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March 21, 2013


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What good is economic theory when corruption rules the day.

Who do we want to spend our hard earned money, corrupt defense contractors or corrupt infrastructure contractors.

Corruption, serving this country for the last 100 years.

Awesome write-up. Thanks for doing the hard research and putting it together in one place.

...the savings would total $2.5 trillion, or slightly more than the $2.4 trillion total savings...

I love it when $.1 trillion (100 billion) is "slightly more."

A billion here, a billion there, and pretty soon you're talking real money.
- Senator Everett Dickson (apocryphal)

If we want to engage with our readership better, lets use a word that's better understood than "chimera", lest this come across as a blog for intellectuals.

And, Arizona's utility's rate structures defeat the value of independent energy conservation measures and solar energy.

We build our debt on our children's backs.

It is a blog for intellectuals, or wannabes.

I grew up reading challenging stuff where I had to look up words. Thank God.

I think chimera has something to do with a she-goat. So that would fit the discussion.

When it comes to our nation's governmental economics we are pretty much goat-f@#ked.

The word "chimera" can refer either to a firebreathing mythological monster, or to "a horrible or unreal creature of the imagination". Most discussions of the debt and its exigencies unconsciously invoke the first definition. My title was intended to suggest that the debt, as a crushing national problem, is the product of misunderstanding and hysteria.

The federal government is not "bankrupt" and the size of the economy, together with the government's sovereign power of taxation is quite adequate to comfortably manage the debt.

The government doesn't have to borrow as much as it does: that it has been doing so during a period of severe economic downturn and a sluggish recovery, rather than insisting on cutting spending to match plummeting revenues (thus decreasing demand, further depressing the economy, and insuring even lower revenues, in a vicious cycle) is a credit to the comparative sense of the Obama administration -- though I suspect that Republicans would have sung quite a different tune had one of their party members occupied the Oval Office.

Wait. What? I thought a chimera was one of those decorative clay chimneys you put out on the patio for the illusion of warmth. Dang Gum IT!

Republicans are using the debt fear to obstruct Obama initiatives. True believers in this ultra- reactionary GOP hate government and act against Obama with this emotion to motivate themselves. The reality is that once in power Republicans expand deficit spending like drunken sailors.

Corporate controlled media by GE and others perpetuate the deficit crisis illusion. US government is by big business for big business. They own the politicians and the country.

I like your analogy of our national debt being like corporate debt used to run a business, debt that never actually needs to be paid off.

The analogy I like to use for managing our national debt is that of an American family. Earnings of $150,000 a year, with job security, would certainly justify a mortgage of $450,000 for a growing family, even though the debt is three times yearly income. Housing is, after all, a necessary commodity, and what counts is your ability to service (manage) the loan, and not necessarily its size.

The republic is a big boy. We should figure America can compete sufficiently to provide for essential services -- especially when our total debt is a mere fraction of our GDP, and, as opposed to a family, when managing the national debt does not even mean paying it all off.

Conservative estimates of fraud and waste in the federal budget is between 10 and 20 percent.

To discuss the budget without allowing for the waste in the calculations is to result in formulas which have no meaning in reality.

Ignoring $720 billion out of a $3.7 trillion budget is like trying to balance your own checkbook, while supporting family members who are hooked on heroin. You may want to ignore the cost of the heroin, but it's there, whether you like it or not.

Chuco -- I think your analysis rests on your phrase, "with job security." The truth is, there is no such thing. Emil's piece contained a similar phrase: "while the size of the economy ... continues to grow." With that sort of optimism, I can see why there's little hesitation to increase debt-load. Good luck with that.

Ray, there is nothing extraordinary about a prediction that an economy will continue to grow. Every developed nation in Europe and the Americas has an economy that has seen long-term growth since the industrial revolution.

If on the other hand you are saying that another major short-term economic crisis like the Great Recession could add significantly more to the national debt, you're right.

As a percentage of GDP, debt held by the public, excluding debt held by the Federal Reserve System, jumped from 30.7 percent of GDP in 2007 to 56.6% in 2011. The last time it was that high was in the early 1950s when the level of debt as a percentage of GDP was decreasing from the record highs of WW II.

But here's the thing: in 1946 this debt was 98.0 percent of GDP. The nation did not collapse. Far from it. By 1962 it had dropped to 38.5 percent of GDP. Yet, in dollars, this debt was the same in 1962 as it was in 1946, about 218 billion. See Table 7.1:


That's why it's important to use debt as a percentage of GDP and to remember that simply by growing the economy, debt can be brought under control.

Ray, also note that nowhere above do I suggest "increasing debt load". Quite the contrary.

If you take a look at the CBO Budget Projections data at the link provided, select Table 1-6 showing federal debt projected in CBO's baseline. In 2012, debt held by the public as a percentage of GDP was 66.8 percent (note that this includes Fed holdings, unlike my numbers in the comment above). By 2023 this is expected to be 69.4 percent, which is not a large increase. This assumes current law.

By contrast, I suggested raising taxes on the wealthy and corporations in order to BALANCE the budget, which would reduce debt as a percentage of GDP. Not until the economy recovers, but when feasible.

Ruben, a "conservative" estimate of waste, fraud and abuse in federal government isn't "10-20 percent". Even Darrell Issa, a House Republican who used a committee meeting to pound this point home, could only come up with 7 percent:


Ruben wrote: "To discuss the budget without allowing for the waste in the calculations is to result in formulas which have no meaning in reality."

This is a non-sequitur. Spending, revenues, deficits, and debt are well defined numbers independent of the question of how much of the spending involves payments that shouldn't have been made or that were larger than necessary.

To assert that no meaningful discussions of fiscal matters can occur without discussing waste, fraud, and abuse is like saying that you can't discuss the family check register without discussing waste, fraud, and abuse. Obviously you're not an accountant.

"...when managing the national debt does not even mean paying it all off."

Right, Chuco, or even any of it. Debt held by the public (net of Fed holdings) was about the same in dollars in 1967 ($219 billion) as it was in 1946. Yet, this debt as a percentage of GDP declined from 98.0 percent to 27.1 percent over this period. High marginal income taxes on the wealthy helped keep deficits under control while allowing plenty of healthy economic growth, even as spending increased.

In case I didn't make it clear in comments above, here's another way to put it: the record debt racked up by the nation during WW II was never paid off or even paid down to speak of. It was simply rolled over until economic growth made it increasingly irrelevant to the nation's finances.

Reserve holdings) at the end of 1940 was $40.3 billion. By the end of 1946 it was $218.1 billion, which means it more than quintupled in six years. The lowest it became in dollars in subsequent years was $191.3 billion in 1951. See Table 7.1.

That last comment got chopped. Should have read:

To provide some additional context, debt held by the public (net of Federal Reserve holdings) at the end of 1940 was $40.3 billion. By the end of 1946 it was $218.1 billion, which means it more than quintupled in six years. The lowest it became in dollars in subsequent years was $191.3 billion in 1951. See Table 7.1.

Emil, when I saw the word chimera in your title I assumed you meant the in the biological sense - an organism composed of at least two sets of gametes. So before I even read it I pictured a debt that is considered benign and even healthy when the GOP in power but that morphs into the malevolent "twin" when the Democrats take over (not exactly going in the most scientifically or metaphorically accurate direction here but, whatever).

When the bad (Democratic) side of the chimera emerges, it is believed by all Serious People that a radical course of medical treatment is necessary, one that is likely to be debilitating or even deadly to the economy.

Donna - If the GOP would restrain themselves and limit their hatred to the working class and the poor, they could probably actually be quite fiscally conservative. Problem is, their misanthropy becomes equally inflamed when they contemplate foreigners, and they blow the savings on blowing them up


Donna, you're certainly right about Republican attitudes toward debt being radically different when one of their own kind is in office, at least from Ronald Reagan on.

Debt held by the public (net of Federal Reserve holdings) was 21.7% in 1980. By 1988 it was up to 36.4%, a 68 percent increase over his eight years.

From 1988 through 1992 (Bush Sr.) it rose from 36.4% to 43.4% of GDP.

Under Clinton's second term it actually dropped from 43.3% to 29.5% (well, really 27.2 because of the difference between fiscal years and calender years, the timing of budget legislation, and the fact that presidents take office in January of the following year).

Bush Jr. took it back up, though not nearly as much as you might imagine because of the wars; most of the increase occurred when the economic crisis hit. By the end of fiscal year 2008 it was back up to 37.1% of GDP, or an increase of 1/3 over the period.

P.S. It's also interesting to note that during Clinton's first term, when Democrats controlled both houses of Congress, this debt stayed about the same during his four years, unlike under Reagan or either Bush. In 1992, it was 43.3%, and in 1996 it was also 43.3%.

This is important because conservatives often claim that Clinton got "lucky" with the budget surpluses which occurred during his second term. The figures show that Clinton (and the Democratic Congress) was actually fiscally conservative during his first term.

Incidentally, the conservative claim that the dot.com boom was responsible for Clinton's second term surpluses is nonsense. You can eliminate all growth in federal capital gains revenues during the boom and you still get surpluses, albeit smaller ones. Clinton's tax increases brought in more money as the economy enjoyed strong growth throughout his presidency.

Also note that the annual deficit in Clinton's first term was already on a steady track of reduction: in 1992 it was 4.7% of GDP, and it decreased steadily each year until by 1996 it was 1.4% of GDP. Second term budgets just continued this trend, with the last deficit in fiscal 1997 of 0.3% of GDP, converting to a small surplus the next year and growing steadily after that. This represented the steady accumulation of revenues after the early tax increase as the economy grew strongly each year thereafter.

See Table 1.2:


great read good comments, sans trolls and loons. Love it. I'll be sure not to share it w/ my oc-cali fb friends! Their heads might explode from the sanity and the smartness. I am, however, going to memorize the arguments and send like-minded people here if I can. h/t to C&L for plugging this blog. Thank you, really impressed.

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