Category Archives: deficits

Losing your AAA

On Friday, Standard & Poor’s, one of the three main credit rating agencies, downgraded U.S. Treasury debt from AAA to AA+, citing doubts about the effectiveness, stability, and predictability of American policymaking and political institutions in being able to deal with the rising debt burden by the middle of the decade. It’s been a wild ride for equity and commodity markets ever since.

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Facing Reality

And dispensing with childish things, such as the belief that our economic future can be secured by spending cuts alone. From “The Downgrading of a Debtor Nation”, by me and Jeffry Frieden, in today’s New York Times:

THE Treasury can cry foul all it wants, but the decision by Standard & Poor’s to downgrade America’s credit rating by one notch last Friday, and the subsequent plunge in the stock market, are serious symptoms of a loss of confidence — an assessment that is fundamentally political, not economic.

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Data: Spending and Tax Receipts, 1967-2011

I keep on hearing we have a spending problem, but no revenue problem, from you know whom. I decided to appeal to actual data. Below is a time series plot of Federal current expenditures and tax receipts plus contributions to Federal social programs, as a share of GDP, over the 1967Q1-2011Q1 period. The data are based upon the data definitions in the BEA’s national income and product accounts (NIPA), as of June 2011. Outlays are declining, and as of 2011Q1 are at 0.25, which exceeds the previous peak, during the Reagan era, at 0.241 (1982Q4). Federal tax receipts plus social program contributions are at 0.158.

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