U.S. budget deficit "out of control"

[DanS]

make that 2%, to keep the debt/gdp ratio stable at it's current level and to run a deficit of 3% of GDP you would need nominal GDP growth of over 7% a year - as the long-term trend growth rate of the US is 3% to 3.5% then you are implying inflation of 3.5% to 4% a year.
I think that nominal growth will be more like 5%, which equates into a 2% structural deficit to maintain the debt/gdp ratio at it's current level.

Well 2.5%. The US has a net debt/GDP ratio of 50%. To keep this ratio stable over the long run, and with nominal GDP growth of 5%, you need to have a 2.5% structural deficit or lower.

But my point was that if you look at the here and now, since Germany is doing double or triple dip recessions (let's say 2% nominal growth) and has a 3 or 4% deficit, we at least we can take some perverse solace in knowing that we don't have it as bad as they do.

Are you talking about the nominal growth in the economy (money GDP), if so then what you are saying only applies when the debt is above 100% of GDP.

Yes, you are correct. My bad.

You keep saying this, and yet you also say (correctly) that the tax take as a share of GDP has been remarkably stable over the last 30 years - if there was this bias why has the tax take stayed the same, and if the reason for that is that whenever it rose polititians cut the taxes what makes you think that that will change this time?

Well, even if it is remarkably stable, and is useful in debunking lots of arguments, there is still some variation, which is almost substantial enough to explain away a 4.5% structural deficit. Over the 90s, this variation was about 3.5 percentage points of GDP from trough to peak. Taxes were raised in 1993 by Clinton and the Dems, but the biggest impact was income tax bracket creep during good economic times.

In the political system that we have in the US, such tax increases are free-of-charge to politicians--you can bash your opponents for being tax-and-spend even though you're allowing taxes to increase over time.

[Ned]

DanS, Bracket creep? I thought Reagan gave us indexing. Who repealed it?

[DanS]

Indexing to inflation, not income growth. So they increase 2% a year to keep pace with inflation, even though incomes are rising 4% a year. If left untended, as happened during the 90s, this creates a natural rise in tax percentages of income and GDP when economic times are good.

[Ned]

Well, DanS, this indexing is better than none. You can only imagine the dispair of the average Joe back in the good old Carter years when he drove inflation to 20% per year. Not only did this kill pensions, but it provided for a yearly massive tax hike. And, of course, you know who opposed indexing when Reagan proposed it?

The Democrats.

[Lawrence of Arabia]

The more that the demopublican party ****s up, the more chance the lp has in gaining a seat in congress.

[el freako]

Originally posted by Ned
You can only imagine the dispair of the average Joe back in the good old Carter years when he drove inflation to 20% per year.

When was US inflation ever that high?

During the carter years (from Q4 1976 to Q4 1980) inflation averaged 8.7% - pretty high but less than half the level you are talking about.
Inflation peaked at 10.9% in the first half of 1980, below the peak of 11.3% in Q4 1973 under Nixon.

N.B. inflation figures relate to the Consumption Expenditure Deflator.

Originally posted by DanS
Well, even if it is remarkably stable, and is useful in debunking lots of arguments, there is still some variation, which is almost substantial enough to explain away a 4.5% structural deficit. Over the 90s, this variation was about 3.5 percentage points of GDP from trough to peak. Taxes were raised in 1993 by Clinton and the Dems, but the biggest impact was income tax bracket creep during good economic times.

So, are you expecting a simmilar rise in taxation over the next 5-10 years?, or will it only come after 2008?

[JohnT]

Ummm...that's an interesting viewpoint, but the last time I checked the government wasn't pocketing the money and running; they were using it to pay down the debt (which is from money previously spent on us, the citizenry....theoretically). This choice is especially valid when you realise that for about 5 straight years in the 90s public opinion polls listed paying off national debt as the top spending priority for the federal gov't. So as I see it, we decided what we would do with our money, and we did it. Whereas it seems that you've identified what you'd like your government to do: borrow money in order to pay for its functioning, instead of paying for it up front. This is your choice, but it might not be the wisest one.

Uh, so you are using the surplus to pay down your debt - a debt that supposedly exists because for a period of time prior to the mid-90s, Canadian citizens preferred to borrow money to pay for government functions.

However, when the US decides to make the same choice that you implied was valid and warranted for your countrymen, it now is somehow illicit... for no other reason than because it is the US that is doing it, right?

OK, I think I get it.

[KrazyHorse]

Originally posted by JohnT

Ummm...that's an interesting viewpoint, but the last time I checked the government wasn't pocketing the money and running; they were using it to pay down the debt (which is from money previously spent on us, the citizenry....theoretically). This choice is especially valid when you realise that for about 5 straight years in the 90s public opinion polls listed paying off national debt as the top spending priority for the federal gov't. So as I see it, we decided what we would do with our money, and we did it. Whereas it seems that you've identified what you'd like your government to do: borrow money in order to pay for its functioning, instead of paying for it up front. This is your choice, but it might not be the wisest one.

Uh, so you are using the surplus to pay down your debt - a debt that supposedly exists because for a period of time prior to the mid-90s, Canadian citizens preferred to borrow money to pay for government functions.

However, when the US decides to make the same choice that you implied was valid and warranted for your countrymen, it now is somehow illicit... for no other reason than because it is the US that is doing it, right?

OK, I think I get it.

Dude, I'm not condoning the debt runup, especially that of 1984-1993 (from which, IMO, we saw no use). My point is that it's better to be running in the black than in the red, unless you really think the borrowing is necessary...

[Drake Tungsten]

too bad all the ****ing old people who are getting electing are ****wits who will be leaving me with the bill.

I probably hate old people as much as you do, but I would never call them nitwits (or whatever your censored equivalent was ) for making us and our ill-informed and apathetic young bretheren foot the bill for their excesses. Seems pretty intelligent to me.

The crafty old bastards...

[el freako]

Originally posted by DanS
But my point was that if you look at the here and now, since Germany is doing double or triple dip recessions (let's say 2% nominal growth) and has a 3 or 4% deficit, we at least we can take some perverse solace in knowing that we don't have it as bad as they do.

Well, according to the latest OECD forecast their debt is still rising slower than the US's:

Change in Net government debt as % of GDP 2002 and 2005:

United States: 44.2%, 52.4%
Japan: 71.7%, 91.6%
Germany: 47.2%, 55.1%
France: 39.7%, 47.5%
Britian: 28.7%, 33.4%
Italy: 96.7%, 95.7%
Canada: 40.4%, 32.4%
EU15: 47.9%, 50.5%