Right Of The Star

Sunday, August 08, 2004

Daily Reality Check 080804 Deficit

I am sick of the screaming some on the left are doing about the budget deficit. To be fair, some on the right are screaming too - I always try to be objective (try mind you!).

I ran across a the chart everyone has see from Reuters - can't seem to find it now, all links broken! It looked really nice and all, had great colors and a HUGE negative swing under President Bush. Problem is it isn't an accurate way to analyze finances, it is a fraudulent or at the least intentionally misleading way to analyze a deficit.

Sure, numbers to numbers it is completely true - but GDP matters! Lets say you make $100,000 per year and figure you can afford a house with a monthly payment of $1000 (rough numbers just for point.) Your looking at an annual house payment of $12,000 or 12% of your annual income, or GDP in government terms. Well, 30 years later - your income has grown to $300,000. You could afford a $36,000 annual house payment without even blinking because it takes the same percentage of your income. This is Real World Common Sense! With that in mind I started looking to see if anyone in the media had decided to be intellectually honest and look at these facts as they apply in the real world. Unfortunately I didn't find anyone in the media do interested enough or educated enough to review these facts.

WOIFM had this wonderful analysis - check out the rest of this analysis, common sense - real world.
Here's why the Reuters graph is misleading, and deliberately so. It uses raw dollar numbers,unadjusted for inflation and gross domestic product (a rough estimate of the size of the American economy). Even the greenest budget journalist would know that such a comparison is worse than meaningless, it is outright fraudulent. The CBO itself reports that the actual deficit will peak in 2003 at 1.9 percent of GDP, returning to surplus in 2007. Even assuming a larger absolute deficit of $300 billion, as suggested by the Reuters chart, total deficits would never exceed 3 percent of GDP.

Radio Free Blogistan, an honest liberal willing to review the facts (thought not necessarily believe them). What did he find:

So, who holds the record for largest deficits as a percentage of GDP? Why the sainted Franklin Delano Roosevelt, that's who (again, quoting Frank): An Office of Management and Budget file that can be found here (PDF, 2.25 MB) contains GDP-based budget data going back to 1930. I didn't take the time to chart it as well, but I found it interesting that during the Depression years 1932-1936, President Roosevelt ran deficits in the range of 4.0 to 5.9
percent of GDP, and during the war years 1942-1945, he ran deficits in the range of 14.2 to 30.3 percent of GDP.

Here is the chart that Jack made.

The Administrations deficit is projected at less then 2% of the GDP.

In addition there are a few things that need to be included in any discussion of the current deficit:

1) THIS SEEMS TO HAVE BEEN COMPLETELY FORGOTTEN BY MOST EVERYONE! A major front in the War on Terror is the Economic Homeland - just like in WWII we protected the homeland we do the same now! The terrorists have told us they plan on causing economic ruin - doesn't it make sense to protect that portion of the homeland just as you would nuclear plants, skyscrapers or airports! How do you do that, not with bombs, guns, or even extra police but with Tax cuts and an influx of government spending. (More to follow on these fronts in the war.)

2) The Clinton's wonderful "surplus" was in large part at the expense of national security! In 1999 the Pentagon estimated that we were under funding defense by at least $10 BILLION per year. While defense spending dropped in the 90's - in real numbers - all other spending increased.
3) A deficit is not all bad - you know those savings bonds you get for your kids, you got as a kid, or you get through work? Well what exactly do you think those are? Yep, loans to the US Government. Without the deficit there would be a giant vacuum in today's diversified investment world.
4) Money you earn is yours, not something the government is kind enough to let you have - tax cuts are like a drop in your prescription costs each month - it reduces your bills and lets you keep more of your own money! A tax cut is NOT a gift but a drop in your bills.

5) 9/11 cost the US economy (as close as can be estimated) over a trillion dollars! Try running your household with no income for three years on only two years of income and see if you don't slip into deficit spending - bet your credit cards will be smoking!

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