A 100% debt/GDP ratio means nothing! (Robert Shiller, Slate, July 21, 2011)
How non-partisan is the Congressional Budget Office (Slate, August 1, 2011)
New York Times budget balancing game (November 13, 2010)
For interest: In 2004 the actuaries scoring the creation of Medicare Plan D were told to shut up!
I. Gruber 4: Tools of Budget Analysis
a. Govt. Spending = Taxes + d(Debt) + d(Monetary Base)
b. US far from having a high ratio of (publicly held debt)/GDP.
c. Current deficits, even in real terms (change in value of debt) not historically huge relative to GDP, but strange since not the result of war or recession.
d. “PAYGO” rule under Clinton: Any proposal for a spending increase or tax cut had to have the revenue cost specifically made up elsewhere in the budget. Worked well to contain budget deficit, although the tax revenue effects of the growth of the economy were important too.
e. Friedman: Tax cuts without spending cuts are just taxes delayed.
f. Big future problems due to entitlements, Social Security, Medicare, Medicaid, “implicit debt” of US.
g. “Scoring” to forecast future revenues and costs, i.e. How do we estimate a tax cut will cost (or a tax increase bring in)? (G pp. 102-103)
i. Static scoring: Assumes change will have no effect on the overall size of the economy. Here a cut in tax rates would never be able to finance itself. Assumes perfectly inelastic agents. Relatively easy to compute, and therefore the estimate, while wrong, is less controversial, further the direction of its econometric bias is known.
ii. Dynamic scoring: Assumes change will have some effect on overall economic activity, that elasticities are not zero. Here a cut in tax rates could conceivably increase tax revenues if the elasticities are high enough. Such estimates tend to be highly controversial, and the direction of their econometric biases unknown.
iii. Orienteering example. Democrats, Republicans, and elasticity.
h. What’s wrong with running up debts?
i. When the economy is healthy, it may “crowd out” investment (unless government borrowing encourages people to save more in a Barro style “Ricardian Equivalence”). In a worst-case analysis, if debt is 50% of GDP, that could mean that we’ve reduced the capital stock by 50% of GDP, a huge amount.
1. Savings = Investment + (Govt. Spending – Taxes) + (Exports – Imports)
2. Foreign capital flows reduce crowding out effects.
ii. We have to pay interest to finance it, and that interest comes from distortionary taxes, thus creating DWL.
1. Oddly, interest on the debt as a share of GDP is quite low now (In 2006 it was 1.37%, its lowest level since 1973, and in 2009 it’s only about 1.8%).
2. However, foreign capital flows now are coming heavily from foreign central banks rather than private investors. (21% in 1993, 51% now). Potential “hard landing.”
iii. Elmendorf & Mankiw (1998) estimate that every extra dollar of US debt decreases GDP by six cents due to crowding out and one cent due to distortionary taxes to finance the interest expense. In 2010 with GDP of about $14 trillion and Debt/GDP = 70%, this would be a reduction in GDP of almost 5%, or almost $700 billion per year, or about $2,300 per person.
For interest:
Debt/GDP ratio history of the US (Brad Delong)
By international standards, we're not doing so bad, only 47th...but rising fast. Look out Tunisia; we've got your number! (CIA Fact Book)
Wagner's Law: Rise in government share with rising income (David Leonhardt, New York Times, March 16, 2010)
How does the government borrow money? And how risky do markets perceive US finances to be? (Slate, Feb. 1, 2010)
Credit ratings of various nations and US states (Illinois is not looking so good.) (New York Times, Feb. 3, 2010)
Can states declare bankruptcy? No. (Slate, March 8, 2010)
Higher marginal tax rates don't seem to have an observable effect on RGDP growth. (Elliot Spitzer, Slate, Feb. 23, 2010
How much do high debt levels hurt growth? (Wall Street Journal, Jan. 4, 2010)
"For advanced countries above the 90% threshold, average annual growth was about two percentage points lower than for countries with public debt of less than 30% of GDP." (Reinhart & Rogoff)
Public pensions are the big killer in budgets.
Medicare Plan D has a long run deficit of $7.2 TRILLION!!
Greece, you know it's bad. (New York Times, March 11, 2010)
Why do we have the crazy Bush Tax Cut phase-outs? (Ezra Klein, Washington Post, July 19, 2010)
How does the Congressional Budget Office score a bill? (Slate, March 19, 2010)
How hard it is to balance our budget? Wow.... (New York Times, Feb. 5, 2010)
Just try to balance the budget on the "Budget Hero" simulator game.
"Starve the beast" just doesn't work
Senator John Kyl's understanding of PAYGO budgeting rules (July 11, 2010) "You do need to offset the cost of increased spending. And that’s what Republicans object to. But you should never have to offset cost of a deliberate decision to reduce tax rates on Americans."
Here is how most people want to balance the budget.
Who cares about the President's budget? (Bruce Bartlett, Forbes, Feb. 5, 2010)
Let's just have a Bipartisan Commission to balance the budget! Or not. (New York Times, Jan. 18, 2010)
Would giving the president a line-item veto help cut spending? Maybe not.
Federal Budget in pictures (New York Times, August 25, 2009)
Some proposals that are too small to close the budget gap (New York Times, August 13, 2009)
How indebted can a country stand to get? Example: Japan. (New York Times, October 21, 2009) Krugman has a rebuttal.
And it's not just the federal government budget. Which US states are facing the worst budget deficits for 2010? (Christian Science Monitor, Dec. 30, 2009)
Then there is the Office of Management and Budget (OMB), headed by Peter Orszag. And he's in more trouble than our budget. New York Post. Daily Show. New York Times...Fashion section? And here he is on video!)
Cool history of the filibuster. (TalkingPointsMemo, Jan. 25, 2010)
CBO Director Doug Elmendorf on scoring health bills (Ezra Klein, Washington Post, Sept. 2009)
Uwe Reinhardt on scoring, "Can Economists be Trusted?" (New York Times, January 16, 2009)
"Introduction to the Federal Budget Process", by Coven & Kogan, Center on Budget and Policy Priorities