What You May Not Know About The Debt But Should

“Can we now start talking about unemployment?”

—Paul Krugman

for almost four years now, we have argued back and forth on this blog about deficits and debts and jobs.

My position, and one that seems stunningly obvious to me, has always been that jobs and the economic recovery deserve precedence over debt reduction, even though long-term debt is a problem that has to be addressed.

For those of you who don’t follow Brad DeLong, the professor of economics from Berkeley, you are missing something valuable in the debate you see on television or read in the paper every day, almost all of that debate focused solely on deficit reduction. (Go here and read DeLong’s bona fides, if you think he’s just another liberal economist.)

Sunday, DeLong posted a blog entry with the title,


He borrowed from Paul Krugman, who borrowed from the Center on Budget and Policy Priorities (peer review?), this graph:

deficit reduction and stabilization

[Note: BCA is the Budget Control Act of 2011 (that “settled” the first debt-ceiling fight and which brought us the so-called fiscal cliff at the end of 2012) and ATRA is the American Taxpayer Relief Act, signed on January 2 of this year (the fiscal-cliff “settlement”).]

Here is Krugman’s description of the graph:

The vertical axis measures the projected ratio of federal debt to GDP. The blue line at the top represents the projected path of that ratio as of early 2011 — that is, before recent agreements on spending cuts and tax increases. This projection showed a rising path for debt as far as the eye could see.

And just about all budget discussion in Washington and the news media is laid out as if that were still the case. But a lot has happened since then. The orange line shows the effects of those spending cuts and tax hikes: As long as the economy recovers, which is an assumption built into all these projections, the debt ratio will more or less stabilize soon.*

Krugman makes the point that,

for the next decade, the debt outlook actually doesn’t look all that bad.

True, there are projected problems further down the road, mainly because of the continuing effects of an aging population. But it still comes as something of a shock to realize that at this point reasonable projections do not, repeat do not, show anything resembling the runaway deficit crisis that is a staple of almost everything you hear, including supposedly objective news reporting.

We know that most Beltway journalists have bought into the hype over deficits and debts, since that is just about all that Republicans want to talk about now that they aren’t in the White’s House. But the focus of congressional and presidential efforts in the short term should be on keeping the economy stimulated enough to really catch fire.

Brad DeLong offers this stinging rebuke of the President:

In focusing in 2013 on further deficit-reduction deals rather than on policies to boost employment growth and infrastructure investment, President Obama is making yet another hideous economic policy mistake.

Now, to be fair to Mr. Obama, he can’t entirely control the debate. He has constantly talked about the dangers of deep cuts in government spending and the need to keep the economic recovery going.

But he faces stiff opposition in Congress from austerity-drunk Republican teapartiers who are aided and abetted by an establishment press, a press that pushes on the public the weird idea that we are going to bleed to death if we don’t slit our throats now.

You figure it out. I can’t.

In the mean time, we need to stop worrying about the damn deficit for a while and start worrying, even exclusively worrying, about jobs and economic growth.


* For budget geeks: About that red line on the graph above, the one that shows deficits leveling out as a percentage of the economy, that was the point of the Center on Budget and Policy Priorities original piece, which explained it this way:

Achieving $1.4 trillion in additional deficit savings would stabilize the debt at about 73 percent of GDP by 2018.  Some analysts prefer a lower debt ratio, such as 60 percent of GDP, a goal that the European Union and the International Monetary Fund adopted some years ago.  No economic evidence supports this — or any other — specific target, however, and IMF staff have made clear that the 60 percent criterion is an arbitrary one.  In addition, even if such a target were the best one before the recent severe economic downturn pushed up debt substantially in most advanced countries, it would not necessarily be an appropriate target for debt over the next ten years, given the severity of the downturn and continued economic weakness.  The critical goal now is to stabilize the debt in the coming decade.

The Middle Class: Victims of Conservatism

One of my strongest criticisms of the Republican Party—sometimes enabled by conservative Democrats— is related to what their conservative economic philosophy has done to the middle class in America. HuffPo posted today, “8 Surprising Facts About The Shrinking Middle Class.” Here are five of them:

  • According to a report by the Center on Budget and Policy Priorities, at least twenty-nine states have made cuts to public health programs, twenty-four states have cut programs for the elderly and disabled, twenty-nine states have cut aid to K–12 education, and thirty-nine states have cut assistance to public colleges and universities…
  • According to the White House, in 2004, the last year data on this was compiled, U.S. multinational corporations paid roughly $16 billion in taxes on $700 billion in foreign active earnings— putting their tax rate at around 2.3 percent. Know many middle-class Americans getting off that easy at tax time?” […] 
  • Barry Bosworth and Rosanna Smart of the Brookings Institution found that the catastrophic collapse of the 2008 sub-prime mortgage market resulted in the disappearance of $13 trillion in American household wealth between mid-2007 and March 2009… on average, U.S. households lost one quarter of their wealth in that period,” cites Huffington. She continues, “We are facing nothing less than a national emergency: 2.8 million homes faced foreclosure in 2009, and an estimated 3 million more are expected to be foreclosed on in 2010. If there was ever a middle-class Katrina, this is it… 
  • As MIT professor Simon Johnson recounted in the Atlantic, between 1973 and 1985, the financial industry’s share of domestic corporate profits topped out at 16 percent. In the 1990s, it spanned between 21 percent and 30 percent. Just before the financial crisis hit, it stood at 41 percent. The share of our economy devoted to making things of value is shrinking, while the share devoted to valuing made-up things (credit-swap derivatives, anyone?) is expanding. It’s the financialization of our economy… 
  • The vast majority of people who file for bankruptcy are middle-class folks who can’t pay their bills because they’ve lost their jobs or been hit with high medical bills. In fact, a 2009 study by researchers at Harvard and Ohio University showed that health-care problems were the root cause of 62 percent of all personal bankruptcies in America in 2007. When the same researchers did this study across five states in 2001, health-care problems caused only 50 percent of bankruptcy filings. According to the American Bankruptcy Institute, America had 1.4 million personal bankruptcies in 2009, a 32 percent increase over the previous year. Put another way: Every thirty seconds, someone in this country files for bankruptcy in the wake of a serious illness…

Once again I ask:  How can anyone vote to put Republicans back in charge?

Economics For Dummies: The Republican Party’s Jenny Craig Diet

Forgive me, but I’m not quite finished with making the case against giving Republicans the keys to the government sedan.

My last post featured a graph supplied by the Center on Budget and Policy Priorities, showing the ongoing budget costs of Republican economic policies, costs now tying the hands of the Obama administration as it attempts to avert another dip in the economy.  These Bush legacy costs are only part of the story, however.

Today’s Huffington Post also featured a graph from the Center on Budget and Policy Priorities, this one demonstrating the awful truth about the last 30 years: The rich have grown fat, while most everyone else is losing economic weight in Jenny Craig-like fashion.

I’ll get to the graphs in a second, but I want to quote something for the hard core geeks who, like me, need some help in making the world safe from reactionary conservatism.  We’ve all heard the wingnuts talk about the “unfair tax burden” on those unfortunate top income earners who are suffering the ravages of a progressive income tax.  Except here is the truth:

By 2007, the top 1 percent had before-tax incomes that were 24 times higher than those of the middle fifth of Americans — a share that had nearly tripled since 1979.

The rapidly rising pre-tax incomes of the wealthy help to explain the notable rise in the percentage of total tax revenue collected from these households. CBO’s data show that the share of total federal taxes paid by the top 1 percent of households rose from 25.5 percent in 2000 to 28.1 percent in 2007, the second-highest share since 1979 (only 2006 was higher).

The increase in the share of taxes paid by the wealthy is often cited erroneously as evidence that their tax burden is rising. In reality, the effective federal tax rate for the top 1 percent of households — the percentage of their income that they pay in federal taxes — declined from 33.0 percent of income in 2000 to 29.5 percent in 2007.

The top 1 percent paid a growing share of total taxes chiefly because they received a growing share of total before-tax income: 19.4 percent in 2007, compared to 17.8 percent in 2000. Indeed, the effective tax rate of the top 1 percent of households was lower in 2007 than in any year since 1990, demonstrating beyond a doubt that their tax burdens were decreased, not increased.

Get that? The tax burden on the top 1 percent was less in 2007 than in 2000. Less. L-E-S-S.

Okay.  Enough about just Bush.  Here is a set of graphs that demonstrate a dangerous 30-year phenomenon that threatens the future of our capitalist system.  (Yes, I know. I do sound a little like Glenn Beck.  But if we don’t stop executing policies that contribute to the expansion of the gap between the rich and the rest of us, the rest of us will eventually say, “Revolution?  We’ll show you a bleeping revolution!”

Look at these graphs (and one table) and weep.  Then go laugh at any conservative who tells you that he or she has a plan for the economy and needs your vote.

Dear Tea Partiers: Here’s How Much Debt George W. Bush And Roy Blunt Foisted On Your Children And Grandchildren

Since some Tea Party folks just refuse to get it, and since conservatives don’t want to hear that the candidates they supported are largely responsible for the economic morass we are currently trudging through, here again is an interesting graph, found on the  Center on Budget and Policy Priorities website. 

It shows what the “legacy costs” of the Bush policies are projected to be, costs that the Obama administration has to account for as it tries to rescue the economy.  These Bush policy legacy costs have now magically become Obama’s “out-of-control spending,” according to the apostles of animosity on the right.

Although the infamous Bush tax cuts for the wealthy and the two deficit-financed wars are counted as part of the legacy costs in the graph below, of significant note is the fact that the cost of Bush’s Medicare Part D prescription drug program is not counted. The authors point out that the “the new program has also added significantly to deficits through 2019, but data limitations leave us unable to quantify its net budgetary effects.”

So, the truth is that the following graph, which attempts to quantify the painful and enduring costs of electing George Bush president in 2000—as well as keeping in office people like Roy Blunt, who enabled him—actually underestimates the damage:

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