Responsibility Knocks

To say a bit more on the question of Hillary Clinton and fiscal responsibility, "fiscal responsibility" is, of course, one of those phrases designed so as to be impossible to disagree with. Nobody's going to say "I favor an irresponsible fiscal policy" though some people do, in fact, favor such policies. The question is which policies are irresponsible. Late during Bill Clinton's administration, a combination of happenstance, politicking, and substantive belief produced a notion that to run a responsible fiscal policy requires a budget surplus. This worked pretty well as a tactical gambit vis-à-vis congressional Republicans' demands for new tax cuts since the basic congressional math took large new spending initiatives off the table anyway.

But as a general governing agenda, it's sharply limiting. Fiscal responsibility, as defined by The Washington Post, means something like "new spending must be financed by unpopular tax hikes unless it's spending on a war or the military or spending proposed by Republicans; also, budget deficits are an acute problem if a Democrat is president or if they're forecast to occur far in the future as a result of Social Security." That, obviously, is a political framework designed to make progressive governance impossible while simultaneously giving lip service to the desirability of spending money on important priorities like health care, education, clean energy, infrastructure, etc.

What's more, I don't think it's substantively clear that running modest budget deficits is a bad thing. Generally speaking we don't, in life, think that borrowing money is per se a bad idea -- it all depends on the terms of the loan and what it's buying you. Taking out a loan to pay for a college education is normally a good idea. Taking out a loan to buy a house is often a good idea, but as we've been seeing lately sometimes it's not. The federal government has the privilege of being able to borrow money on quite favorable terms which seems like something you want to take advantage of to some extent. A dept-to-GDP ratio that's trending sharply upwards, as we had in the Reagan years, is a problem, but a gentler decline than we had in the late-1990s would have been fine had it been sustained.

Comments

I see that it's taken from another source, but I still think it's a bit misleading to use red and blue to correspond to presidencies, not by party but by overall behavior of the national debt during that timespan. Just my two cents' worth.

Nothing in the world is easier than cutting taxes if you don't care about running a deficit, and few things are more cynical. Hopefully, with the next president, we can get back to running a surplus, at least during times of overall economic expansion. I'm OK with running a bit of a deficit during a recession, which we may be about to hit.

Posted by Kraz | January 3, 2008 10:45 AM

Kraz: What's misleadling about the graphic?

Posted by NCProsecutor | January 3, 2008 10:50 AM

The misleading issue is that its easy for someone taking a brief look to think "blue = democrat, red = republican, and oh look, the deficit always goes down for democrats and up for republicans. the bastards!"

Posted by David Marks | January 3, 2008 10:56 AM

I think your overall point is correct, but it's not clear what the significance of a Debt to GDP ratio is.

Much more meaningful would be the ratio of interest expense to overall government revenue, which would give us a sense of how likely we are to default on our debt, which in turns tells us how likely we will be to continue to borrow on favorable terms.

My view is there's nothing at all wrong with the level of debt we have today, and the deficit is fine as long as it's just growing the debt at roughly the same rate as the economy is growing (seems to be the case in Clinton-Bush era); I'm open to persuasion that we could handle more debt as well.

Posted by right | January 3, 2008 10:57 AM

One thing we can be sure of: there are no intergenerational problems with running deficits. If you think I'm wrong, just do a little thought experiment: it makes sense to borrow in some situations, right? QED.

Posted by minderbender | January 3, 2008 11:00 AM

Um -- hello? When we borrow for a house of car, WE PAY THE LOAN BACK! We don't keep increasing the debt, so the interest payment increases every freakin' year.

Hello, MY? Basic economics??

Posted by Gore/Edwards 08 | January 3, 2008 11:05 AM

what fiscal responsibility should mean is that we aim for a federal budget in balance over the course of the business cycle, running deficits in times of recession and slow growth, being in balance at a time of modest growth, and running a surplus at a time of high growth.

that it means something different to donald graham's employees shouldn't debase a perfectly legitimate term.

now, there is a reasonable argument that a modest deficit in the long-term isn't that big a deal, continuously allowing the present to live slightly above its "means," although it's not an argument i'm fond of (slippery slopes and all), but i wouldn't characterize that as a fiscally responsible position (it's not fiscally irresponsible, either; it's simply a touch risky).

Posted by howard | January 3, 2008 11:06 AM

recall that GDP includes government spending as a component (cf. GDP expenditure model). Debt service to GDP is (as stated above) a more useful figure as would a present value of liabilities to GDP graph.

Posted by mike c | January 3, 2008 11:11 AM

There is also the question of who is holding the debt; if some foreign interest holds a substantial fraction of the debt, they may be able to affect our government's policies.

We can also look at how much debt can we actually afford to carry - as suggested above by 'right', although I would look at interest vs. GDP rather than revenue (since revenue can be changed by law, whereas GDP cannot itself be legislated).

cheers-
Eric

Posted by Eric Riley | January 3, 2008 11:15 AM

This graph is misleading.

This graph shows gross debt. But in economic terms, this is not the appropriate measure. The graph should show debt held by the public. Including, as this chart does, debt owed by one branch of the federal government to another branch of the federal government is misleading.

That said, the idea of running a modest deficit is not overly problematic to me. Nevertheless, at the height of an economic cycle, we ought to be running a surplus, to make up for the deeper deficits we will inevitably have during rescessions.

Posted by Al | January 3, 2008 11:23 AM

The graph should show debt held by the public. Including, as this chart does, debt owed by one branch of the federal government to another branch of the federal government is misleading.

How is that misleading? It's a chart of what it's a chart of. Help me understand please. Why is the measure of gross debt not meaningful?

Posted by jonnybutter | January 3, 2008 11:37 AM

Comparing debt to GDP is mostly useless as a metric for fiscal restraint, since debt is a stock and GDP is a flow. This is bad for two reasons.

1) The slope, not the position, tells you how an administration impacted the debt.

2) Inflation reduces debt without any fiscal responsibility involved. If you just have the treasury print up a bunch of cash, you'll see a rather sharp reduction in debt vs GDP. It's a rather irresponsible way of dealing with debt, but it won't show up on the graph in question. Given the size of the debt (30-80% of the GDP) compared to the size of federal spending to GDP (15-25%), inflation is probably responsible for more of the action observed on the graph than fiscal policy.

">This graph is more informative on the matter.

Also, the loan reasoning is horrible. People should take out loans when 1) the loan will finance some investment that you expect to see a return on that's greater than the cost of the loan (ex college) 2) to smooth out consumption over time by borrowing against future earnings to finance durable goods (ex houses, cars) 3) to finance large unexpected basic needs (ex medical care). In all these cases, your debt level should be steadily decreasing, not increasing, most of the time. It is never good personal finance to run consistent deficits. I hope Yggles understands this, since he's going to be dealing with a lot of collection agencies in the future otherwise.

The government generally doesn't have any need for those types of borrowing outside of accute crises, like a war, and when it's not in such a crisis, it should be consistently reducing debt levels. Some level of debt isn't necessarily bad, but consistent deficits are bad news no matter how you slice it.

Posted by MattXIV | January 3, 2008 11:51 AM

Does OMB assume all the tax cuts expire in 2010 when it makes its prediction?

Posted by Jose Padilla | January 3, 2008 11:54 AM

The irony here that Matt doesn't point out is that Democratic Presidents tend to reduce the debt, whereas Republican Presidents tend to increase the debt. So much for that "fiscally conservative" crap that the Republicans try to peddle. Regan and W. Bush were the biggest big government big spending administrations since FDR.

Posted by freddiemac | January 3, 2008 12:22 PM

Re Al's comment "Including, as this chart does, debt owed by one branch of the federal government to another branch of the federal government is misleading "
-----------
In my opinion, that's bullshit. The " debt owed by one branch of the federal government to another branch" largely consists of roughly $4 TRILLION that past Republican Congresses STOLE from our Trust Fund accounts for Social Security, Medicare, and Military Retirement.

Bush and Those Republican cocksuckers are not the ones on the hook to repay us that $4 Trillion -- WE are! Which illustrates just how deceitful the Bush Administration has been.

The US Taxpayer is on the hook to repay a US Treasury Bond, regardless of whether the Bond is held by a Social Security computer or a Chinese investor. It's a debt burden.

Especially when you tell US citizens that Social Security and Medicare hold $4 Trillion in "Assets" and are "only" in the red to the tune of $8 TRILLION and $40 TRILLION respectively.

Posted by Don Williams | January 3, 2008 12:57 PM

"The " debt owed by one branch of the federal government to another branch" largely consists of roughly $4 TRILLION that past Republican Congresses STOLE from our Trust Fund accounts for Social Security, Medicare, and Military Retirement."

Is there even a "trust fund" for Medicare? I guess it's a purely theoretical question, since Medicare has long outgrown its primary funding source in the payroll tax and is funded about half by general revenues (including borrowing) at this point.

As for "stealing" from the Social Security Trust Fund, what is that silly accusation supposed to mean? The Social Security Trust fund is invested in Treasury Bonds, which by definition are loans to the federal government. So the federal government spent that money, which is what it does with all money it receives (whether from the proceeds of bond issues, tax revenues, tariff revenues, etc.). If you don't want the federal government spending the money in the Social Security Trust Fund, don't invest that money in Treasury Bonds -- invest it in anything else: stocks, corporate bonds, foreign government bonds, whatever.

Posted by Fred | January 3, 2008 1:17 PM

We told you government doesn't work, then we proved it.

Posted by rickhavoc | January 3, 2008 1:21 PM

Apart from the very defensible idea that talk of "fiscal responsibility" is a rhetorical tool often used by partisans, it's simply nutty for Matt to say "modest deficits" are no big deal. Did you know that the federal government takes in considerably more revenue each year than it spends on all its programs and transfer payments? The reason we have a substantial deficit is the $500 billion a year we pay servicing our debt -- it's the third biggest spending item in the budget. We spend $1.4 billion a day servicing our debt. Think about that. Then giggle at the idea "modest" annual deficits are no big deal.

Posted by Chris | January 3, 2008 1:25 PM

The " debt owed by one branch of the federal government to another branch" largely consists of roughly $4 TRILLION that past Republican Congresses STOLE from our Trust Fund accounts for Social Security, Medicare, and Military Retirement.

Bush and Those Republican cocksuckers are not the ones on the hook to repay us that $4 Trillion -- WE are! Which illustrates just how deceitful the Bush Administration has been.

Don, this is incorrect.

The debt owed by by one branch of the federal government to another branch is the debt owned by the SS "trust fund". But the trust fund is required BY LAW to invest in that debt - the Republicans had nothing to do with that investment, it is the way SS was set up since FDR.

What you are really complaining about is that the Republicans (and Democrats, let's be fair) took the money that the SS trust fund paid for that debt and subsequently just spent it on roads, education, defense, etc. And, guess what, I agree that they shouldn't have done that. What those Congresses should have done is NOT used the money to spend on domestic and other priorities. But if those Congresses hadn't spent it on domestic and other priorities, where would the money have gone? It would have gone to pay done the debt held by the public, meaning we would now have less debt held by the public!

So that was my point all along - we need to look at debt held by the public, not gross debt.

Posted by Al | January 3, 2008 1:31 PM

How is that misleading? It's a chart of what it's a chart of. Help me understand please. Why is the measure of gross debt not meaningful?

There is no economic effect of inter-department debt; that is, inter-department debt doesn't have any effect on our "fiscal responsibility".

Let's look at it this way. Let's say normally, the Defense Department gets an appropriation of $1 trillion and spends that $1 trillion on operations. This year, however, the Defense Department borrowed $1 trillion from the Interior Department, instead of getting it's normal appropriation of $1 trillion. Hey, now we've got $9 trillion in gross debt, instead of $8 trillion. But there's no economic effect - the Defense Department is still going to only spend $1 trillion. It would not get a normal appropriation from Congress, but would instead spend the money it was "loaned" by the Interior Department. The Interior Department would have to come up with the $1 trillion is loaned to Defense, so it needs a $1 trillion higher appropriation. Net to the treasury, though, no effect: $1 trillion less to Defense, $1 trillion more to Interior. Therefore, no economic effect on our "fiscal responsibility". Yet our gross debt has increased by $1 trillion.

On the other hand, if Defense went out and borrowed $1 trillion from the public, there would be an effect, so long as the treasury didn't decrease its other borrowing to compensate.

Posted by Al | January 3, 2008 1:48 PM

1) The slope, not the position, tells you how an administration impacted the debt.

I'd go one step further. Even though administrations usually put forth a budget (and Congress modifies, finalizes and writes it into law pending the Pres' signature), in practice budgets tend to be incrimental and based in large part on the previous year's budget. Thus, really what is feasible for a Pres and/or Congress to do is not lower the debt but lower the deficit.

The real measure then is the second derivative of the debt (and then there is the whole issue of what to normalize it against). By that measure, the problems started with Nixon/Ford and then got worse with Carter and even worse with the Reagan revolution. And even before the debt started going down under Clinton, pretty much from the get go with Clinton, the deficits started going down.

Posted by DAS | January 3, 2008 1:57 PM

There is no economic effect of inter-department debt; that is, inter-department debt doesn't have any effect on our "fiscal responsibility". - Al

A fair enough point. But how much money are we talking about here? I don't think the interior department is lending $1 Trillion to the defense department.

Posted by DAS | January 3, 2008 1:58 PM

Re Al's comment "What you are really complaining about is that the Republicans (and Democrats, let's be fair) took the money that the SS trust fund paid for that debt and subsequently just spent it on roads, education, defense, etc "
------------

Again, bullshit.

Actually, what I'm complaining about is that the Bush Administration dumped several $Trillions of debt on me --the common citizen -- in order to give $2 Trillion to the richest 1% of our citizens so that they could invest it in building up the economy of China.

And another $1 Trillion went to seizing the oil deposits of Iraq for the boys in Houston.

PS Damm little went to "defense" -- i.e. to the real protection of this country. Or maybe you were referring to that $6 Billion that went to Boeing to build the next generation of spy satellites -- only to have the program cancelled because Boeing couldn't implement their contracted design??

Posted by Don Williams | January 3, 2008 2:03 PM

This chart is misleading in giving the impression that everyone from Truman to Carter were paragons of fiscal responsibility. The national debt went to astronomical levels during World War II, and no plausible amount of postwar spending could have kept the debt ratio from trending downward for quite a while thereafter.

Posted by Ken Silber | January 3, 2008 2:07 PM

I also think it is deceitful to present past US government deficits as "investments". An investment would be a research program to develop new hi-tech alternative forms of energy. Or the Interstate road system.

But the Bush Administration has raided the Federal Highway Funds to support its spending on Iraq. That's why our roads are grossly overcrowded compared to a decade ago -- why we WASTE large amounts of imported oil in traffic gridlocks.

The $4 Trillion in debt that Bush had laid upon us did NOT go into useful investments that will yield large returns in the future -- most of the money was pissed away. Which is why Republican supporters have to talk in such vague generalities.

Posted by Don Williams | January 3, 2008 2:14 PM

Matt is wrong about fiscal responsibility. I can think of two very good reasons for it:

1. Budget surpluses increase national savings, and budget deficits crowd out investment. This is why, even though Keynes would have predicted a huge recession, Clinton in fact had an economic boom. The truth is, being fiscally responsible is excellent for the economy and Keynes-- who famously didn't care about the long run-- was simply wrong.

2. Politicians can't be trusted to run countercyclical fiscal policies anyway. They will always run deficits, and they will grow bigger and bigger, because the public loves a free lunch. So the modest benefit of modest deficits (especially in bad times) won't actually be realized. Instead, you will have debt-fueled boom and bust cycles and lower levels of savings and investment.

As someone who pretty much can't stand Hillary Clinton, I would nonetheless say that she owns this issue. Her husband was the most fiscally responsible President since Eisenhower. She should run on this.

Posted by Dilan Esper | January 3, 2008 2:15 PM

Re Silber's comment "The national debt went to astronomical levels during World War II, and no plausible amount of postwar spending could have kept the debt ratio from trending downward for quite a while thereafter"
----------
What's "misleading" is failing to note that there was no WWII to justify the soaring debt in Reagan, Bush I and Bush II administrations.

What's "misleading" is Republicans compaigning as "fiscal conservatives" when almost $8 Trillion
of the $10 Trillion in federal debt was incurred under the personal signatures of our last three Republican Presidents.

Posted by Don Williams | January 3, 2008 2:20 PM

A fair enough point. But how much money are we talking about here? I don't think the interior department is lending $1 Trillion to the defense department.

We are talking about $3.3 trillion of debt held by government accounts out of our $7.9 trillion in gross national debt.

I don't, BTW, necessarily think that the graph of debt held by the public will look all that different from the graph Matthew presents. And his point doesn't really depend on the difference here. But it just kind of bothers me.

Posted by Al | January 3, 2008 2:24 PM

"1. Budget surpluses increase national savings, and budget deficits crowd out investment. This is why, even though Keynes would have predicted a huge recession, Clinton in fact had an economic boom. The truth is, being fiscally responsible is excellent for the economy and Keynes-- who famously didn't care about the long run-- was simply wrong."

But wasn't Clinton's success partially Keynsian? After all, he fought the tax cuts of Gingrich during an economic boom and stood by as the Fed ratched up interest rates. He also increased taxes during his first term. Ostensibly, semi-Keynsian policies slowed down the tech boom and prolonged the growth, which is why it was the longest period of sustained economic growth in US history.

Posted by freddiemac | January 3, 2008 2:29 PM

Re Al's comment "We are talking about $3.3 trillion of debt held by government accounts out of our $7.9 trillion in gross national debt."
---------
Actually , our gross national debt (federal debt actually) is currently $9.232 Trillion --no, make that $9.233 Trillion dollars. See http://brillig.com/debt_clock/

Unless you want to argue that George W Bush is the victim of identity theft and that he didn't run up $1.3 Trillion of those charges.

Personally, I think a better argument would be that he was drunk as a fiddler's bitch and was mentally incapcitated at least part of the time when he used our credit card. Don't know if it will fly with Visa, but worth a shot.

Posted by Don Williams | January 3, 2008 2:38 PM

Let's "privatize" the national debt.

The "national" debt is owed by the nation, and the nation is you and me and our 300 million closest friends. Let's split the check: assign each American his fair share of the national debt, to service or pay down as he sees fit. If we divy up per-capita, today, each American would owe about $30K to the bondholders.

The logistics of the thing would not be terribly difficult. The IRS would still collect your money, and the Treasury would still pass it on to the bondholders. You'd still go to jail if you did not make your minimum (interest-only) payments on your assigned debt balance. BUT: you would have the personal choice, which you do not have now, to PAY DOWN your personal debt balance --and not mine. If you choose to merely service your debt until you die, your balance gets inherited by your children -- and not mine. More choice! About your own money!! The "privatize everything" crowd should love it :-)

Where would you find the money to service your "privatized" share of the national debt? Easy: you'd get an 8% or so TAX CUT. That's about the fraction of the federal budget that goes to interest on the national debt -- but there would no longer BE a national debt. If you are the "average" American, your tax savings would exactly equal the interest you owe. Your cash flow would not change a bit, if you chose to merely service your debt -- which is the only "choice" you have now.

This modest proposal would, at a minimum, eliminate much fractious debate over the size of the national debt. We would no longer have to agree, collectively, on whether the national debt is too big or not. Whether it would change our voting patterns is harder to know. Would Americans vote for more spending, or for lower taxes, if the result was an increase in their "privatized debt" balance? Maybe yes, maybe no. But they would cast a more INFORMED vote, which is the best we can ask in a democracy.

-- TP

Posted by Tony P. | January 3, 2008 2:42 PM

Actually, Williams, it's misleading even to have a chart that breaks the debt trends down in terms only of presidents. It's as if Congress has nothing to do with it. The Bush/Reagan part of the chart could say "Democratic House of Representatives" and the Clinton part could mostly be replaced with "Republican Congress." Just as accurate, but less satisfying to some.

Posted by Ken Silber | January 3, 2008 3:04 PM

Ken,

How useful would that be? The entire graph would be Democrat until 1994. Of course the W. Bush part would be Republican, how satisfying is that?

Posted by freddiemac | January 3, 2008 3:24 PM

Al is right that debt held by the public is absolutely the right metric, by economic and policy standards. Not only that, the debt held by the public graph will make your point better if you happen to be a Democratic partisan.

Also, re Silber's point, these deficits are mostly driven by Presidential administrations and not by Congress, as you know if you have followed policy over the period. An exception might be the size of the debt drop in the late 90s under a Rep Congress -- however, this decline started with the first Clinton budgets submitted to a Dem Congress.

Posted by mq | January 3, 2008 3:28 PM

Re Tony P's comment "If we divy up per-capita, today, each American would
owe about $30K to the bondholders."
------------
WHile I agree with Tony p's proposal, I think "per capita" is an unrealistic
way of showing the debt levied by Bush on the taxpayers. I think you have to look at tax share per income group.

In the latest year for which IRS statistics are available, taxpayers in the $50-$100K tax bracket paid $178,513M/$831,976M or 0.21457 of the income tax.
See http://www.irs.gov/pub/irs-soi/04inrate.pdf .
Their share of the $9.23 Trillion debt would be $1.980 Trillion. There were 27,372,000 returns so this works out to $72,337 per tax return in this AGI group.

Taxpayers in the $100-$200K/year AGI group paid 175,206/831,976 = .2106 Their share of
the $9.23 Trillion debt is $1.944 Trillion There were 9,718,000 taxpayers in this group so this works out to $200,015 per tax return in this AGI group.

Notice how your share of the Reagan/BushI/Bush2 federal debt is roughly equal to your Annual Gross income if you are in the middle class range.

This is what I think of as the silver lining to the Bush/Cheney Administration. Millions of
middle class Republicans have been screwed like dogs by their President and are too stupid
to realize it yet.

And for all AL's sophistry, those Treasury Bond IOUS written by Bush are a lien of our future
earnings -- as much so as our credit card balances and our mortages. Regardless of whether
they are "held by the public" or as "intergovernmental loans."

Posted by Don Williams | January 3, 2008 3:33 PM

freddiemac, a Congress chart would show a Republican Senate for much of the 80s, but I think it would make the point that a mostly Democratic Congress helped expand the deficit in that decade. And yes, there's no excusing the Bush+Republican Congress performance in 2001-6.

mq, Congress has constitutional control over spending and has been known to spend more money than administrations request.

Posted by Ken Silber | January 3, 2008 3:42 PM

Re Ken Silber's comment "Actually, Williams, it's misleading even to have a chart that breaks the debt trends down in terms only of presidents "
----------
No it's not. The President is the ONLY person with the power to halt or limit deficits --via the veto.

When Reagan decided to let his backers "feed like pigs at the trough" --in the words of his Budget Director David Stockman -- then every Congressman tried to get some for his district. In order to balance the taxes/debt being dumped on his district.

Posted by Don Williams | January 3, 2008 3:43 PM

Re Silber's comment "there's no excusing the Bush+Republican Congress performance in 2001-6"
---------
Nonetheless, it's understandable. The Blue States pay the bulk of the taxes --whereas the Red States suck on the federal teat.

That's because poorly educated morons are not economically competitive -- and hence need federal welfare disguised as "defense" and "Homeland Security" contracts to sooth their feelings about taking charity. Hence the continual need for Republican politicans to raid the public Treasury.

Republicans as the "Party of Business"? Don't make me laugh. George W, in spite of his Harvard MBA, was a drunk on the verge of bankruptcy who had to be bailed out by some rich friends. Who raided the public treasury to give him that stadium in Texas.

And the "service" that Big Oil was looking for it when it made Dick Cheney CEO of Halliburton certainly wasn't business expertise --because Cheney had none. And Cheney knew jack shit about oil. What Cheney has been is a government fixer his entire life -- someone who delivers $Billions in government money and services from the public TReasury in exchange for $Millions in campaign donations.

Posted by Don Williams | January 3, 2008 3:55 PM

Ken,

If the chart were even more detailed, wouldn't it show the percentage of the Congress that is Democrat shrank during the 80s, during the time that the debt grew sharply as a % of GDP? And didn't debt dwindle under united Democrat Congresses as well as increase? Frankly, I see little direct correlation between which party controls Congress and the size of the debt. But there is a more direct correlation between the Republicans controlling the executive and a portion of the legislative branch and increasing debt. It seems from my perspective that you are trying to exonerate Regan from the big debts of the 80s by blaming it on the Democratic Congress, but frankly I don't see it.

Posted by freddiemac | January 3, 2008 5:09 PM

The graph should show debt held by the public. Including, as this chart does, debt owed by one branch of the federal government to another branch of the federal government is misleading.

I agree with Al on this one. I've never liked the practice of folding debt owed to the Social Security recipients into "national debt."

It's not that it isn't important to look at future outlays. It is. It just seems intellectually untidy.

If we're going to include intergovernmental debt, we ought to have a more detailed analysis of future spending on other programs and needs, too. After all, the intergovernmental debt resulting from Social Security trust fund borrowings is essentially money that has to be put into future Social Security checks. Mine and yours. But what about future spending on interest on the debt? Or Medicaid? Or defense? Or Nasa? The best way to do it would probably be to simply look at different scenarios and then plot which percentage of GDP will be necessary to fund federal spending as a whole. You know, in 2019 federal spending will account for 26% of GDP. By 2036 it rises to 33%. And so on.

Also, the way we do it now (folding money promised to Social Security recipients into the "national debt" figure) risks comparing like against non-like, if, in the past, we didn't borrow money from Social Security. I have no grasp of the details of fiscal policy in, say, the 1950s. But if back then "national debt" consisted only or primarily of debt owed to the public, but now intergovernmental holders of debt accounts for a big chunk, we're obviously getting a picture that tends to overstate today's government debt levels. Because back then, as now, there were obviously future government spending programs that would have to be funded. Only back then we didn't include a sizable chunk of it as "national debt" whereas now we do.

Does anybody have the slightest notion of what I'm getting at?

Posted by Jasper | January 3, 2008 5:17 PM

One last thought: the other "like vs. non-like" problem we run into is when we compare different countries with the US. It might be useful and interesting to compare the debts owed by the US government with the debts owed by the governments of Japan, or Britain, of the EU governments as a whole (or whatever). But whenever I say graphical representations about this subject, I tend to think the US figures are typically overstated, because, unlike with US figures, those of other nations don't include future spending on domestic programs (and that's essentially what the intergovernmental portion of US national debt is: money that will be spent on your and my Social Security checks).

Posted by Jasper | January 3, 2008 5:22 PM

freddiemac, I'm not trying to exonerate anyone, just saying that both parties have done plenty to expand the debt, contrary to what's implied by the chart and by a number of the comments.

Posted by Ken Silber | January 3, 2008 5:53 PM

mq, Congress has constitutional control over spending and has been known to spend more money than administrations request.

I'm talking about the reality of the way Washington works. As it happens, I did this analysis using only the initial year deficits in Presidential budget requests to Congress, and the deficits implied a very similar pattern to the final debt trends shown in this chart. Under Clinton, deficits in initial budget requests dropped each year. Under Reagan, Bush I, and Bush II deficits were uniformly very high(except for the first year request in Bush II, which still had the projected surplus left over from the Clinton years).

Congress has affected the total amount of borrowing mainly around the edges, that's just the facts.

Posted by mq | January 3, 2008 5:57 PM

if those Congresses hadn't spent it on domestic and other priorities, where would the money have gone? It would have gone to pay done the debt held by the public, meaning we would now have less debt held by the public!

Exactly this phenomenon happened in the late 90s, which underlines Al's point. Total debt dropped by much less than public debt during the Clinton years. The whole point of building up the SS surplus is to pay down debt held by the public.

Posted by mq | January 3, 2008 6:03 PM

mq, let's say for argument's sake that you're correct that it's presidents, not legislators, that really determine spending levels. You'd still end up with a situation where a simple correlation of who's president and how much is spent is misleading. For example, Lyndon Johnson created Medicare, but over time it cost vastly more than he projected or acknowledged. That spending rise would show up under subsequent presidents, but Johnson had a lot to do with causing it.

Posted by Ken Silber | January 3, 2008 6:12 PM

Jasper:

If you paid FICA during the last 25 years, you paid more than was needed to cover your parents' SS checks. That's what the 1983 SS reform was about: us boomers paying IN more than SS paid OUT. The difference went into the "trust fund", which used the money to buy government bonds. We FICA payers ARE bondholders, just like Steve Forbes, Paris Hilton's daddy, and the Bank of Japan.

Your confusion would be resolved if we adopted my modest proposal to "privatize the national debt". Either the "national debt" includes the bonds helds by SS (in which case your "privatized" share of the debt is $30K) or it doesn't -- in which case your personal share of the debt would be smaller, but SS would be unable to pay your retirement benefits. Choose your poison. But choose -- you don't get to mix and match.

Don:

You put your finger exactly on why characters like Al would never go for "privatizing the national debt" even though they want to privatize SS, not to mention schools, prisons, infrastructure, and (lately) military operations. A per-capita division of the national debt would make it TOO obvious that Dubya's tax cuts amounted to giving Paris Hilton a windfall and charging it to YOUR daughter's debt account. A more progressive allocation of the debt would be needed -- but progressivity is to GOPers what garlic is to Dracula.

Incidentally, aside from "average Americans" the other people who would baulk at a per-capita allocation would be the bondholders. They are smart enough to understand that it's not "the government" which owes them money -- it's the people who (in theory) own the government who owe them money. Expecting a kindergartener in the Bronx to service the same $30K share of the debt as Paris Hilton is not a sensible business proposition.

-- TP

Posted by Tony P. | January 3, 2008 6:19 PM

Re mq comment "The whole point of building up the SS surplus is to pay down debt held by the public. "
---------
That was the plan -- but unfortunately, Bush pried open the Social Security "lockbox" with a crowbar and give $2 Trillion to the richest 2% of the population -- and another $1 Trillion to Big Oil to grab some oil deposits in Iraq and the Caspian Sea. The time-honored "raid the pension fund and give ourselves money" tactic of Republican CEOs.

The unstated assumption seems to be that debt, taxes, and money are all fungible. But they're not.

The $2 Trillion given to the rich can NOT necessarily be taken back via future taxes -- the rich just have to bribe a few Senators to filibuster. Plus Wealth --vs income -- is immune from government taking per the Fourth Amendment.
Especially when much of that wealth is invested overseas.

On the other hand, the entire life savings of the middle class -- stupidly stashed away in US IRAs/401Ks with the precise holdings registered in IRS databases -- can be taxed , on withdrawal, at as high a rate as future governments want. At 95% if need be.

Guess which group will get the shitty end of the stick -- i.e. will have to pay off the Reagan/BushI /BushII IOUS?? Either via major cuts in the Social Security/Medicare checks due to them or by high taxes on their retirement money??

Oh well. At least half of the people getting fucked will be Republicans -- and they dearly deserve it.

Posted by Don Williams | January 3, 2008 6:26 PM

Tony P.,

If we had a per-capita assignment of debt, we'd never run a deficit again, since no one would want to their personal piece of debt to increase. I wouldn't have a problem with that scenario: I'd pay the $30k knowing that my descendants would never have to deal with it.

Nevertheless, you are completely off-base with this:

"A per-capita division of the national debt would make it TOO obvious that Dubya's tax cuts amounted to giving Paris Hilton a windfall and charging it to YOUR daughter's debt account."

In the real world, if my daughter is in the bottom two income deciles, she's not paying any net income taxes, so she's not paying anything toward the service of the national debt. Paris Hilton may have gotten a windfall from the tax cut, but it's the Paris Hilton's whose taxes pay the lion's share of the federal budget, including the interest on the debt.

Posted by Fred | January 3, 2008 6:34 PM

Ken Silber, 6:12: you're correct, and it's also worth pointing out that the budgets Presidents submit are influenced by what they believe they can get through Congress. However, as an empirical matter the big debt drivers since 1980 have been tax cuts and military spending, the core elements of Republican ideology. Democrats have influenced debt mostly by preventing the truly massive cuts in major domestic programs that would have been necessary to fully finance these Republican priorities.

In the real world, if my daughter is in the bottom two income deciles, she's not paying any net income taxes, so she's not paying anything toward the service of the national debt. Paris Hilton may have gotten a windfall from the tax cut, but it's the Paris Hilton's whose taxes pay the lion's share of the federal budget, including the interest on the debt.

Fred, this is false, because you have no idea how our current debt will eventually be financed. It could be financed through cuts in Federal programs or benefits, or through increases in taxes on the middle class or the poor. In fact, arguments to do just this are regularly made.

Posted by mq | January 3, 2008 8:04 PM

"Fred, this is false, because you have no idea how our current debt will eventually be financed. It could be financed through cuts in Federal programs or benefits, or through increases in taxes on the middle class or the poor. In fact, arguments to do just this are regularly made."

Please. The progressiveness of the income tax code, and the reality that the top income earners pay nearly all of the federal income tax is well-established. The rich pay a higher share of the income tax burden now than they did before the dreaded tax-cutter George W. Bush came into office. And he didn't exactly slash a whole lot of government programs either. Who is arguing that taxes should be raised on the middle class or the poor (most of whom are in negative tax brackets anyway)?

Posted by Fred | January 3, 2008 8:19 PM

Re Fred's comment "Paris Hilton may have gotten a windfall from the tax cut, but it's the Paris Hilton's whose taxes pay the lion's share of the federal budget, including the interest on the debt. "
-------------
Actually , it is Joe Sixpack who pays most of the PAYROLL Taxes -- the source of the $4 Trillion taken from the Trust Funds. Joe Sixpack also pays the bulk of the gasoline excise tax -- which Bush has also diverted into general spending.

It is fair that the Paris Hiltons pay the bulk of the income tax -- since it is their wealth that is protected by the military and federal law enforcement.

Al Qaeda is extremely unlikely to come after my puny assets and if one of their terrorists did, I could shoot him myself. I can do nothing , however, to protect myself from the IRS predators and my son from Selective Service. To argue that my taxes should be taken to fund such "services" seems bizarre.

Given the diversions from the Trust Funds and Bush's tax cuts, it's questionable that the Paris Hiltons income taxes pay the lion's share of the interest on the national debt. On the other hand, it's clear that the Paris Hiltons OWN the lion's share of the Treasury Bonds making up that debt and that they receive the lion's share of the interest payments on that debt. Bush sometimes does rob Peter to ..er.. pay Peter.

Posted by Don Williams | January 3, 2008 8:19 PM

However, as an empirical matter the big debt drivers since 1980 have been tax cuts and military spending, the core elements of Republican ideology. Democrats have influenced debt mostly by preventing the truly massive cuts in major domestic programs that would have been necessary to fully finance these Republican priorities.

Oh, please. That's not even close to true. Let's look at the facts.

Defense spending went from 4.9% of GDP in 1980 to 4.0% of GDP in 2006. And revenue went from 19.0% of GDP in 1980 to 18.4% of GDP in 2006. Meanwhile, spending on "human resources" - Medicare, education, other health spending, etc. - went from 11.0% of GDP in 1980 to 12.8% of GDP in 2006.

The big driver of the debt has been Medicare, etc. - i.e., Democrat spending priorities.

Posted by Al | January 3, 2008 8:43 PM

"Paris Hilton may have gotten a windfall from the tax cut, but it's the Paris Hilton's whose taxes pay the lion's share of the federal budget, including the interest on the debt."

People may have heard of a profession called 'accountancy'. Corporates like the Hilton hotel chain can hire top accountants to reduce their tax burden to virtually zero - entirely legally. The Hiltons can choose for themselves how much they pay in a supposedly 'progressive' tax system.

Posted by Tim Dymond | January 3, 2008 8:57 PM

To whoever thinks we have a "progressive income tax":

No we don't. We have a flat 35% income tax, with discounted rates for income under about $300K per year. Whether you make $300,001, or $3,000,001, or $30,000,001, the tax on that last dollar is 35 cents. We COULD make the income tax "progressive all the way up" if we chose to -- say, up to a 95% rate kicking in at $300M a year. (We could index that to inflation, against the day when $300M a year is not enough to live on.) Anyone who thinks a tax of 95 cents on his $300,000,001st dollar would substantially decrease his incentive to "work" is merely confused about what "work" is.

Don:

What Dubya did, in effect, was to BORROW money from Paris Hilton rather than TAX that same money from Paris Hilton. I doubt Paris herself really used her tax cut to buy government bonds with, but you get my point: rich people are much better off lending to the government than paying taxes to the government. The real mystery is why people who have absolutely no hope of ever being in the 35% income tax bracket, let alone in Paris Hilton's chi-chi shoes, don't quite get that their own kids got screwed by their darling Dubya's tax cuts. I still say the best way to open their eyes is to "privatize the national debt". Let them see explicitly, on a monthly statement with their own name on it and big red numbers in the "balance outstanding" column, what it was they voted for, and THEN ask 'em if they still think they voted right.

-- TP

Posted by Tony P. | January 3, 2008 10:35 PM

Defense spending went from 4.9% of GDP in 1980 to 4.0% of GDP in 2006. And revenue went from 19.0% of GDP in 1980 to 18.4% of GDP in 2006. Meanwhile, spending on "human resources" - Medicare, education, other health spending, etc. - went from 11.0% of GDP in 1980 to 12.8% of GDP in 2006.

Okay, Al, now you're being mendacious. The annual levels of defense spending (closer 5% of GDP today BTW, not 4%) at the beginning and endpoint of the period don't determine the *total* level of debt accumulated over the period. Same with revenue. What matters is the total defense spending accumulated and the total revenue collected over the period. The increase in defense spending between 1980 and the early 90s were critical in the first wave of debt buildup in the 80s. The second wave of defense spending increase from 2001 to the present -- and defense spending is at 5% now, not 4% -- was critical in the second wave of debt buildup. Same with tax cuts. Under any tax system that was at all progressive, tax revenues would be expected to be significantly higher today as a percent of GDP anyway, since income inequality is massively higher. So your own numbers are showing a significant drop in tax revenue relative to capacity.

Please. The progressiveness of the income tax code, and the reality that the top income earners pay nearly all of the federal income tax is well-established. The rich pay a higher share of the income tax burden now than they did before the dreaded tax-cutter George W. Bush came into office.

Ummm, are you just ignoring payroll taxes or do you not know what they are?

Anyway, it's true that the rich pay a slightly higher share of even total Federal taxes than they did when Bush came into office. But the point is that total Federal taxes are *too low* for our spending levels right now. If what you're saying is that the rich are the ones who should properly pick up the extra tab the nation owes, then fine, I agree with you. If you think that someone else should pay it, or that our spending levels should be cut, then you've proven exactly the point I made above and I appreciate that you see my point.

Look, a deeper point here is that the public wants and the nation needs higher levels of medical and education spending, and lower levels of defense spending. And that's entirely appropriate, and it's entirely appropriate to fund that with higher tax levels on the rich. Why? Because we're not fighting the cold war any more, because medical care and education cost more than ever before, and because the rich have so much more money than they ever have that slightly higher tax levels will still leave them holding a much greater share of national income than they've held in almost a century. Actual responsible rich people who care about the future of their country, like Warren Buffet, understand all this perfectly well.

Posted by mq | January 3, 2008 10:52 PM

"Ummm, are you just ignoring payroll taxes or do you not know what they are?"

Do you know what the earned income tax credit is? Low income tax payers are in a negative total tax bracket even when you consider payroll taxes. The EITC "refunds" them more than they pay in income and payroll taxes combined.

In any case, the benefits of Social Security (which the capped portion of the payroll tax funds) are progressive.

Posted by Fred | January 3, 2008 11:29 PM

Overall payroll taxes make the system significantly less progressive, even after fully accounting for the EITC (which appears in the income tax calculation).

Anyway, since you ignored my main point I take it you do believe that rich people indeed ought to make up the difference between the taxes the U.S. pays and the amount we will have to pay in order to avoid accumulating more debt. We agree then.

Posted by mq | January 3, 2008 11:57 PM

Re Fred's comments "In any case, the benefits of Social Security (which the capped portion of the payroll tax funds) are progressive. "
--------------
Er .. that's only if the benefits are actually paid out, Fred. Else it's money down the rat hole for Joe Sixpack.

"Assets" of $4 Trillion -- which are only assets if we pay $4 Trillion in taxes to get back $4 Trillion that Bush "borrowed" from us. (What would we do with a banker who did that?)

Plus $8 Trillion shortfall in Social Security and over $40 Trillion in Medicare.

You do the math.

Posted by Don Williams | January 3, 2008 11:58 PM

Re Al's comment "Defense spending went from 4.9% of GDP in 1980 to 4.0% of GDP in 2006"
----------
Actually , it went to 7.5% of GDP during Reagan's administration. During that time, defense spending by the second (Japan) and third largest economies (Germany) was less than 1% and around 3% , respectively. And those countries were only miles from the "Evil Empire" and had their own intelligence services to warn them of any threats.

Remember those Robert Gates hearings in which analysts at CIA said Gates had helped Reagan /BushI deliberately lie to Congress re the size of Soviet military spending?

Gee, I wonder who's our current Secretary of Defense?

PS The real "defense" budget is actually much larger than what's stated. Add in the Veterans Administration, Intelligence Community, DOE nuclear programs, Interest being paid for past military borrowing,etc and it's closer to $1 Trillion/year. Even the $600 Bil/year is more than the next 23 largest military powers COMBINED -- and most of those powers are our NATO and SEATO allies.

Posted by Don Williams | January 4, 2008 12:07 AM

"Anyway, since you ignored my main point I take it you do believe..."

Considering I didn't read any of your post beyond the line I quoted in italics I wouldn't assume I agreed with your main point, whatever it was.

Posted by Fred | January 4, 2008 12:24 AM

If you paid FICA during the last 25 years, you paid more than was needed to cover your parents' SS checks. That's what the 1983 SS reform was about: us boomers paying IN more than SS paid OUT.

Tony P: I'm cognizant of the general outlines of Social Security finance, especially with respect to the 1983 deal. Moreover, I'm a strong supporter of the status quo on Social Security. I'm simply making the argument that it's a bit curious, from the perspective of simple economics, to include future spending on Social Security as part of what we define as "National Debt" when we don't include future spending on Medicare, defense, congressional salaries, or national parks. I understand the political reasons for doing so; it's just that if it is accuracy one is after, doing it this way indeed appears to render some misleading data. Again, if Eisenhower's America did not include future Social Security obligations as a component of "National Debt" but George Bush's America does, then said value becomes pretty worthless for purposes of charting the ebbs and flows over the years of what the US government owes. One can agree with the conservative commenters above that the national debt chart is misleading and at the same time vigorously disagree with them about the efficacy and desirability of the program known as Social Security.

Posted by Jasper | January 4, 2008 7:29 AM

Jasper:

The only thing I might quibble with you on is the notion that "future Social Security obligations" figure into the national debt in Dubya's day, but didn't in Eisenhower's. What figures into the debt is the BONDS owned by the SS Trust Fund. That's a very different thing from "future obligations".

I suppose there are many private retirement funds which own government bonds. Not even Al would suggest that THOSE government bonds are a mere accounting trick, not to be figured into the national debt. Social Security is (among other things) a retirement fund. Its assets belong to its participants -- not to the somewhat different set of people called "taxpayers" or "citizens" or "Americans". The participants own government bonds, just like the Chinese central bank does. Any suggestion that one set of bonds is backed by the full faith and credit of the US, and the other is not, must be forcefully resisted.

-- TP

Posted by Tony P. | January 4, 2008 2:46 PM