Record Deficits

Dean Baker notes that press coverage of a "record" deficit projection is based on measuring the deficit in terms of nominal dollars. You can do that if you want, of course, but there's no good reason to use this metric. Measuring by nominal dollars will give you the result that deficits always tend to get bigger over time (because of inflation) and also that larger, richer countries tend to run bigger deficits than smaller, poorer ones. Those, however, aren't the kind of results you want if you're looking for meaningful information about the state of public finance. For that, you need to turn to the deficit-to-GDP ratio. Historical chart below:

Dean observes that "the 2009 deficit will be equal to about 3.3 percent of GDP," similar to the deficits earlier in the Bush administration and to the deficits ran in the mid-1970s. The real "record" deficits hit in the 1980s and early 1990s were substantially larger than today's deficits.

Comments

Man, the deficit shot up under Clinton huh?

Posted by minderbender | July 29, 2008 9:53 AM

Of course, your 3.3% figure and chart doesn't account for Iraq war funding, which for 5 years has been by "emergency supplemental". Nor does it include the off-budget Social Security trust fund chicanery.

Hey, look over there. A Chandra Levy 13 part series in the WaPo!

Posted by Jeff S. | July 29, 2008 10:06 AM

Yeah, I'm fine with doing this in GDP terms, but let's have real accounting too.

Posted by DTM | July 29, 2008 10:09 AM

Mindbender,

I hope you're kidding.

I hope you see the zero in the middle of the chart, and the positive numbers above it, and the negative numbers below it, and are just pulling our leg.

Throw me a frikkin' bone here. I don't want to lose my faith in humanity before noon today.

Posted by joe from Lowell | July 29, 2008 10:11 AM

Do you have the scale inverted or something? Help me out here.

Posted by Independent | July 29, 2008 10:18 AM

This is a much better way to look at it. Of course the other charts that would be instructive are government interest payments as a % of GDP and as a % of government revenues. Those are the ones to pay attention to.

Posted by right | July 29, 2008 10:18 AM

Of course I can read the chart. The deficit was negative under Reagan/Bush (i.e. it was a surplus) and then increased at an unsustainable rate under Clinton. Luckily Bush's pro-growth, ownership society policies have brought it back down as free market economics would predict.

Posted by minderbender | July 29, 2008 10:19 AM

Sorry. Take it back. Deficits are negative, surpluses positive. Silly me.

Posted by Independent | July 29, 2008 10:22 AM

Yea, shouldn't it be "Surplus/Deficit to GDP Ratio", or more accurately just "Surplus to GDP Ratio"?

Posted by Jono | July 29, 2008 10:23 AM

Jeff S makes a good point. It would be much more accurate to look at public debt numbers to see what the true deficit is any given period, as the OMB and CBO numbers tend to leave out what he said they do, and the press almost always focuses on on-budget deficit as opposed to the consolidated deficit.

I also think percentage of GDP is one of those Bush/Republican frames meant to dilute the size of their fiscal recklessness. It has so merit, but it isn't the GDP which is paying off government debt, it's government revenue. It's like looking at one's mortgage and other debt relative to national income as opposed to one's own specific income.

Posted by Zed | July 29, 2008 10:26 AM

Of course I can read the chart. The deficit was negative under Reagan/Bush (i.e. it was a surplus) and then increased at an unsustainable rate under Clinton. Luckily Bush's pro-growth, ownership society policies have brought it back down as free market economics would predict.

Posted by minderbender | July 29, 2008 10:19 AM

LoL, mindbender! You totally got me.

I thought you were serious.

Posted by joe from Lowell | July 29, 2008 10:28 AM

>if you're looking for meaningful information about the state of public finance.

As Jeff S. pointed out, the off-the-balance-sheet liabilities make your chart, well, understated.

Why can't I ever find a inflation-adjusted per capita debt chart?

Or, how about a deficit to median-income ratio chart?

I would much appreciate if those with teh mad Googlez skills could point me in the right direction for these two elusive beasts.

Posted by bartkid | July 29, 2008 10:33 AM

>if you're looking for meaningful information about the state of public finance.

As Jeff S. pointed out, the off-the-balance-sheet liabilities make your chart, well, understated.

Why can't I ever find a inflation-adjusted per capita debt chart?

Or, how about a deficit to median-income ratio chart?

I would much appreciate if those with teh mad Googlez skills could point me in the right direction for these two elusive beasts.

Posted by bartkid | July 29, 2008 10:35 AM

Sure, take that weapon out of the arsenal.

Because the GOP in 2009 will say, over and over, that Obama is proposing the BIGGEST TAX INCREASE IN HISTORY!!!

Posted by PDX Pete | July 29, 2008 10:38 AM

>if you're looking for meaningful information about the state of public finance.

As Jeff S. pointed out, the off-the-balance-sheet liabilities make your chart, well, understated.

Why can't I ever find a inflation-adjusted per capita debt chart?

Or, how about a deficit to median-income ratio chart?

I would much appreciate if those with teh mad Googlez skills could point me in the right direction for these two elusive beasts.

Posted by bartkid | July 29, 2008 10:38 AM

>if you're looking for meaningful information about the state of public finance.

As Jeff S. pointed out, the off-the-balance-sheet liabilities make your chart, well, understated.

Why can't I ever find a inflation-adjusted per capita debt chart?

Or, how about a deficit to median-income ratio chart?

I would much appreciate if those with teh mad Googlez skills could point me in the right direction for these two elusive beasts.

Posted by bartkid | July 29, 2008 10:41 AM

actually, as several people (and dean himself, in the original link) have noted, the correct way to look at this is the general fund deficit, not the unified deficit.

in that case, we're talking 4.6, not 3.3, according to baker.

meanwhile, there's some confusion about iraq spending: the projected deficit only includes some $70B for iraq, which is obviously low. on the other hand, all past spending for iraq is included: it's off the budget, so to speak, until it's spent, but once it's spent, it's part of the deficit.

Posted by howard | July 29, 2008 10:47 AM

Of course, your 3.3% figure and chart doesn't account for Iraq war funding, which for 5 years has been by "emergency supplemental".

Cite? I'm pretty sure the deficit figures do count ALL military spending, including the cost of the wars. You're quite correct about the Social Security accounting: on the revenue side, the deficit figures quite rightly take into consideration all the revenue brought in by the payroll tax, not just the portion needed to fund Social Security.

The real "record" deficits hit in the 1980s and early 1990s were substantially larger than today's deficits.

Government borrowing peaked at that time due mostly to the S&L bailout. Anybody seriously think the current round of bailouts won't easily surpass those figures?

Posted by Jasper | July 29, 2008 10:51 AM

These projections and comparisons to past deficits are inaccurate. The figures since 1987 include the so-called "social security surplus" where-by the government increased taxes on social security to help pay down the deficits and "insure its long term solvency". Subtract that money and the current account deficit is about what it was during the mid-eighties. Either that social security surplus money should be omitted from this little graph (because technically it's not the current government's money to spend) or President Reagan passed the largest tax increase in US history and is responsible for the largest expansion of the Federal government since WWII - quite a contrast with his reputation.

Posted by Nathan | July 29, 2008 11:06 AM

I'm pretty sure the deficit figures do count ALL military spending, including the cost of the wars.

Well, it looks like you are wrong 'bout that!

The deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn't include, and the total could be higher yet if the economy fails to recover as the administration predicts.

http://ap.google.com/article/ALeqM5gMSVWqL3tikhx7L_ompt0hDXO-5AD92792JG1

...to be clear, the $482B figure appears to have $70B in funding for Iraq/Afghanistan in FY09, while we're running at about $170B for this year.

Posted by Jeff S. | July 29, 2008 11:10 AM

Why can't I ever find a inflation-adjusted per capita debt chart?

1950 13,616
1951 12,552
1952 12,429
1953 12,456
1954 12,555
1955 12,451
1956 11,805
1957 11,248
1958 11,166
1959 11,096
1960 10,889
1961 10,717
1962 10,780
1963 10,709
1964 10,653
1965 10,527
1966 10,251
1967 10,199
1968 10,442
1969 9,660
1970 9,419
1971 9,651
1972 9,862
1973 9,611
1974 8,798
1975 9,124
1976 10,002
1977 10,423
1978 10,400
1979 9,697
1980 9,334
1981 9,287
1982 10,128
1983 11,662
1984 12,686
1985 14,071
1986 16,092
1987 16,896
1988 17,778
1989 18,555
1990 19,333
1991 20,772
1992 22,153
1993 23,140
1994 23,760
1995 24,268
1996 24,448
1997 24,614
1998 24,428
1999 24,065
2000 23,114
2001 23,084
2002 23,973
2003 25,411
2004 26,523
2005 27,299
2006 28,190

Posted by Zed | July 29, 2008 11:23 AM

In addition to the fact that George W.'s final budget cluster-f*** will suck up about well over $300 billion in Soc Sec surplus (so tack another about another 2/3 to that deficit figure), the way we calculate inflation has also gone through some shenanigans, increasing GDP through mathematical manipulation rather than actual output. From an article on the changes to how CPI is calculated:

At Charles Schwab & Company, one of the nation's biggest money managers, chief economist Liz Ann Sonders wrote in June that "Over the past 30 years, major changes have been made to the calculation of the CPI due to "re-selection and reclassification of areas, items and outlets, [and] to the development of new systems for data collection and processing," according to the Bureau of Labor Statistics. If you eliminate those adjustments and calculate CPI as it would have been calculated in 1980, it would be nearly 12 percent today...No wonder clients constantly tell me they distrust government inflation data." ("Back to the 1970s?" Charles Schwab Investing Insights, June 19, 2008)

This monkeying around with how CPI is calculated makes the inflation number look artificially lower, thus making GDP artificially higher.

If we compared the 1970's to the 2000's using actual comparable data, people would understand why they feel like they're under enormous financial pressure. It's because today's numbers suck a LOT more than the official statistics show.

Posted by LFC | July 29, 2008 11:44 AM

jeff s, let me try and explain again: the actual deficit includes every dollar spent on iraq. the projected deficit only includes dollars already authorized for iraq, which is the $70B.

LFC, perhaps before you start accusing people of "monkeying around" with CPI, you might spend some time learning about it. it's an immensely difficult thing to calculate and there is no perfect system by which to do it.

the major change over time in CPI calculation has been the hedonic adjustment - the reflection that if you used to spend $6000 for a car that was worthless after 100K miles and now you spend $20000 for a car that can last 250K miles, the $14K difference isn't only "inflation," it's also a pure qualitative improvement.

now, the hedonic adjustment is no easier to calculate than anything else and who knows what assumptions and errors and so forth are involved, but it's not just "monkeying around."

Posted by howard | July 29, 2008 11:50 AM

LFC, perhaps before you start accusing people of "monkeying around" with CPI, you might spend some time learning about it. it's an immensely difficult thing to calculate and there is no perfect system by which to do it.

Yes, a car that lasts longer decreases inflation, but should personal computers (that didn't even exist then) decrease inflation? How about an iPod? Were there no major improvements in quality and capability from the 1930s to the 1970s?

Explain why the cost of purchasing a house does not impact CPI, only the home's rental equivalent. (The bogus reply I've heard is that it softens spikes. I guess the Fed has never heard of 12-month rolling averages, a highly complex concept ... not.)

No, CPI is not an easily fixed number, but when it appears that change after change to the calculation only decrease CPI while housing, fuel, and food skyrocket, the figures simply can't be trusted.

While we're at it, the fact that anybody who can't find work in 6 months is no longer "unemployed" is another bogus manipulation of data. Methodology is a major reason Germany has a much higher unemployment rate than us. They actually count all people not working as unemployed.

Posted by LFC | July 29, 2008 11:59 AM

One can argue about whether the changes to the CPI methodology represent improvements or not, but it should be uncontroversial that these methodology changes make it difficult to compare inflation-adjusted numbers from different eras, since our measure of inflation is changing. So ideally what we would want is to recalculate the whole series each time there is a methodology change, but my understanding is the historical data necessary for doing that doesn't exist.

Posted by DTM | July 29, 2008 12:07 PM

LFC, let's try again: thinking about the hedonic adjustment has evolved over time. i'm not going to claim that i know every twist and turn, i'm simply saying that "monkeying" isn't an appropriate label for what has gone on.

so i can't tell you about qualitative improvements between 1930 and 1970, although i'm sure that radios got better! i can tell you that yes, when the PC was introduced, it was added into the basket of goods and services that are used for calculating CPI, and that over time, PCs (like ipods) have, in fact, gotten "cheaper" from an hedonic perspective.

now, the reason why purchasing a house doesn't enter CPI is very simple (and the fact that you don't know it reinforces my point that perhaps you should educate yourself further): rent is what it costs to have a roof over your head. the price of a house is an asset price, and no more belongs in the CPI than stock prices belong in the CPI. this is a very basic consideration and it makes total sense.

i can't figure out what your point is about skyrocketing food and fuel: there is no hedonic adjustment to those categories as far as i know, and they are featured quite prominently in "headline inflation," most recently up 5% on a 12-month basis ("housing" we've already covered).

i'll say it one more time: CPI is calculated by real professionals who spend a great deal of time trying to understand prices and quality. you can spend an enormous amount of time here:

http://www.bls.gov/cpi/home.htm

Posted by howard | July 29, 2008 12:14 PM

>if you're looking for meaningful information about the state of public finance.

As Jeff S. pointed out, the off-the-balance-sheet liabilities make your chart, well, understated.

Why can't I ever find a inflation-adjusted per capita debt chart?

Or, how about a deficit to median-income ratio chart?

I would much appreciate if those with teh mad Googlez skills could point me in the right direction for these two elusive beasts.

Posted by bartkid | July 29, 2008 12:30 PM

You know, if you drew red and blue lines through this by the trend direction based on R or D presidency, it would always be trend toward debt for Republican spans (Ike, Nixon, Reagan-Bush I, Bush II) and always flat or up for Dems (Kennedy-Johnson, Carter, Clinton).

I know the public at large isnt big on charts, but someone really ought to find a way to make a bigger point about this.

Posted by JWill | July 29, 2008 12:42 PM

Thank you Zed for one of those beasts.
Apologies for the multiple postings; pls. excuse my noobiness.

Posted by bartkid | July 29, 2008 12:58 PM

No problem, Bartkid.

Here's the other one.

Ratio of per capita public debt to per capita median income

1967 0.78
1968 0.77
1969 0.69
1970 0.67
1971 0.68
1972 0.66
1973 0.63
1974 0.61
1975 0.63
1976 0.67
1977 0.68
1978 0.67
1979 0.62
1980 0.62
1981 0.62
1982 0.67
1983 0.77
1984 0.80
1985 0.87
1986 0.95
1987 0.99
1988 1.03
1989 1.06
1990 1.14
1991 1.25
1992 1.35
1993 1.43
1994 1.45
1995 1.45
1996 1.45
1997 1.42
1998 1.36
1999 1.29
2000 1.24
2001 1.25
2002 1.31
2003 1.39
2004 1.46
2005 1.49

Posted by Zed | July 29, 2008 1:45 PM

Measuring annual deficits against GDP is a convenient metric, but years of "not too bads" equals a pretty significant total debt in real money, as millions of Americans have learned the hard way.

It's also important what these deficits are actually buying. A deficit incurred while building lasting infrastructure is different from a deficit generated paying for daily expenses.

In fact, the only way today's deficits don't look totally reckless is by viewing them in isolation, without regard to their effect on total debt and without regard to the fact that the only thing they leave behind is memories.

Posted by west coast | July 29, 2008 2:14 PM

i'll say it one more time: CPI is calculated by real professionals who spend a great deal of time trying to understand prices and quality.

The fact that they keep changing the methodology of that calculation illustrates how difficult it is to evaluate changes in living standards over time using consumer price data. This is why consumption data is so important. And consumption data pretty unambiguously indicates that living standards have risen much more than CPI numbers suggest.

Posted by Mixner | July 29, 2008 2:24 PM

Howard, I just checked back in and the fact that you consider a house to be an asset on par with stocks says that you have an enormous misunderstanding of inflation. When the index of home prices skyrockets (up about 75% under Bush), to say that this has no impact on inflation is to deny the actual costs faced by people trying to live. Why would you use a rental equivalent for people who are not actually paying rent?

You might find this interesting when you talk about the "experts" and the data being produced. Try this one and this one too. I'm not the only one who does not believe that the official numbers are intentionally off.

Posted by LFC | July 29, 2008 2:31 PM

"west coast"

Measuring annual deficits against GDP is a convenient metric, but years of "not too bads" equals a pretty significant total debt in real money

Er, total public debt as a share of GDP is also below the historical average of the past 50 years or so.

The real problem is not current deficits or debt, but the looming fiscal train wreck that is Medicare.

Posted by Mixner | July 29, 2008 2:34 PM

Er, total public debt as a share of GDP is also below the historical average of the past 50 years or so.

The estimate for FY2009 for public debt as a percentage of GDP is 69.3%. The average from 1959-2009 is 50.9%. The level in FY2009 is the highest level in that 50 year period.

Posted by Zed | July 29, 2008 2:51 PM

"Zed"

The estimate for FY2009 for public debt as a percentage of GDP is 69.3%. The average from 1959-2009 is 50.9%. The level in FY2009 is the highest level in that 50 year period.

Public debt representing money the federal government owes to its creditors is "Debt held by the public." For FY2009, that number is projected by the CBO to be 39%, not 69.3%. This is lower than the corresponding figure for every year between 1940 and 1965, and for every year between 1986 and 2000.

Posted by Mixner | July 29, 2008 3:12 PM

LFC, stamping your feet doesn't make it so. you haven't actually told me why it is that purchasing a house belongs in the consumer price index.

what i have told you is a commonplace - and common sense - definition. you do not need to buy a house to have a roof over your head: you can rent. there is a large, well functioning rental market that provides us lots of information which we can then use to impute the component of your mortgage payment that is the rent you would pay for an equivalent home. what you are paying above that is not a consumer price, it's an investment in an asset (well, to be precise, an investment in two assets: the land and the structure(s) on the land - and in some cases, a third asset, a parking spot). Over time, that asset price has largely gone up with inflation. then we had a period where housing prices jumped substantially, and now we're having a period when they are falling substantially.

regardless, the rent has stayed fairly constant and provides a much more meaningful insight into the behavior of 120M households than the asset transaction price of a few million households a year.

as for the broader picture, please: there are, of course, many legitimate critics (and criticisms) of the CPI, including a quite popular one, the Boskin Commission, that believes that CPI overstates inflation. That's because this is an impossible problem in a nation as large and diverse as ours is, not because someone is "monkeying" with the numbers to keep you from feeling more oppressed....

indeed, the reality is bleak enough: essentially, the median household is much better off in absolute terms today than it was in 1973, but it has not a penny more of purchasing power to show for it. that, actually, seems about right.

Posted by howard | July 29, 2008 3:25 PM

Public debt representing money the federal government owes to its creditors is "Debt held by the public." For FY2009, that number is projected by the CBO to be 39%, not 69.3%. This is lower than the corresponding figure for every year between 1940 and 1965, and for every year between 1986 and 2000.

Oh lovely. I love semantic debates.

"Public debt" (the phrase you used) means all debt held by the Feds, both "debt held by the public" and "intragovernmental holdings".

With regard to the subset of total public debt to which you now wish to confine your assertion (debt held by the public) and the time frame you are now discussing (69 years instead of 50), is indeed projected to be 39.0% of GDP in FY2009. Keep in mind the estimates were published before the current revised estimated just covered by the White House yesterday, which surely will change those percentages upward (because of higher deficits and lower economic growth than when the OMB put together estimates for the FY2009 budget proposal).

From 1959-2009, the average level for that metric has been 36.7%, so even after moving the semantic goalposts, your original assertion that "total public debt as a share of GDP is also below the historical average of the past 50 years or so" is still in error. Going back to 1940 (69 years instead of 50) is absurd, since obviously that encompasses WWII and the years immediately following it.

Interestingly enough, debt held by the public as a percentage of GDP over the past 50 years peaked at 49.4% in FY1993, the last fiscal year of the first Bush Administration. In the 8 years that followed, that percentage declined at an average annual rate of 4.9%. During the current Bush Administration, it reversed course and has increased at an annual average rate of 2.1%.

Are we clear now, or do you wish to move the goalposts yet again?

Posted by Zed | July 29, 2008 3:29 PM

howard,

essentially, the median household is much better off in absolute terms today than it was in 1973, but it has not a penny more of purchasing power to show for it. that, actually, seems about right.

Huh? How can a household be "much better off in absolute terms" but have "not a penny more of purchasing power?" If you don't have any more purchasing power, how can you be better off?

Posted by Mixner | July 29, 2008 3:31 PM

Well, it looks like you are wrong 'bout that!

Jeff S: Er, no, I wasn't wrong that deficit figures rightly include all military spending, including (naturally) money spent on the nation's foreign wars. You simply provided a reporter's unsourced guesstimate of next year's deficit. The actual deficit figures as they're compiled do indeed count Iraq and Afghanistan spending. I'm not arguing with you if what you claim is that the deficit may indeed come in larger than 3.3% of GDP. Also, see Howard's 11:50 am comment.

The estimate for FY2009 for public debt as a percentage of GDP is 69.3%. The average from 1959-2009 is 50.9%.

Zed: Mixner is quite correct if indeed your 50.9% figure for "public debt" is accurate. Page 128 of this PDF (http://www.whitehouse.gov/omb/budget/fy2009/pdf/hist.pdf) informs us that US public debt is somewhere around 40% of GDP. You may perhaps be erroneously including money the federal government owes itself. That figure is known not as "public debt" but as "gross federal debt" and quite reasonably doesn't include future money "owed" to Social Security any more than it would include future money "owed" to the defense department, or FEMA, or, the UN, or any other destination for federal spending.

Posted by Jasper | July 29, 2008 3:37 PM

If you don't have any more purchasing power, how can you be better off?

Twenty years ago -- before you were born, so not like you'd know -- a troll would be handing out flysheets on street corners. Now trolls have the internets to make them feel better off.

Posted by muxmer | July 29, 2008 3:45 PM

Jasper,

Yes, "Zed"'s irrelevant number includes intragovernmental "debt." An IOU written from one part of the government to another. It's like taking $100 out of one of your bank accounts and depositing it in another of your bank accounts and calling it "debt." It's completely irrelevant to the issue of how much money the government owes to its creditors.

Posted by Mixner | July 29, 2008 3:46 PM

the median household is much better off in absolute terms today than it was in 1973

That's an interesting assertion.

In year 2005 dollars, median household income in 1973 was $44,778. In 2005, it was $46,326. That amounts to a 3.5% gain in real dollars over 32 year period, or about 0.1% per year.

By comparison, real GDP grew at 44 times the rate that median household income did during that time period.

Also, the employment-to-population ratio went from 57% in 1970 to 63% by 2005, driven by the female component of that going from 40% to 56% in that time period.

So, adjusting for labor force participation (ie, workers needed to achieve income), the median household is earning 5.2% less in 2005 than it was in 1973, adjusted for inflation.

This also doesn't factor in that people are also working more hours and spending more time getting to and from work, in addition to incurring costs like day care, etc.

Posted by Zed | July 29, 2008 4:01 PM

Mixner,

Wrong.

Money borrowed from your rent account by your frivolity account doesn't mean you don't have to pay the rent, no matter how much fun you did, or didn't have.

An IOU written from the SSI fund to pay for wars in Afghanistan and Iraq doesn't mean that we can walk away from paying our SSI obligations, regardless of the success or failure of our military efforts.

Debt is debt. That you can shuffle money from one of your accounts to the other more easily than you can borrow from someone else doesn't relieve your payment obligations one iota.

Posted by west coast | July 29, 2008 4:14 PM

The actual deficit figures as they're compiled do indeed count Iraq and Afghanistan spending.

No, they don't. They definitely show up in debt figures, but they aren't included as part of OMB budget data.

"Because emergency supplementals are introduced following submission of a fiscal year’s budget, they are not subject to OMB’s budget accounting rules, and therefore not included in deficit and debt projections."

http://www.ombwatch.org/budget/supplementalbackgrounder.pdf

You may perhaps be erroneously including money the federal government owes itself. That figure is known not as "public debt" but as "gross federal debt" and quite reasonably doesn't include future money "owed" to Social Security any more than it would include future money "owed" to the defense department, or FEMA, or, the UN, or any other destination for federal spending.

The semantics continue. Lovely. The OMB does refer to it as "gross federal debt", but the Treasury, the ones who actually account for it on a daily basis, has the "Bureau of Public Debt" to do the accounting and refers to it as "total public debt" - the exact same phrase used by Mixner.

As for your and Mixner's assertion that intragovernmental debt is "irrelevant", perhaps you could enlighten me as to the source of funds for paying off those "IOUs". You and I will pay that debt just like we pay any other public debt - with our taxes.

I look forward to more blusterous statements about irrelevancy, moving goalposts, and semantic games. The Internet would be so boring if people who were wrong just admitted it and moved on, and even more miraculously, learned to use language with precision instead of lashing out at people who use their words for what they actually mean.

Posted by Zed | July 29, 2008 4:18 PM

As I said before, both "total public debt"/"gross federal debt" and "debt held by the public" as a percentage of GDP for the FY2009 estimate are higher than the average for the past 50 years, so Mixner's original assertion is wrong regardless.

If anyone wishes to niggle and/or digress further, knock yourselves out. I'm done with this thread.

Posted by Zed | July 29, 2008 4:31 PM

mixner, muxmer already answered you, but just for the record: your improvement is all in the hedonic adjustment.

that's exactly what the combination of stagnant real incomes and a hedonic adjustment comes to: the tv, the car, the radio, the computer, the ipod, the clothes, the furniture, etc., etc., etc. that you can purchase for an inflation-adjusted constant of money is of better quality. ergo, your absolute standard is better.

but because your purchasing power as such is the same - that's the stagnant real income - you don't have a penny more to buy with.

Posted by howard | July 29, 2008 4:45 PM

My $0.02 as someone who's had to work with these data before:

The reason that real household income and real GDP are showing different trends is twofold. The first is that they're calculated using different price indices. Real household income is calculated using the CPI, while real GDP is measured using the GDP deflator. These are very different from each other; the CPI tends to show more inflation over time than the GDP deflator does, and over time this difference adds up to something big. There's also a composition issue of households over time, specifically more single-parent households, which might pull down the median relative to the mean, and there's also the closely related issue of rising earnings inequality. The Wikipedia article on household income is a good place to look regarding the latter issue.

IMO, we're all best off dividing nominal things by other nominal things. Otherwise the choice of a price index will tend drive our results in a spurious way.

Posted by Chris | July 29, 2008 5:56 PM

In year 2005 dollars, median household income in 1973 was $44,778. In 2005, it was $46,326. That amounts to a 3.5% gain in real dollars over 32 year period, or about 0.1% per year.

Yes, but that ignores one crucial fact: a lot of people in the US today were not in the U.S. (nor were their ancestors) in the 1970s. We have let in a large number of poor, unskilled immigrants, and that will artificially make the median (and the mean) household income lower. (It makes the median lower by adding another member to the lower end of the set).

The only way to correct for this is to (a) only count people who lived in the U.S. (or whose ancestors did) throughout the time period in question (1973-2005), or, if we count immigrants, to look at what their income (or their ancestors') was back in the fatherland.

Posted by Glaivester | July 29, 2008 6:23 PM

Zed,

In year 2005 dollars, median household income in 1973 was $44,778. In 2005, it was $46,326. That amounts to a 3.5% gain in real dollars over 32 year period, or about 0.1% per year.

Ha ha ha ha ha! What are the numbers after you've accounted for taxes and non-cash income and benefits? What has happened to the size of households over the same period? And why should we trust these numbers, anyway, given the fact that the Census Bureau says that lower-income households probably underreport their income, and the controversy over the accuracy of the CPI?

Posted by Mixner | July 29, 2008 6:47 PM

"Zed". I mean, "west coast." I mean, "voice of reason":

Wrong. Money borrowed from your rent account by your frivolity account doesn't mean you don't have to pay the rent, no matter how much fun you did, or didn't have.

No, you're wrong. "Borrowing" money from your "rent account" for something else doesn't change the amount of debt you owe to your creditors. You're just shuffling money between your various accounts, not increasing or decreasing the amount of money you owe to other people.

Posted by Mixner | July 29, 2008 6:57 PM

howard,

just for the record: your improvement is all in the hedonic adjustment.

The improvement most likely comes from a variety of sources, including the deficiencies of the CPI as a measure of inflation.

The idea that the standard of living of the "average American" or "typical American" has improved only slightly or not at all over the past thirty years or so is exposed as utter nonsense by even a cursory examination of consumption.

For virtually every class of products and services that Americans consume, the quality and/or quantity is far superior today than it was 30 years ago. We have much better housing, much better cars, much better food and beverages, much better communications, much better entertainment, much better vacations, much better health care, etc., etc. We also start working later in life, because more of us go to college, and we retire earlier, and live longer.

Posted by Mixner | July 29, 2008 7:10 PM

jeez, mixner, you really are something, aren't you? what did i specifically say: the quality of goods is better. the standard of living is better. only you have invented a comment concerning "improved only slightly or not at all."

try a little frickin' harder, why doncha?

as a first-order approximation, the best efforts of professional staff have identified an approach to cpi that includes hedonic adjustments. after those adjustments, real income is essentially stagnant at the median household level over the last 35 years and yet the quality of life has improved.

we can explain this very simply: the improvement is what's in the hedonic adjustment (the quality improvement), not in household income.

now, of course there are arguments that say cpi is overstated, at which point there would be some marginal income gains on top of the hedonic adjustment; there are some who say it's understated, at which point there would be some marginal income loss offsetting some of the hedonic adjustment.

but essentially, that's the differential: if you'd like to engage in that argument, have at it, but at least engage in the actual argument and not with the voice in your head.

Posted by howard | July 29, 2008 7:39 PM

mixner, you're using the Republican frame for SSI here: that the "trust fund" isn't real. This semantic/accounting debate is why Al Gore wanted a "lock box" to clearly delineate the SS accounts from the general spending accounts.

The republicans took advantage of the trust fund frame when Saint Ronnie increased SS taxes, but now they want to claim that the trust find doesn't exist in order to pay for their massive tax cuts to the wealthy, thus completing the biggest swindle of the poor by the rich in US history.

Posted by miguel | July 29, 2008 7:52 PM

Just a note, the Bush Administration has consistently overestimated the budget deficit in their projections, presumably in an attempt to win the expectations game. At this point economists basically attach 0 credibility to their numbers.

Posted by Kyle | July 29, 2008 9:06 PM

As for your and Mixner's assertion that intragovernmental debt is "irrelevant"...

Not sure about Mixner but I made no such assertion. Intragovernmental debt represents future spending on a particular social program -- Social Security. I'm a strong supporter of that particular program, FWIW, but for the sake of simple accuracy and clarity we ought to define our terms carefully. Public debt does not include the IOUs generated by the payroll tax surplus blended into general revenues that will eventually be "repaid" in the form of Social Security checks. This is entirely logical, in my view, as we don't include future spending on other programs as a component of public debt. Moreover, changing the meaning of what constitutes "public debt" would make it confusing to do cross-national comparisons, or indeed historical comparisons.

You and I will pay that debt just like we pay any other public debt - with our taxes.

We'll pay that "debt" if the United States government continues to operate a program called Social Security. Again, I support its continued existence, and expect its strong political popularity will continue to insure its survival, but if you're so insistent on counting the future costs of Social Security as debt, why not also include the future costs of national defense, or Medicare, or the environment, or highway spending? Won't these programs, too, almost certainly be continued ad infinitum?

I look forward to more blusterous statements about irrelevancy, moving goalposts, and semantic games.

I'm not even sure what you're referring to at this point. I was merely trying to put some context into the discussion of federal government debt. Although current trends are certainly worrying, at present the publicly held debt is a manageable 40% or so of GDP. We're once again on the upward track after downward movement during the Clinton years, but at the end of World War II the corresponding figure exceeded 100% of GDP, and as late as the early 1960s it was well over half:

http://en.wikipedia.org/wiki/United_States_public_debt

And finally, for what it's worth, one reason I'm so insistent about proper terminology with respect to federal debt is that including money owed to future Social Security recipients as part of the debt obfuscates the gravity of the country's fiscal challenges by not including Medicare. That is to say, such usage understates our long term obligations. Far better in my view to separate the subject of what the government borrows in the financial markets from the subject of our long term fiscal trajectory.

Posted by Jasper | July 29, 2008 10:25 PM

Jasper, there is an important point about social security: it is funded with a dedicated tax.

while the supreme court hasn't ruled directly on this matter, it has ruled on the highway trust fund, and in that case, the ruling was that the funds are not fungible and must be spent on the program congress defined in creating the tax in the first place.

defense spending is a general revenue expenditure, and there is no theoretical reason why it couldn't go to zero, but as long as the social security trust fund registers a positive balance, those funds must be spent on social security (unless the roberts court wants to ignore precedent, but no conservative court would do that, would it?!)

Posted by howard | July 30, 2008 12:48 AM

Mixner,

You tell me I'm wrong, but then repeat my point nearly verbatim. Let's use your words instead of mine:

"Borrowing" money from your "rent account" for something else doesn't change the amount of debt you owe to your creditors.

SSI is obligated to tens of millions of Americans. Its assets are accounted against those obligations separately from the rest of government income and spending.

If you'd like to treat SSI's income as part of the big government pocketbook, you must also carry SSI's obligations as part of the big government debt. It's fraudulent accounting to report the income without reporting the obligations.

Posted by west coast | July 30, 2008 12:50 AM

Zed,
Thank you very much for the #s.
When I converted them to charts, the debt explosion under Reagan really shows up.

One last request: Please point me to the source, so I can help myself when I want to look this info up again.

Posted by bartkid | July 30, 2008 3:32 PM