If Bush is considered 'What is Republican'...

[Imran Siddiqui]

Well it was 5% this year.

[MrBaggins]

Including debt growth.

[Ned]

Just one more observation, if the GDP grows at 5% and the private sector is 70%, the private sector is growing at roughly 7/3 * 5 or 10%, which was about my original estimate. The true cost is of borrowing vs. taxes is the difference between this 10% and the cost in interest, which is now around 3%? In other words, the deficit actually yields a 7% return. Not bad.

All this illustrates is why every time we have gone into a balanced budget we also go into a recession or a depression. Balanced budgets cause the recession. Deficits drag us out.

[Lawrence of Arabia]

According to this report, GDP is expected to grow at an annual rate of about 5% for the forseeable future.

would this report be written by the same people who said that we would create 200,000 jobs a month this year?

[Ned]

Alright Lawrence and Mr. Baggins, et al., which grows the private sector faster

1) invest money in it;
2) withdraw money from it?

[el freako]

Just to clarify...

That 5% a year growth in GDP is the nominal growth rate (i.e. that before adjusting for inflation) - real growth is more likely to be 3% to 3.5%.

However the fact remains that even if the economy booms like it did in 1996-2000 the deficit will remain large (over 3% of GDP) due to the siginificant structural changes.

If nothing is done, and Bush's tax cuts are made permanent (as seems likely) then the US will face budget deficits of 10% to 15% of GDP 15 to 20 years time.
That would either imply the abolition of a major government spending area (like pensions, or education) or a rise in taxation to the levels currently prevailing in europe.

[The Templar]

Originally posted by Ned
Templar, the question is not whether the government will be better off, but whether the entire country, which is 70% private sector, would be better off.

Is that the entire country in the aggregate? Or is that everybody better off? Because if venture capitalists are better off while normal people are stuck paying the tax bill, then that's just redistribution of wealth - from rich to poor.

Nor will that money necessarily "trickle down" - the venture capitalists could spend and invest outside of the US. In that case, the rich get richer, everyone else foots the interest payments, while the monetary gains get spent in a way that does not benefit Americans - i.e. the people who are paying the tax bill on the interest. This is what happened during the '80s and the Reagan "revolution".

I am familiar with your arguments. But history suggests that a bigger pie is not desirable from the average person's point of view if their share is ever shrinking. Suppose the gains by going into debt are not equally distributed, which follows the historical patern (80s and 90s). Then even if everyone pays equally for the resulting interest in the debt (and this doesn't happen either since capital gains have such a sweetheart tax), the average person pays more in tax without reaping the benefit.

No thanks on the increased debt thing unless the government shifts the tax burden thereby created wholly onto the direct beneficiaries. And why should they complain if they are doing better than breaking even?

Distribution, as always, is the most important question.

[Ned]

Just so we are on the same page, here are some data from OMB.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005-2009 2005-
2014

--------------------------------------------------------------------------------

In Billions of Dollars

Total Revenues

 1,782 1,817 2,049 2,256 2,385 2,506 2,644 2,786 3,036 3,272 3,441 3,629 11,840 28,004

Total Outlays

 
2,158 2,294 2,411 2,525 2,652 2,783 2,912 3,047 3,198 3,296 3,457 3,616 13,282 29,897

Total Deficit (-) or Surplus

 -375 -477 -362 -269 -267 -278 -268 -261 -162 -24 -16 13 -1,443 -1,893

On-Budget

 
-536 -631 -535 -464 -477 -504 -507 -511 -421 -299 -294 -277 -2,487 -4,288

Off-Budget

 
161 154 174 195 211 226 239 249 259 275 278 290 1,045 2,395

Debt Held by the Public at the End of the Year

 3,914 4,393 4,771 5,055 5,338 5,630 5,912 6,185 6,356 6,388 6,409 6,399 n.a. n.a.

As a Percentage of GDP

Total Revenues

 16.5 15.8 16.9 17.8 18.0 18.1 18.2 18.3 19.1 19.8 19.9 20.1 17.8 18.7

Total Outlays

 19.9 20.0 19.9 19.9 20.0 20.1 20.1 20.1 20.2 19.9 20.0 20.0 20.0 20.0

Total Deficit (-) or Surplus

 -3.5 -4.2 -3.0 -2.1 -2.0 -2.0 -1.8 -1.7 -1.0 -0.1 -0.1 0.1 -2.2 -1.3

Debt Held by the Public at the End of the Year

 36.1 38.3 39.5 39.9 40.3 40.6 40.7 40.7 40.1 38.6 37.0 35.4 n.a. n.a.

--------------------------------------------------------------------------------
[/code]

http://www.cbo.gov/showdoc.cfm?index=4985&sequence=1

[Ned]

One can see the spike in revenues as a percentage of GDP is what forced the economy into the tank.

[The Templar]

Ned, your graph's projections beyond 2010 assume the sunset provisions in the Bush tax cuts are not removed and the cuts made permanent.

But your graph also proves my point - during the Reagan revolution - the heyday of supply side - gigantic debts result without the revenue to recoup the cost. The graph also hides the fact that even when revenues exceed outlays, the debt from the past has not yet been paid off. So we are still in debt. Great.

[The Templar]

Originally posted by Ned
One can see the spike in revenues as a percentage of GDP is what forced the economy into the tank.

You're jumping from correlation to causality. Post hoc ergo propter hoc and all that ...

[Kidlicious]

Originally posted by Ned
One can see the spike in revenues as a percentage of GDP is what forced the economy into the tank.

The revenues increased because of economic growth. But that's not what caused the recession. The recession was caused by overinvestment in the private sector and subsequent fall out. Do you realize that you are arguing that govt revenues caused private investment to fall?

[Ned]

Kid, not only did revenues grow, but so did revenues as a percentage of GDP. This forced the budget into surplus. Just as it went into surplus, the wheels came off.

[Kidlicious]

Originally posted by el freako
Just to clarify...

That 5% a year growth in GDP is the nominal growth rate (i.e. that before adjusting for inflation) - real growth is more likely to be 3% to 3.5%.

However the fact remains that even if the economy booms like it did in 1996-2000 the deficit will remain large (over 3% of GDP) due to the siginificant structural changes.

If nothing is done, and Bush's tax cuts are made permanent (as seems likely) then the US will face budget deficits of 10% to 15% of GDP 15 to 20 years time.
That would either imply the abolition of a major government spending area (like pensions, or education) or a rise in taxation to the levels currently prevailing in europe.

You make a giant leap. Anyway let us worry about 15 to 20 years in at least 10 years time. To do otherwise is just not usefull.

edit: If you plan for 15 years your economy will be screwed in 5 years as well as 15 years.

[Kidlicious]

Originally posted by Ned
Kid, not only did revenues grow, but so did revenues as a percentage of GDP. This forced the budget into surplus. Just as it went into surplus, the wheels came off.

I think it's more accurate to say that the wheels came off because of the fall out in private investment, and we should have created stimulus immediately to keep the economy growing. Unfortunately, there was no political will to do the right thing at the right time.