Government Shut Down

[glatt]

Originally Posted by Spexxvet

Deficit and debt are not the same thing

Yeah, well, the debt graph is boring. It just keeps going up exponentially. The deficit graph is where the real data is, because you can see how government policy and economic factors work together to increase the debt slightly or rapidly.

One interesting thing is that the debt was much worse in the 80s because interest rates were higher then, so a bigger slice of the federal budget pie had to be spent paying interest back then than it does now. So we have a much bigger debt now, but it doesn't matter as much as it did during the Reagan years.

The real risk from government debt is the burden of interest payments. Experts say that when interest payments reach about 12% of GDP then a government will likely default on its debt. Chart 4.05 shows that the US is a long way from that risk. The peak period for government interest payments, including federal, state, and local governments, was in the 1980s, when interest rates were still high after the inflationary 1970s. Of course, the numbers don’t show the burden of interest payments from Government Sponsored Enterprises like Fannie Mae and Freddie Mac.

Look at the green in this chart. That's what the federal government has to pay in interest.


edit: Actually, I misspoke. That's the interest the federal government has to pay, expressed as a percentage of GDP.

[Griff]

Originally Posted by glatt

That's the interest the federal government has to pay, expressed as a percentage of GDP.

I like that graph. It really cuts to the bones of the spending vs revenue problem. It shows that we maybe were dead wrong in the eighties and should check out some pie charts from that time vs now for comparison. Big defense is big government...

[Lamplighter]

Amen Griff.

To hear today's GOP, Reagan was the master of an astute economic theory.

Wiki:

The four pillars of Reagan's economic policy were to reduce
the growth of government spending, reduce the federal income tax
and capital gains tax, reduce government regulation, and control
the money supply in order to reduce inflation

But... after a long association with GE, Reagan was the darling of the defense industry.
We are still living with his "star wars" (Strategic Defense Initiative), and to some extent
his 600-ship Navy, with their resulting and ever-increasing (supply-side) deficits -> debt.

[glatt]

My only gripe about it is that I don't have a good understanding of what percent of GDP really means. I would more easily understand percent of annual budget, or dollars adjusted for inflation. I'm not sure percent of GDP is a good measure.

[Lamplighter]

Glatt, "deficit" is for a particular period of time, whereas "debt" is the cumulated deficits

So I look on GDP as the total output of energy and resources ($) of the country.
So, looking at a given year's deficit as a %GDP is a measure of what
the country would have to expend to reduce that deficit (to zero).

OTOH, higher inflation has the effect in future years of
reducing the subsequent debt-to-%GDP ratios
... i.e., older debts can be paid off with "cheaper" dollars

BUT, I'm open to being educated out of the error of my ways.

.

[glatt]

Originally Posted by Lamplighter

Glatt, "deficit" is for a particular period of time, whereas "debt" is the cumulated deficits

So I look on GDP as the total output of energy and resources ($) of the country.
So, looking at a given year's deficit as a %GDP is a measure of what
the country would have to expend to reduce that deficit (to zero).

OTOH, higher inflation has the effect in future years of
reducing the subsequent debt-to-%GDP ratios
... i.e., older debts can be paid off with "cheaper" dollars

BUT, I'm open to being educated out of the error of my ways.

.

My issue with % of GDP is that the government doesn't have access to the entire GDP to spend it. I think a more useful statistic might be to see a % of the total revenue.

But I'm no economist.

[Lamplighter]

Such as this ... From here

[Lamplighter]

Truckers are trying to organize a strike and occupy DC this weekend.

The first come-on is to protest the government shutdown.
But then if you drill down one step, it is to protest "government corruption"
And then if you drill down further, it becomes a far right-wing jumble.

Some trucker groups are backing away, some large outfits are too.
So if you plan to be in DC this weekend, don't be surprised by some big-rig traffic jams.

[gvidas]

Originally Posted by glatt

My issue with % of GDP is that the government doesn't have access to the entire GDP to spend it. I think a more useful statistic might be to see a % of the total revenue.

But I'm no economist.

It isn't that the number is literally relevant. The point is that neither the deficit as an absolute number, nor the GDP as an absolute number, is terribly meaningful -- they both need to be contextualized. To do this, you can compare them to one another, and look at relative changes.

A crude example: spending $100 a month on a cell phone with a good data plan is a big deal if you're 16 and work part-time at McDonalds; if you're an investment banker pulling in 6 figures a year, it's a fairly minor expense. You can represent this in general by looking at an expenditure as a percentage of annual income.