no reason to lie to me. Normally I would double check, but I figured she might assume for racial reasons I didn’t trust her, so I just assume she’s right. Then go back home, nothing on the official library site about it being closed (other than their helpchat being offline). Nothing on the official</b< University website about it being closed. Then I check the university's Facebook page (which I NEVER use due to privacy concerns and the fact that Zuckerberg has told so many lies about Facebook now I don’t even think he can keep track of them—it says they closed all campus services at 2pm today.

    Now, we hit like two TINY spots of ice on the way to the campus, like refroze stuff in dips in the road. Over a 1.6 mile suburban area drive. ARE YOU KIDDING ME!?!?!?! I feel like the gruff old man now. I used to wait for the F’ing public school bus for 40 mins to an hour (always seemed even worse on snow days because the jokers driving the buses). I remember near 2 hours once, on a day it snowed 5 inches (this is in the south usa, very minimal municipal snow equipment). Remember this was when there’s no mobile phones, so if you walk back home you don’t know if you’ll miss the bus. Now these millennials can’t go through 2 patches of ice commuting to University?!?!?!?

    My friend is driving me 1.6 miles to pick up a free NYT and these millennials can’t drive to a class or risk an on campus trip to the library!?!?!?!? Would someone tell me what world I am now living in??? It seems I have lost contact with Earth and my radio channels aren’t picking anything up.

  4. pgl

    I wonder if John Cochrane has thought this through. He recently suggested we have had “sober” fiscal policy so more tax cuts for the rich. But then Jeffrey Miron emailed him and he decided the fiscal situation was dire so we must end Federal health care payments. After all – we must have those tax cuts for the rich. Cochrane is clearly confused but I guess he can take heart at the comments here from Peaky Boo! Forget health care for the elderly. Take away their Social Security benefits. Now off to the Hamptons to enjoy our tax cuts!!!

  5. Bruce Hall

    One would expect nothing else given a budget compromise of tax cuts for the Republicans and spending increases for the Democrats (and Republicans).

    Unless all of those corporate tax cuts translate into a significantly higher labor participation rate, I don’t see where the revenue increases can occur. We’re already at “full employment” with a low participation rate and corporate earnings are flattening. Interest rates are climbing which is good for savers, but a brake on business activity. The first victim will be the automotive industry (vehicle manufacturers and suppliers and their employees) and this will radiate outward. I don’t look similar Fed precipitated slowdown of 2005-06 interest rate increases (when the prime rate reached 8.25%), but the economy is used to “free money” and all increases are relative to current conditions. While corporations may be able to pass on interest cost increases for awhile, the chickens will eventually come home to roost.

    Not only will the economy slow down, but the government costs of borrowing for all of those new (Republican) military and (Democrat) social programs is going to accelerate. Borrowing isn’t a bad tool… except when you can never pay back the loan.

  6. pgl

    “I know how that Angry Bear blog works. It’s an extreme liberal view.”

    This is Peak Trader’s reply when I challenged him to read a pretty decent Cato paper by Jeffrey Miron and my reply to it? Cato is NOT a liberal shop. But Miron does get basic finance. I guess when Peak Trader heard it was about the present value of future government surpluses/deficits, he knew it was over his head. So he just babbles on about topics where he is clueless.

    1. PeakTrader

      Pgl, bigger government is not a decent solution:

      “One is the fairness issue sometimes known as universal health care. If we as a nation do the right thing and make sure health care is both accessible and affordable to all, it is likely that government funding of health care will take a greater portion of total health care spending…a greater role played by funding via a progressive income tax system.” – pgl

      1. pgl

        It is clear that you have neither read Miron’s paper or my response. No – you just skip the issue and continue your Fox & Friends style rants. Sorry dude – but you are clearly a Russian bot neither interested in learning basic finance nor being engaged in a real discussion. Until that changes – there is no need to reply to your serial rants.

          1. pgl

            My own words? Lord – you do lie a lot.

            And no you duck the points i’m making routinely. Do not flatter yourself as you are even worse than Donald Luskin. I guess this is why EVERYONE here dismisses your comments. Stupid, dishonest, contradictory, and non-responsive. But consistent with Donald Trump’s spin to an extreme.

    2. PeakTrader

      We need less government spending on healthcare, which can be reduced through less regulation and more competition to reduce costs substantially. Also, create more taxpayers with employer healthcare benefits. Moreover, healthcare savings accounts, e.g. 5% of income, to cover what catastrophic healthcare plans don’t. By reducing costs substantially, government can afford a stronger safety net.

      1. pgl

        “We need less government spending on healthcare, which can be reduced through less regulation and more competition to reduce costs substantially.”

        I was asked somewhere else if I had earn Arrow’ 1963 seminal paper on the economics of healthcare. I have. You need to. So stop this mindless babbling and actually read something.

        1. PeakTrader

          Pgl, you have a very short attention span. This was my response to your simple view two weeks ago:

          Catastrophic health care insurance is needed, because of the uncertainty Arrow wrote about. Insurance companies can compete to provide the best plans consumers demand. For example, a consumer may be willing to pay a higher deductible, e.g. in case of a broken leg, for lower monthly premiums. A catastrophic plan doesn’t have to be one size fits all.

          If you don’t ski, for example, you may want a lower premium and higher deductible for broken legs than someone who does ski.

          Also, I’ve explained before how costs of non-emergency healthcare needs can be reduced substantially.

          1. Menzie Chinn Post author

            PeakTrader: Given that we know from various studies that people mis-appraise risks — giving too high probabilities to some rare events and too low to much more frequent events — I’d suggest that personal choices regarding the amount of insurance to take on is problematic.

          2. CoRev

            Menzie: “…but the implication of my statement is that people will typically under-insure.” as opposed to everyone being over insured under Obamacare.

          3. pgl

            Arrow wrote a lot more than this. Your blind faith is free markets and personal choice is thoroughly debunked by his paper. Try actually reading it.

            BTW – also read Milton Friedman’s 1962 paper on Occupational Licensing while you are at it.

      2. baffling

        “Moreover, healthcare savings accounts, e.g. 5% of income, to cover what catastrophic healthcare plans don’t.”
        seriously, for the economic position of the folks we are typically talking about with obamacare, this statement is simply stupendous in its lack of reality. 5% of income? for most folks, that can cover the basic costs of bloodwork and related tests in a physical. have you any idea what the cost of “catastrophic” healthcare would be? i don’t think you really have a feel for the economics of various high and low deductible plans and the resulting costs. lack of reality bottom feeder.

        1. pgl

          True but do not expect Bottom Feeder to understand real world numbers as they are not covered on Fox and Friends.

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