« Maybe They Should Just Stick to Cash | Main | Madoff vs. Social Security: Which One’s the Scam? »
My Perspective on the Deficit and “Spending Cuts”
By JLP | February 4, 2010
According to an article I read in the WSJ the other day, the US is expected to run a $1.6 TRILLION deficit this year. President Obama has gone through the budget and supposedly cut $20 billion in spending. Okay, when you toss around a number like $20 billion, you might think, “Wow! That’s a lot of money.”
Although it is a lot of money, I thought it would be cool to put this in perspective. So, I created a couple of graphics representing our deficit. The first one contains 1,600 squares. Each square represents $1 billion.
Okay, now this second graphic represents the $1.6 trillion deficit MINUS the $20 billion in savings:
Basically, it’s like owing someone $1,600 and finding a way to pay them $20!
Topics: Miscellaneous | 35 Comments »
February 4th, 2010 at 10:58 am
I view the entire deficit as Social Security and Medicare/aid. Let’s just cut those programs and we’ll have a surplus for the rest of time!
February 4th, 2010 at 12:02 pm
can you do a box not just of the yearly deficit, but of the national debt?
February 4th, 2010 at 12:13 pm
JC…
Wouldn’t that be around 12,000 squares?
That would paint a much better picture.
February 4th, 2010 at 12:20 pm
JC,
I think that would give me a major headache…lol.
February 4th, 2010 at 1:21 pm
#JLP ) Great article! It would be interesting if the squares were color-coded: red to represent the portion of the deficit tied to Bush-related policies, and blue to represent the portion of the deficit tied to Obama-related policies.
Remember that Clinton had _negative_ 200 dots (billions), and Obama is not solely responsible for the deficit until his 2010 budget. The 2009 budget deficit should be equally shared between the two since the administrations overlapped.
Anyhow, even though $20b is small, at least it is a start. The trend is reversing!
February 4th, 2010 at 1:30 pm
I don’t like deficits but I also don’t like surpluses either. A nations should not be running a surplus. If they are, then they are collecting too much in taxes.
If you’ll read the post, I didn’t blame the deficit on Obama. I only stated what he has said about cutting spending.
February 4th, 2010 at 1:49 pm
#6 JLP) Didn’t mean to imply you were attacking — you were just stating fact (like me).
If we are to pay down the national debt, then we need to have yearly surpluses. If we had zero debt, then I agree we shouldn’t try to run surpluses. Clinton was using the surpluses to decrease the national debt.
February 4th, 2010 at 2:08 pm
Found a blast-from-the-past article (Dec 2000):
http://articles.latimes.com/2000/dec/29/business/fi-6075
“Clinton said the U.S. would be able to pay off the entire $3 trillion in publicly traded debt by 2010 if federal spending increases at the rate of inflation and Congress adds no large spending programs.
The estimate also assumes there will be no big tax cuts, such as the $1.3-trillion plan proposed by President-elect George W. Bush.”
February 4th, 2010 at 2:42 pm
Don’t look at it based on who the president is, look at who controls the House of Representatives. All spending bills must originate in the House. It changes things when you remember how the Constitution is worded …
Oh yeah, and when did a “spending freeze” turn into “only a one percent increase”?
February 4th, 2010 at 2:46 pm
@ #9 Ron: “Oh yeah, and when did a “spending freeze” turn into “only a one percent increase”?”
Well they do say water expands when it freezes. =)
February 4th, 2010 at 2:58 pm
JLP,
Great perspective builder.
Your post reminded me of a power-point show that adds some more perspective on what a trillion dollars looks like. I posted on my site. Thanks for all you’re doing. I love the site.
February 4th, 2010 at 3:12 pm
I wonder if at some time, the blame game will stop. Just curious. This was an article about perspective and nothing more. To read more into it or to assign blame in the comments does not make sense. As this falls under the current budget, the reference to the past is odd.
February 4th, 2010 at 3:21 pm
BG,
For some more perspective, I thought this was interesting: Bush Deficit vs. Obama Deficit.
February 4th, 2010 at 3:50 pm
I hope i am not the only one…but staring at the dots gave me a headache and messed up my vision
Thanks! lol
February 4th, 2010 at 3:55 pm
Yeah, I probably should have posted a warning to not stare at the dots.
February 4th, 2010 at 4:04 pm
Dirac and JLP) Budgets aren’t some magical thing that every president rewrites from scratch each year. They always take the previous budget, tinker with it, and have a new one.
Obama has done _nothing_ to affect Military spending, Social Security, Medicare, etc. Those three things are the absolute majority of the current (and previous budgets). If I’m doing my personal budget for this year, I can’t pretend that I didn’t buy a house last year and have mortgage payments to make. The budget problems we have today, were not created in the one year since Obama took office.
He is not some kind of magic man that can fix these massive issues in one year that took many years (decade at least, and probably longer) to create.
I agree with Ron that you can’t blame the president (solely). Bush had to deal with some crazy stuff (two recessions and 9-11), and wars with terrorists. We also have people wanting massive tax breaks that we didn’t pay for (we took on debt to give tax breaks).
We also have a recession, which decreases federal income –> which leads to a deficit. You don’t need to increase spending to have a deficit, if your income is cut.
Obama’s inherited deficit was $1.3 Trillion when he took office (sworn in) — before he had passed a single law or inacted a single policy. So, if you want to assign blame, then 85% of the dots in JLPs chart you could attribute to the previous administration.
Here is a great link where Obama spoke with House Republicans: 140 to 1, where he answered their questions and he talks about unemployment and the budget. If you really want to be informed, then watch this (or read the transcript) — there is no media bias to influence you, since this is the raw footage:
http://www.huffingtonpost.com/2010/01/29/transcript-of-president-o_n_442423.html
Anyhow, I think the real problem with the federal budget is: you, me, democrats, republicans, everyone. Stop asking for bailouts, stop asking for tax cuts (so we can pay this crap off), stop asking for more benefits/entitlements, etc.
February 4th, 2010 at 4:12 pm
How apropos! Don’t look too hardly at the bugdet, it’ll give you a headache!!!
February 4th, 2010 at 5:05 pm
Federal carwash to raise money!
February 4th, 2010 at 7:47 pm
The problem is there’s a herd of elephants that have to be addressed, and politicians who do so will be trampled. At the federal level, you’ve got SS and Medicare, and an entire culture of government that effectively makes everything the government does far more expensive than it should be. At the state and local level, you have workers, including public-safety types, who have giant pensions that simply can’t be paid.
Both parties have let this develop, particularly the R’s at the state & local level where being “pro law & order” meant giving police, prison guard, and fire unions everything they want. At all levels, the D’s are beholden to the SEIU and other public-sector unions.
In my dreams, politicians take on the SEIU today, and than start working on AARP.
Frankly, I don’t care about who did what, or what Clinton, Bush et al did or didn’t do. If that sort of analysis is supposed to inform today’s debate, it won’t do much, because even if Bush was the second coming of Calvin Coolidge, it would only have delayed the crisis by a few years. The “Pension Tsunami” would still be looming.
February 4th, 2010 at 7:59 pm
Electing Obama President is like giving a 5-year old boy a hammer. How much damage will occur until the hammer is taken away?
February 5th, 2010 at 6:39 am
This is a problem that both parties got us into, with Republicans starting the spending binge early this decade, and Democrats running it up even further in the last two years. As someone earlier noted however, even if we didn’t have the deficits of the past decade, we’d still have trillions of dollars of unfunded liabilities headed our way (Social Security, Medicare, Medicaid).
What is absolutely shocking to me is that neither party seems willing to address these problems. If we continue on our current path, with no changes to the current system, we put our national security at risk, by having much of our debt in foreign hands (particularly the Chinese), we risk lowering our standard of living, by forcing higher taxes and fewer programs, and we risk leaving our kids and grandkids with a bleaker future.
As George Washington said about Federal borrowing, it “Ungenerously Throw[s] Upon Posterity the Burden Which We Ourselves Ought to Bear.”
We have created this problem, now we need to fix it, through cuts in government spending, and more revenue.
February 5th, 2010 at 9:24 am
#1 tom) Social Security (today) is not the problem. If we eliminated SocialSecurity (and the SS tax), then the yearly deficit for 2010 would increase $235 billion (add 235 dots to JLPs graph).
Social Security is still running a surplus (for now). For the 2010 budget, Social Security tax (income) is at $940 billion, while social security outlays (and administration costs) is at $704.7 billion. The budget is available for all to see.
The issue with SS is that it eventually will not have surpluses — that is when the real pain starts, sometime around 2014-2017.
February 5th, 2010 at 2:53 pm
JLP,
Interesting graphic, but I think you should replace the black dots with tiny green dollar bills. You weren’t doing anything this weekend, were you?
February 6th, 2010 at 7:32 pm
@BG, you are obviously taking things in a vacuum when you say this or that administration. I seem to forget if it was a republican congress during the clinton budget surpluses and if it was a democratic congress during the clinton budget deficits. the same goes for the bush administration. also, let’s not forget that fiscal and monetary policy don’t work so fast, which i agree that administrations overlap and fiscal and economic policies set earlier the current administration of the time will get credit or blame for those policies. i also am struggling to determine how we can have a budget surplus when we have a national debt. The budget surplus surely didn’t get refunded to the american people back in form of refund checks…seems to me it was spent and it was money that the govt really didn’t have to spend. moreover, the projected ongoing budget surpluses was based off of status quo economics, which is rather a ridiculous way of balancing anything.
the notion that social security is running a surplus is also fictitious since the govt borrows against said social security “surplus” with a sort of IOU. Since the govt has a huge national debt, how can the govt have any “surplus” in anything? It can’t. To consider that there are surpluses in any part of the govt, except hugely inefficient workforce, is a fallacy.
I also hate budget projections, because it completely ignores the impact fiscal and monetary policies or the color of my hair will have on the projection. It assumes everything is equal. This is why the clinton/republican budget surplus failed to realize reduction in national debt.
@JLP, the only difference is that the $1600 is with the backdrop of already having $12,000 in credit card debt, which puts that $20 savings really at about $.02
February 6th, 2010 at 10:10 pm
If you look at the dots long enough, you see the Statue of Liberty.
This is an interesting way to show the proposed cuts.
It really doesn’t matter who is in office. Both Republicans and Democrats are failing us. Clinton and the Republican Congress didn’t have a surplus back when they claimed they did because they assumed the social security surplus was part of their surplus. So based on federal taxes versus federal expenses, we still didn’t have a surplus.
We need to voice our anger to these politicians through our vote. This is the only way to get change.
February 8th, 2010 at 12:10 pm
#23 Tim) Under Clinton, we were using the ~200billion yearly surplus to buy-back government treasuries — hence paying off the ‘public debt’ portion of our national debt. I agree with you on the IOUs from Social Security. The SS tax is running a surplus, which our government happily spends on other stuff. In exchange, we get an IOU into the SS folder, which is up to almost 3 trillion now (that’s a lot of dots!).
But debt that the government owes itself is not really counted. Similar if my wife owes me $1 million on a bet she lost! It doesn’t mean that she is $1million poorer and I’m $1million richer because it’s all funny money anyway (from an outside perspective).
The government has a special SS-tax, to fund SS-liabilities. All I’m saying is that since we are collecting more in SS-tax than SS-outlays, you can bet that no politician is going to do anything about social security until that reverses. It’s going to come down on the next administration to fix this — so start placing your bets (votes) now.
#24 Kirk) I agree — our politicians are failing us. Federal spending went from $1.9t under clinton’s last year, to $3.1t under bush’s last year (a $1,200 billion increase). Obama has increased spending another $450b in his first year (mostly the American Recovery and Investment Act).
Spending must decrease, or taxes must increase, (or both) to rectify this mess. Almost 7% of our taxes are going to interest payments on our debt. We almost pay in interest the same amount we collect in corporate income taxes!
February 8th, 2010 at 7:00 pm
Yeah, the dots are difficult to look at for a long period of time, but it is a great way to look at these numbers in a more comprehensible way.
February 9th, 2010 at 11:34 am
@BG, you still come up with funny numbers. The treasury showed absolutely no reduction in national debt, despite the fuzzy calculators indicating decrease in public debt, but at the same time increases in govt holdings (i.e. debt). this means the national debt never decreased. “not really counted”, um that’s just fodder. Let’s live in the real world and stop using fuzzy calculators. the only problem with your analogy is that you forget that ss is an expenditure, so no matter how you cross level money internally, you are still having to pay out. Again, this is like your wife owing you $1million while having $10k in credit card debt. It isn’t a net zero, it’s a net negative and continued to be so during the supposed budget surpluses. you should also check that even if you assume that the budget surpluses were real, they weren’t $200bn “yearly” and projections hinged on what we know was an unsustainable tech market bubble. the bubble pops, and spending increased, and debt didn’t decrease, yielded a much higher negative.
now you can use all kinds of calculators and show that under clinton, debt was much higher as part of gdp than under bush, and that increased debt was due to democratic congress vice republican congress, etc. let’s also stop saying under clinton or under bush, or under whichever president, since we know that congress has a major hand in these budgets.
obama only increased $450bn? really? the white house FY2011 budget even shows a projection of $6.35 trillion increase in debt from Obama’s first year to his 4th year if we are comparing numbers between first and end of term numbers. Now if you want to pull out the fuzzy calculators again, why not also include in addition to the recovery act: tarp, bank bailout, homeowner bailout 1 & 2, Clunkers, etc, the math seems to add up over $3.5 trillion versus $1.6t for clinton and $1.8t for bush.
anyways, it’s the govt, regardless of dem or rep pres and/or congress. i agree, we have to demand decrease in spending and tolerate increase in taxes.
February 10th, 2010 at 11:19 am
@Tim) Look at the wikipedia article for “United States Public Debt” — look at the graph on the right side of that article that showed the public debt going _down_ at the time-period when Clinton was our president. Public debt is the debt that the US owes somebody else, whereas gross debt includes money that the US owes to _itself_. Both of those were being paid down when Clinton was in office — if you want to pat yourself on the back because Clinton had a republican congress, then by all means do so.
And make no mistake, when Bush enacted his tax-cuts, that is exactly when the trend reversed form ‘paying off debt’ to ‘increasing debt’.
If we can’t even agree on basic historical facts, then we have no hope of discussing this…
February 10th, 2010 at 11:25 am
@Tim) and if you still don’t believe me and want to rewrite history, then you need to account for the fact that the National Debt clock in NYC was turned off in September of 2000 (until 2002) because it had outlived it’s purpose since we were paying down the debt.
Got out of your hole.
February 11th, 2010 at 9:03 pm
@BG, yeah right, the NYC debt clock operating or not is what I define as the authoritative source for our national debt. I suggest you go to the US Treasury’s website http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm and look up the historical debt outstanding pages, and you will see that the national debt never decreased…or maybe i need to have my laser eyes rechecked.
i’m not arguing republican or democrat, you are and it is a silly argument. I have repeatedly pointed out, which you seem to ignore out of bias blinders, that congress and the president both are participants to any legislation. to say clinton’s surplus or bush’s spending is fodder and meaningless if you understand how our govt works.
i’m also one who thinks talking about the national debt in a vacuum and in of itself doesn’t mean much. just like $x personal debt means nothing unless you place it in context of something else. Someone with $500 debt and only makes $300/mo with zero assets is far different than someone with $500 debt and makes $300/mo with $1m in assets or makes $3000/mo. Likewise, national debt without context means nothing. this is why i think national debt as a percentage of gdp is a much more useful number in terms of speaking to the health of the US.
i think you ignore the biggest fact about why debt increased: the bubble burst right after administration change, which reduced revenue while govt continued to spend based off of misguided surplus projections.
make no mistake, the issue about the tax cuts, has everything to do with spending not saving or reducing. even then, it is through myopic lenses, because it ignores extrapolated impact which will also reduce revenue and increase costs. especially considering our economy is flat and looks to remain flat for the next few years.
February 12th, 2010 at 11:46 am
@Tim) I think you are looking at ‘gross debt’, instead of ‘public debt’. The federal government absolutely was reducing the public debt, by buying-back treasuries, and effectively burning those treasuries.
The ‘gross debt’, which I think you are arguing, includes social security, which the government owes to itself. Just like if my wife still owes me $1million — to an outside observer it is a meaningless number. If my wife defaults on her $1million she owes me, there is nothing I can do about it. My Credit Card rates will not shoot up if I default on my “clothing-budget” cash-envelope, that I raided to fix my car.
Ignore the money that the government owes itself. A single act of congress could wipe away that $3 trillion the US taxpayer owes the SS trust fund — without a single dollar being spent (though it might start a civil war — internally).
February 12th, 2010 at 12:50 pm
@Tim) I looked at your link very closely. The difference here is that the graph on the wiki article is showing the numbers in ‘real dollars’, ie; adjusted for inflation @2008 dollars. The wiki graph shows an inflation-adjusted public debt of around $2 trillion in the 50s, even though in 1953 (earliest according to your link) the actual amount (in 1953 dollars) was around $255 billion.
Does that help clear up the confusion?
If the public debt increases slower than inflation, then the public debt is actually decreasing in real dollars: which that graph on the wiki article is showing.
There is a big difference between owing $255b in 1953, and only owing $255b in 2010.
As for using debt/GDP ratios, that’s fine in normal times, but recessions throw those figures through the roof — and of course, we are currently in a recession — and a pretty big one at that. But it is an important number that should not be ignored.
I personally think it is best to look at the public debt in relation to income (for the government that would be tax receipts). Our public debt is currently at 5 times our present income. I don’t think that if you owe 5 times your income, you would even want to consider tax cuts (reductions in income)…
February 12th, 2010 at 9:59 pm
@BG, i think you forgot to look at the top of the treasury webpage i included which shows “public debt”. any more questions about it? at no time did public debt decrease. nuff said, so says the treasury.
as far as today’s dollars, real dollars, or whatever you want to call it, it simply doesn’t matter so long as you are consistent in comparing your numbers. treasury uses today’s dollars, it isn’t saying public debt was x in historical dollars compared to today’s debt in today’s dollars. that wouldn’t provide anything useful. again, regardless of whether you used yesterday’s dollars or today’s dollars, so long as you are consistent, and the treasury page is, at no time did public debt decrease.
i think you confuse gdp rate with gdp. even in a recession although we have a negative gdp rate, we still have a large gdp.
i will concede you can use either revenue to debt or assets (gdp) to debt. However, there are differences between revenue (receipts) and gdp, which makes gdp reference.
if i didn’t say it again, at no time did public debt decrease.
February 15th, 2010 at 9:49 am
@Tim) According to the TreasuryDirect website, the “debt held by the public” was:
3.790 trillion on 9/30/97
3.734 trillion on 9/30/98
3.636 trillion on 9/30/99
3.405 trillion on 9/29/00
3.339 trillion on 9/28/01
It was trending down even if you ignored the effects of inflation (which magnifies the paydown). According to TreasuryDirect, it started to increase again on 11/30/01.
See for yourself at:
http://www.treasurydirect.gov/NP/BPDLogin?application=np
enter whatever date ranges you want, and look at the ‘debt held by the public’ column. I still think you are including the intra-governmental holdings (trust funds) where the government owes itself. I ignore what the government owes itself, because it is a meaningless number — easily erased by an act of congress.