Earlier this week I put up a graph from the CBO via Mankiw that showed US Outlays and Revenues as a percentage of GDP over the past 40 years and going forward another ten years in forecasts.
So I was wondering what the Australian equivalent graph might look like.
I have taken the data from the Budget papers and then updated the 2008-09 onwards data from the Mid-Year Economic and Fiscal Outlook. The government have been a bit naughty, I think, downgrading their expected revenue as a percentage of GDP in the MYEFO relative to the Budget Papers. But they also decreased their expected Payments as a percentage of GDP.
As can be seen in both the US and Australian cases the problem facing government is excessive spending. So rather than talking about the need to raise revenue – expected revenue is reverting to the average, we should be looking to cut spending. As I argued before the US spending cuts are a step in the right direction but not nearly enough. The front page of todays Financial Review reports that the Rudd government is considering bringing forward spending cuts. Good – this is a matter of some urgency. Apart from depriving some orangutans of funding the Rudd government has shown no ability to make tough spending cut decisions.
The graph shows how ridiculous it would have been for the Howard government not to cut income taxes in the noughties – revenue would have spiralled beyond any recent historical levels. But it also shows that spending should have been cut much more severely – given the sub-5% unemployment reached in the last few years before the GFC, spending should have been a good 2% lower by 2007 to compare with the restraint shown in 1989.
Sleetmute
28 Jan 10 at 7:19 pm
err no.
I see people do not learn even when we only recently had such poor policy.
By cutting taxes the Government added to demand when it should have been cutting it back.
In other words having much larger surplus alah Chile.
about the only thing John Stone ever got right was the fact if you gave Howard more Revenue he would spend it.
He was advised not to do it as it would add to inflationary pressures and interest rates would rise.
He arrogantly ignored this believing he could put the blame on the ALP.
IF commodity prices gain in strength then we will not be talking much about a deficit.
Tanner says the ALP will bank the extra revenue.
IF Rudd is told that if he does this then inflationary dangers will dissipate he will do it.
Any politician of any party will go for extra revenue in restraining demand rather than cutting expenditure
Butterfield, Bloomfield & Bishop
29 Jan 10 at 11:35 am
Homernomics:
Liberal tax cuts: bad.
Labor tax cuts: good.
C.L.
29 Jan 10 at 11:37 am
what tax cuts are those CL?
Butterfield, Bloomfield & Bishop
29 Jan 10 at 11:38 am
The most hilarious aspect of the SOTU was about spending, actually. The deficit-tripling clown who presided over Cash for Clunkers said it was a really really serious crisis. Joe Biden and second stimulus advocate Nancy Pelosi nodded sagely in the background.
C.L.
29 Jan 10 at 11:51 am
CL,come on name some Obama policies that tripled the deficit.
Butterfield, Bloomfield & Bishop
29 Jan 10 at 11:53 am
He’s been the President for over a year now. His party controls Congress/or at least used to control the Senate by virtue of holding a cloture vote, for the large part of the last year.
If he’s not responsible no one is.
Semi Regular Libertarian
29 Jan 10 at 11:57 am
Here’s the WaPo.CBO graph showing that Obama has tripled the deficit, thus becoming the worst fiscal bum in US history.
Homer, at one and the same time:
1) ‘Blames’ Bush for the spending; and
2) Praises Obama for saving the US economy with the spending.
In 2004, Homer declared at Tim Blair’s blog that Bush was the worst budgetary performer in American history when the deficit was $412 billion. Now it’s well over a trillion and heading inexorably for $2 trillion.
But wait, Homer says this is no big deal.
Why?
Because the President is now a Democrat.
C.L.
29 Jan 10 at 12:00 pm
Nancy Pelosi wants more spending BAD – so bad that’s she’s gone even more bonkers and announced that she will defy the overwhelming preference of the American public:
“We’ll go through the gate. If the gate’s closed, we’ll go over a fence. If the fence is too high, we’ll pole vault in. If that doesn’t work, we’ll parachute in but we’re going to get health care reform passed for the American people.”
Without doubt, the worst Speaker in American history.
C.L.
29 Jan 10 at 12:06 pm
CL keeps on dragging out that dusty old WaPo cartoon when the CBO provide a better source
rog
29 Jan 10 at 12:08 pm
Come on someone lease tell us which Obama policies tripled the Deficit.
If nobody can then …….
err Mark please note the US fiscal year before making another ignorant comment
Butterfield, Bloomfield & Bishop
29 Jan 10 at 12:23 pm
The CBO was the source for the WaPo graph, Rog.
Good heavens, you’re stupid.
Here’s the WaPo/CBO graph showing that Obama has tripled the deficit, thus becoming the worst fiscal bum in US history.
Homer, at one and the same time:
1) ‘Blames’ Bush for the spending; and
2) Praises Obama for saving the US economy with the spending.
In 2004, Homer declared at Tim Blair’s blog that Bush was the worst budgetary performer in American history when the deficit was $412 billion. Now it’s well over a trillion and heading inexorably for $2 trillion.
But wait, Homer says this is no big deal.
Why?
Because the President is now a Democrat.
Still no response from Homer.
C.L.
29 Jan 10 at 12:26 pm
“please note the US fiscal year before making another ignorant comment”
Since what fiscal year have the Democrats been the majority party in both the House and Senate?
Semi Regular Libertarian
29 Jan 10 at 12:29 pm
Butterball: Stop typing “err”, you semi-literate, ten thumbed, boob.
Infidel Tiger
29 Jan 10 at 12:30 pm
“The CBO was the source for the WaPo graph, Rog.”
Wheres is the CBO source?
rog
29 Jan 10 at 12:31 pm
Rog asks:
“Wheres is the CBO source?”
Thanks for asking rog. At the bottom of the graph, it says this:
“SOURCE: CBO, White House Office of Management and Budget | The Washington Post – March 21, 2009″
If you want to know more, you should probably contact the WaPo editors directly.
I hope this helps.
Semi Regular Libertarian
29 Jan 10 at 12:34 pm
Mark ,please find out who sends the budget to Congress and then come back.
Still waiting for CL or anyone to actually state the Obama policies that tripled the deficit.
Gee it is funny that people who can can produce graphs have no idea of how the graph came about.
Well no it is catallaxy
Butterfield, Bloomfield & Bishop
29 Jan 10 at 12:37 pm
Gee, I hope that you arent solely relying on the press.
So, where is the CBO source?
rog
29 Jan 10 at 12:37 pm
oh CL if you actually had used Rog’s link you could see the graph is wrong and why the defcit increased.
When was the last time the OMB was MORE accurate in forecasting the Budget than the CBO?
Butterfield, Bloomfield & Bishop
29 Jan 10 at 12:38 pm
CL, the resident blimp, spends countless hours persecuting those who dont check their sources.
rog
29 Jan 10 at 12:38 pm
Here’s the WaPo/CBO graph showing that Obama has tripled the deficit, thus becoming the worst fiscal bum in US history.
Homer, at one and the same time:
1) ‘Blames’ Bush for the spending; and
2) Praises Obama for saving the US economy with the spending.
In 2004, Homer declared at Tim Blair’s blog that Bush was the worst budgetary performer in American history when the deficit was $412 billion. Now it’s well over a trillion and heading inexorably for $2 trillion.
But wait, Homer says this is no big deal.
Why?
Because the President is now a Democrat.
Still no response from Homer.
C.L.
29 Jan 10 at 12:39 pm
Goodness, CL is a bot
rog
29 Jan 10 at 12:40 pm
Rog, I persecuted you for checking Wiki to see if Lord Monckton had really won a Nobel. Your breathless report here that he hadn’t is one of the funniest gaffes of the year so far.
It’s up there with Homer’s claim that a new Great Depression threatened Australia before Kevin blew $42 billion on toilet blocks. As I pointed out to Homer yesterday, no serious fallout from the “GFC” was ever forecast for Australia and the worst the IMF would say is that the recession would be milder than Keating’s.
Oops.
C.L.
29 Jan 10 at 12:44 pm
“please find out who sends the budget to Congress and then come back’
So did Bush do it last year or did Obama?
Twit.
“Gee, I hope that you arent solely relying on the press.
So, where is the CBO source?”
You can verify this yourself at http://www.cbo.gov/ftpdocs/108xx/doc10871/BudgetOutlook2010_Jan.cfm
or by emailing the authors.
From the CBO report:
The Budget and Economic Outlook: Fiscal Years 2010 to 2020
January 2010
Executive Summary
“The Congressional Budget Office projects that if current laws and policies remained unchanged, the federal budget would show a deficit of $1.3 trillion for fiscal year 2010. That amount would be slightly smaller than the 2009 deficit but, as a share of the economy as a whole (measured by gross domestic product, or GDP), it would still be the second largest since World War II. The budget picture remains daunting beyond this year, with deficits averaging about $600 billion annually from 2011 through 2020.
Those estimates are not intended to be a prediction of actual budget outcomes; rather, they indicate what CBO estimates would occur if current laws and policies remained in place. Toward that end, CBO’s projections presume no changes in current tax laws or spending programs. Any new legislation that reduced revenues (such as indexing the alternative minimum tax for inflation) or boosted spending (such as providing supplemental funding for military operations in Afghanistan) would increase projected deficits. For example, if all tax provisions that are scheduled to expire in the coming decade were extended and the AMT were indexed for inflation, deficits over the 2011–2020 period would be more than $7 trillion higher. (See the above chart for details on the budgetary impact of some alternative policy actions and see the sidebar for more information on CBO’s baseline.)
Accumulating deficits are pushing federal debt to significantly higher levels. CBO projects that total debt will reach $8.8 trillion by the end of 2010. At 60 percent of GDP, that would be the highest level since 1952. Under current laws and policies, CBO’s projections show that level climbing to 67 percent by 2020. As a result, interest payments on the debt are poised to skyrocket; the government’s spending on net interest will triple between 2010 and 2020, increasing from $207 billion to $723 billion.”
Semi Regular Libertarian
29 Jan 10 at 12:45 pm
“Republicans have proved themselves to be the greatest spendthrifts in history. Reagan was incredibly lax and Bush is possibly worse particularly since his party controls Congress.”
- Homer, January 16, 2004.
Deficit then: $400 billion.
Deficit now: $1.3 trillion.
C.L.
29 Jan 10 at 12:52 pm
err
Mark yes he did send 2009 the Budget to Congress oops.
do some homework and find out when the US fiscal year is so you do not Forrest yourself anymore.
now have a wild guess in when Obama sent his first budget to Congress.
Twit indeed
CL still cannot and will not state what Obama policies tripled the deficit.
Oh I didn’t say a great Depression threatened Australia however I did say Depression like conditions threatened the US and other countries.
The IMF seem to agree!!!
Butterfield, Bloomfield & Bishop
29 Jan 10 at 12:54 pm
how come Homer was able to write in coherent sentences in 2004?
jtfsoon
29 Jan 10 at 12:55 pm
Turning to Rudd, who stopped $500,000 going to orangutans…
Australia offers $25m to Taliban peace fund.
C.L.
29 Jan 10 at 12:55 pm
CL showing a Forrest Like understanding of budgets.
Perhaps you should actually read what the CBO says about the budget.
what was the interest rates under Reagan and then Bush.
What was the fall in GDP and how about the rise in unemployment?
Butterfield, Bloomfield & Bishop
29 Jan 10 at 12:56 pm
“yes he did send 2009 the Budget to Congress oops.
do some homework and find out when the US fiscal year is so you do not Forrest yourself anymore.”
The question was who did it last year, i.e, last calendar year and for this fiscal year.
We’re in fiscal year 2010. What Bush did in 2008 is only of minor relevance now.
Semi Regular Libertarian
29 Jan 10 at 12:59 pm
“Perhaps you should actually read what the CBO says about the budget.”
Okay.
“if current laws and policies remained unchanged, the federal budget would show a deficit of $1.3 trillion for fiscal year 2010. That amount would be slightly smaller than the 2009 deficit but, as a share of the economy as a whole (measured by gross domestic product, or GDP), it would still be the second largest since World War II”
“total debt will reach $8.8 trillion by the end of 2010. At 60 percent of GDP, that would be the highest level since 1952. Under current laws and policies, CBO’s projections show that level climbing to 67 percent by 2020. As a result, interest payments on the debt are poised to skyrocket; the government’s spending on net interest will triple between 2010 and 2020, increasing from $207 billion to $723 billion”
Here’s a hint Homer: Reagan’s era had competent Fed Governors. They didn’t get into one of your precious “liqitidy trpas”. Reagan and both Bush’s are not paragons of virtue here. But they are no fiscal deadbeats to the depths that Obama has plumbed to.
Obama is pushing policy that overtly says there is an unemployment/inflation trade off – yet both are rising.
Semi Regular Libertarian
29 Jan 10 at 1:03 pm
Perhaps you should actually read what the CBO says about the budget.
Oh but I have, Homer.
Here’s the abridged version:
$1.3 trillion.
C.L.
29 Jan 10 at 1:10 pm
Mark,
err the graph shows the tripling in what year?
Of course they didn’t have liquidity traps. That only occurs in severe economic conditions err like now.
Inflation , core that is, is not rising. It was at the same level in 209 it was in 2008.
Unemployment has appeared to level out.
wow wrong AGAIN
As for the Phillips curve there was an interesting conference on that subject. If you read the CBO report you might even find out where it was held.
Butterfield, Bloomfield & Bishop
29 Jan 10 at 1:15 pm
come on CL name some policies that tripled the deficit.
Butterfield, Bloomfield & Bishop
29 Jan 10 at 1:15 pm
Did I say $1.3 trillion? That was yesterday.
C.L.
29 Jan 10 at 1:17 pm
“Of course they didn’t have liquidity traps. That only occurs in severe economic conditions err like now.”
Err yes Homer and Bush II’s economic policies are remarkably similar to Obama’s.
“Inflation , core that is, is not rising. It was at the same level in 209 it was in 2008.
Unemployment has appeared to level out.”
Unemployment is higher than the baseline scenario and they have high inflation for a recessionary period. There is no trade off.
“As for the Phillips curve there was an interesting conference on that subject. If you read the CBO report you might even find out where it was held.”
Yes Homer, very interesting, considering there is no proof that such a tradeoff exists in the real world and Taylor was a presenter. But other than that, what on earth did that random comment actually prove?
Semi Regular Libertarian
29 Jan 10 at 1:26 pm
yeah Mark, monetary policy is remarkably similar because well it is controlled by the Fed.
yeah they are confronting a liquidity trap which is why QE is all the rage and why fiscal policy is desperately needed otherwise they will confront a Japanese scenario.
Unemployment is worse because most forecasters didn’t realise how bad the US economy is.
They have high inflation?
They do not and you should look at the lags involved in falls in inflation and high unemployment.
wow still no Obama policies from CL that caused the tripling of the deficit.
Interesting to note Sinkers is now assuming very strong growth coming up otherwise his cuts to spending would have a detrimental effect. however he ridiculed less optimistic growth projections by Treasury in the Budget!!!
Butterfield, Bloomfield & Bishop
29 Jan 10 at 2:39 pm
Homer – I’m not making any assumptions here – the data are from Treasury.
Sinclair Davidson
29 Jan 10 at 2:43 pm
Sinkers you are by calling for reductions in expenditure.
either you are assuming strong growth figures or you wish to cut growth itself instead of promoting it or of course you do not understand fiscal policy
Butterfield, Bloomfield & Bishop
29 Jan 10 at 2:47 pm
Homer – you are assuming that government contributes to economic growth. It doesn’t. I always think government can cut spending and can cut taxes.
Sinclair Davidson
29 Jan 10 at 2:50 pm
wow still no Obama policies from CL that caused the tripling of the deficit.
Homer, are you still trying to paddle down that river filled with shit? Geez louise.
Look fuck-knuckle don’t get cute with people here. And don’t keep repeating that cheap shot: always asking the same stupid question, thinking it’s going to get you anywhere because it isn’t.
You have been informed numerous times whenever you make the same dumb point that the budget went up under Obamanation and he’s projected to be the biggest “deadbeat” prez in the history of the Republic.
Let’s put it back to you, you dumb spambot.
If you think he didn’t raise the deficit then show us (other than farm subsidies), which budget lines did not go up. Then also show us how it is possible for the bottom total to increase without the various budget lines going up.
If you can’t do that then fuck off and stop infesting the site with incoherent, worthless comment, you contemptible fool.
JC
29 Jan 10 at 2:50 pm
No sinkers I am not.
The Government is withdrawing from boosting economic activity now.
If you wish it to go much further and still keep Growth strong you must be assuming much stronger growth numbers.
No you cannot cut both expenditure and taxes as that actually not your view above as it does not change the busdget position at all.
Forrest ,
unless you can show the policies you are full of crap.
given that you cannot we know where you stand.
of course you think if interest rates rise suddenly magically inflation will fall so we can expect no less
Butterfield, Bloomfield & Bishop
29 Jan 10 at 3:00 pm
Sorry Homer, but the government is not withdrawing from the economy. Spending is still forecast to rise this and next year and even by 2012-13 will still be far above the long-run average.
Sinclair Davidson
29 Jan 10 at 3:02 pm
unless you can show the policies you are full of crap.
The US budget weighs 2 kilos, you intellectual midget. I’m not going through all the lines to point it out to you. Most people…… most normal people with a regular IQ, which excludes you of course, as yours is below 50 would understand that if the bottom total increases the individual lines that make that up must increase too. However you seem to have a problem understanding that which is why I always suggest you’re too stupid to be on this site.
of course you think if interest rates rise suddenly magically inflation will fall so we can expect no less
Let me get this right then… You think that rate increases or rather “interest raters” which was the term you used yesterday, will not influence core CPI?
You really are dumb, homer.
JC
29 Jan 10 at 3:14 pm
Butters finds out he’s wrong or has been spouting a load of crap:
“YOU DON’T UNDERSTAND”
Twit. Either you are really, really stupid or really, really dishonest.
“monetary policy is remarkably similar because well it is controlled by the Fed”
…this is almost laughable…who is going to reappoint Bernanke? Whose policies is Obama continuing and expanding upon?
“yeah they are confronting a liquidity trap which is why QE is all the rage and why fiscal policy is desperately needed otherwise they will confront a Japanese scenario.”
No you dolt. Through Bush, Bernanke, and now Obama, they are heading towards a Japanese situation. In this instance are you claiming that the fiscal policy is “truly Keynesian” or not? The rest of us will say it is typically Keynesian.
“Unemployment is worse because most forecasters didn’t realise how bad the US economy is.”
No Butters, it is because their forecasts of Keynesian policy were rubbish. Keynesian economics is a failed policy prescription. You on the other hand say because Romer et al., are actually innumerate (coming from the greatest jibberer of incoherent, illiterate crap).
“They have high inflation?”
For a recession. Which is precisely what I said earlier. Talk about getting cute and asking dumb questions.
“They do not and you should look at the lags involved in falls in inflation and high unemployment.”
What on earth is this meant to mean, given that we’ve established that they have high inflation for a recession?
“wow still no Obama policies from CL that caused the tripling of the deficit.”
The whole budget he gave Presidential assent to last year, you two bit schill. You keep on pretending that he never actually planned a budget last calendar year for this fiscal year (by miraculously saying Bush planned FY09 and thus also until FY11). Again, stop it with the getting cute with stupidity schtick.
Semi Regular Libertarian
29 Jan 10 at 3:33 pm
“Let me get this right then… You think that rate increases or rather “interest raters” which was the term you used yesterday, will not influence core CPI?
You really are dumb, Butters.”
It is even more glaringly and oppressively stupid when Butters keeps on saying that the US is in a liquidity trap.
Now it’s a *liquidity ladder* – Butters has *just shown* that when your economy goes busted arse, interest rates don’t affect the IS-LM relationship no matter which way rates are directed. Ditto for the derived AS-AD relationships.
Semi Regular Libertarian
29 Jan 10 at 3:37 pm
*Clearly the IS-LM moves in Homer’s bizzare model, but only r changes, GDP remains the same, and nothing happens to GDP or P in the AS-AD model.
But there you go. He’s constructed a new theory, the *liquidity ladder*.
Semi Regular Libertarian
29 Jan 10 at 3:43 pm
Your response is pathetic CL. All I ask is for you to supply the CBO source for the WaPo and your only answer is a nonsense.
“I persecuted you for checking Wiki to see if Lord Monckton had really won a Nobel.”
Thats weird, a google will find 35,200 hilarious references to your historical jokester.
rog
29 Jan 10 at 3:52 pm
Homer the answer is simple:
The power of the government has increased, is increasing and ought to be diminished.
Rococo Liberal
29 Jan 10 at 3:53 pm
Sinkers look up Ross Gittins about Fiscal policy he wrote a simplistic piece for people who do not understand.
Fiscal policy is not adding to economic activity at present. it is doing the opposite.
Forrest you bag of hot wind you go to the CBO website and look through the numbers.
Typical though you assert Obama has tripled the deficit but cannot prove it.
Mark you dolt,
Japanese policy wasn’t Keynesian.
They had a policy which stimulated the economy ONE year. guess what they only stimluated the economy ONE year. Go read Adam Posen.
If you are let go the US would simply repeat that.
oh the Fed control Monetary policy in the US. I bet even Wikipedia says that.
No Mark 1.8% is not high for a recession.
when there is high unemployment then inflation falls with a lag that means it falls sometime later. That means not now.
Well Marky you show us all the policies he implemented that led to the tripling of the deficit.
It is pretty easy to do unless you are now saying they are mostly policies he inherited.
I told Forrest yesterday Central Banks reduce inflation by reducing demand via increasing interest rates.
He disagreed despite Glenn Stevens saying he did so.But that is Forrest for you.
no It id Forrest that believes interest rates do not cause inflation to fall. oopsy again.
Well Done Mark you have got most things wrong again.
You need to understand when the US fiscal year begins and finishes,
Who presents the budget to whom.
Realise there is a liquidity trap and fiscal policy is needed to overcome it.
As I said yesterday on CBO projections the FED will not be moving rates until sometime in 2013.
Butterfield, Bloomfield & Bishop
29 Jan 10 at 4:29 pm
Sinkers look up Ross Gittins about Fiscal policy he wrote a simplistic piece for people who do not understand.
a simplistic piece for simplistic minds eh Homer?
jtfsoon
29 Jan 10 at 4:31 pm
I wouldn’t call Sinkers simplistic but he obviously does not understand how fiscal policy affects the economy mind you few here do.
Butterfield, Bloomfield & Bishop
29 Jan 10 at 4:39 pm
Homer – Gittins’ argument is that a negative change in the rate of increase is a contraction*. He might believe that, and you might too. But really…
(* to be fair to Gittins I have heard that argument before and it was crap then, its crap now).
Sinclair Davidson
29 Jan 10 at 4:46 pm
err Sinkers that is Forrest levl of dum. as th eonly oNE on this blog who has red Tooze then we all knw that a err copntracting occurs when jApan interns jews in work camps
Infidel Tiger
29 Jan 10 at 4:54 pm
Who here agrees that if you reference Gittins on economic matters you immediately lose all credibility? Gittins should be avoided like references to Nazi Germany.
Michael Sutcliffe
29 Jan 10 at 5:20 pm
Oh dear Posen has the same stuff in his book.
Oh well Sinkers your understanding was crap before , it is crap now and will always be crap.
I guess that is why you and the other crackpots always get fiscal policy wrong.
As I have already shown above
Butterfield, Bloomfield & Bishop
29 Jan 10 at 5:35 pm
Rog, you incredibly dumb old codger, the source of the WaPo graph is the CBO. SRL has already advised you to read same beneath said graph.
And yes, you rushed to Wiki to confirm that Monckton didn’t win the Nobel. Gaffe of the year so far. Second place goes to Homer for saying the “GFC” was set to rival the Great Depression before Mr Rudd’s toilet block stimulus.
C.L.
29 Jan 10 at 5:48 pm
Democrats vote for the largest debt ceiling in American history.
To how much?
$14.3 trillion.
C.L.
29 Jan 10 at 5:56 pm
“Sinkers look up Ross Gittins about Fiscal policy he wrote a simplistic piece for people who do not understand.”
Yes – talk about simplistic – what did Keynes say about burying bottles down abandoned mineshafts?
This stuff smacks of Dr Strangelove.
“Forrest you bag of hot wind you go to the CBO website and look through the numbers.”
We keep on doing that and you keep on ignoring it. Obama is simply carrying on Bush’s policies at an accelerated rate and the CBO says during 2010-2020, the debt payments will “skyrocket”.
Butters keeps on pushing this idea that Japan only followed Keynesian policy one year. Sorry Butters, but it is a pragmatic problem that Keynesian policy rarely turns out to be investment in new plant and capital that is actually wanted. Please try to show us something substantive from Japan where the years of deficit said they were distinctly anti-Keynesian.
“If you are let go the US would simply repeat that.”
What the hell are you talking about?
“1.8% is not high for a recession.”
Rubbish. Australia had a mild downturn in 2001 that didn’t turn out to be a recession, and we had close to 0% inflation. Considering that US unemployment has doubled over the space of two years, they do have an inflationary problem, which is getting better though, thankfully.
“Well you show us all the policies he implemented that led to the tripling of the deficit.”
Butters – did or did not Obama sign into law the US Federal budget FY10?
“I told Forrest yesterday Central Banks reduce inflation by reducing demand via increasing interest rates.”
So much for your Philips curves. What Stevens said about inflation targeting works best when there is a vertical AS curve, and there is no change in output. Either your Philip curve is vertical or what Stevens said about policy is ineffective.
“You need to understand when the US fiscal year begins and finishes,
Who presents the budget to whom.”
Yes dummy – I repeat – who signed into law the US Federal Budget FY10?
“Realise there is a liquidity trap and fiscal policy is needed to overcome it.”
Keynesian or not?
They’ve used fiscal policy with little impact on prices (the inflation rate remained positive but fell) but production and employment have slumped. Markets have not cleared. Higher prices, negative real interest rates, liquidity trap, higher unemployment, persistent inflation, hysteresis and GDP free falling whilst debt skyrockets…net of unfunded liabilities.
Epic fail.
What this really means is the “stimulus” forced AS to shift back whereas it is meant to make AD shift forward.
Epic fail.
Another way of illustrating this failure is that the Obama Team advisers were 100% wrong about the baseline scenario, and 200% wrong about the stimulus scenario.
Semi Regular Libertarian
29 Jan 10 at 6:03 pm
I wouldn’t call Sinkers simplistic but he obviously does not understand how fiscal policy affects the economy mind you few here do.
Homer of course does. lol…. How does it go again….
err Sinkers that is Forrest levl of dum. as th eonly oNE on this blog who has red Tooze then we all knw that a err copntracting occurs when jApan interns jews in work camps
Homer,
We could never know if you understand something or not as we have no freaking idea what you’re saying most of the time.
JC
29 Jan 10 at 6:22 pm
I wouldn’t call Sinkers simplistic but he obviously does not understand how fiscal policy affects the economy
Uhm. You do realise that posting comments like that make you look like an ignorable moron?
Abu Chowdah
29 Jan 10 at 6:47 pm
Abu:
You’re incorrectly premised your point as Homer loves being thought of as a moron as it’s his only potential claim to fame.
JC
29 Jan 10 at 6:50 pm
oh dear,
Japan explained by mainstream fiscal use but not by the ‘Sinkers fiscal use’. oops.
Mark name the policies or shut up. come on show up those research skills you boast about so much . it ain’t hard.
oh the Australian inflation was what?
you do need to go to the ABS website and have a look.
That is as bad as your statement on the labour participation rates in Germany and the US which you also got spectacularly wrong.
oh by the way ALL the models underestimated how bad the US economy was.
the CBO actually examined ARRA and guess what. They disagree with you.
Wow fancy that
ABU I actually showed Sinkers didn’t even understnd what he actually advocating above.
Enough said.
Butterfield, Bloomfield & Bishop
29 Jan 10 at 7:15 pm
Does anyone understand what homer is saying?
Homer what are you saying?
JC
29 Jan 10 at 7:19 pm
“name the policies or shut up. come on show up those research skills you boast about so much . it ain’t hard.”
Spending across the board has gone up on top of a continuation of Bush’s policies. Obama signed the FY bill into law – from the Congress his party controls.
“Recite the entire US budget or admit Obama has cut spending!”
You’re like the black knight of economic discourse.
“oh the Australian inflation was what?”
Close to zero. Sep Qtr 2001 – 0.3%
“That is as bad as your statement on the labour participation rates in Germany and the US which you also got spectacularly wrong.”
Ergo, I got them spectacularly right. The only place I actually quoted an errant participation rate for was Australia.
“oh by the way ALL the models underestimated how bad the US economy was.
the CBO actually examined ARRA and guess what. They disagree with you.
Wow fancy that ”
They can’t forecast stuff right, but we’re meant to believe that they can judge the appropriateness of racking up 1.3 trillion in debt?
Please give us a quote about ARRA. Please show me where the CBO has defied reality and said “All good! The Keynesian policy worked!”
“ABU I actually showed Sinkers didn’t even understand what he actually advocating above.”
Butters, you didn’t even understand quoting The RBA Governor on his short run AS-AD model with strong supply side/rational expectations assumptions meant that your “unemployment/inflation” *trade-off* is actually vertical.
You’re not competent on so many levels.
Semi Regular Libertarian
29 Jan 10 at 7:26 pm
…the FY10 BUDGET bill…sorry.
Semi Regular Libertarian
29 Jan 10 at 7:27 pm
“the source of the WaPo graph is the CBO”
So provide it
rog
29 Jan 10 at 9:42 pm
“Spending across the board has gone up on top of a continuation of Bush’s policies.’
Well, at last GWB cops some blame.
Identifying the % should be a walk in the park
rog
29 Jan 10 at 9:46 pm
It shouldn’t be hard CL for you to find the reference at the CBO, you do know everything don’t you?
rog
29 Jan 10 at 9:48 pm
Talking about debt….
Interesting chart in Forbes. It shows bank and sovereign debt added together by country.
I always felt that total national debt is the best way of looking at things because although private debt shouldn’t be our concern in theory, in practice it is because in the event of a crisis the outside world doesn’t differentiate much and private debt has a funny history of getting socialized in a crisis.
http://www.forbes.com/forbes/2010/0208/debt-recession-worldwide-finances-global-debt-bomb.html
Europe seems in a fucking mess.
JC
29 Jan 10 at 9:53 pm
Identifying the % should be a walk in the park
We have. Bush left an accumulated debt of $1.8 trillion while this one will leave , on current projections, around $12 trillion according to the CBO.
Homer has been told this numerous times, but the moron seems to have a cognitive dissonance to these issues.
JC
29 Jan 10 at 9:55 pm
Rog, you troubled galah, the source of the graph is the CBO – as stated beneath the graph.
You’re not terribly bright are you?
By the way, you still haven’t answered my question. Do you still regard “100 percent” of Green and Labor Party members as Nazis?
Yes or no?
C.L.
29 Jan 10 at 10:00 pm
No you bag of malodorous hot air, the source of the graph is the WaPo which they claim to be the CBO.
However there is no supporting data from the CBO.
rog
29 Jan 10 at 10:13 pm
I dont have to be bright to see through your miasma, you great big blimp.
rog
29 Jan 10 at 10:14 pm
CBO say that 2010 deficit will contract, just slightly, from 2009.
rog
29 Jan 10 at 10:23 pm
“…which they claim to be the CBO.”
HAHAHAHAHAHA! Rog the suspicious old coot sniffs out a conspiracy involving the liberal Washington Post inventing a graph depicting what is, in actuality, the fact of a tripled deficit.
This is Rog’s biggest scoop since breathlessly revealing earlier in the week that Lord Monckton hadn’t really won the Nobel.
Hey, by the way, do you still regard “100 percent” of Green and Labor Party members as being Nazis?
Yes or no?
C.L.
29 Jan 10 at 10:25 pm
“However there is no supporting data from the CBO.”
Perhaps you should email their editors?
Rog said:
“Well, at last GWB cops some blame. Identifying the % should be a walk in the park”
JC said:
“Bush left an accumulated debt of $1.8 trillion while this one will leave , on current projections, around $12 trillion according to the CBO.”
So to answer your query – about 15% rog.
Semi Regular Libertarian
29 Jan 10 at 10:27 pm
Why should I email the WaPo? I dont claim them to be a credible source of information.
rog
29 Jan 10 at 10:29 pm
It doesnt matter what JC said – the CBO can speak for themselves
rog
29 Jan 10 at 10:31 pm
Rog – see my earlier comment here:
http://catallaxyfiles.com/2010/01/28/its-the-spending-stupid/comment-page-2/#comment-9573
There is a link to the CBO report’s exec. summary and with a link to it, which pretty much verifies the WaPo graph.
———————————–
14.3 trillion USD debt ceiling?
“Sen. Paul Kirk (D-Mass.) voted for the debt increase. Sen.-elect Scott Brown (R-Mass.), his replacement, has not been seated.”
Semi Regular Libertarian
29 Jan 10 at 10:39 pm
Why should I email the WaPo? I dont claim them to be a credible source of information.
Earlier in the week, Rog cited information in lad’s titty mag, Zoo.
C.L.
29 Jan 10 at 11:41 pm
Obama as I recall was elected in November 2008 and took office in January 2009, so to make him responsible for the increase in the deficit between FY2008 and FY2009 strikes me as blaming him for things he inherited, unless as BB&B points out one can actually point to specific decisions taken that actually increased the budget deficit in the period defined – as opposed to the future. Given that a lot of the spending increases are lagged, but some tax cuts are more immediate, this strikes me as implausible. One also needs to distinguish between changes in budget balances that are the consequence of specific decisions versus changes that are the result of changes in eonomic circumstances.
So for example, in Australia the economy continued to improve between 2007 and 2008, but to ascribe this to anything the Rudd Government did would probably be misleading – unless one can come up with something more specific they did rather than general economic growth.
Peter Whiteford
30 Jan 10 at 12:29 am
Peter:
The past years budget was Obama’s. The budget period starts with the state of the Union address.
JC
30 Jan 10 at 12:53 am
But his first SOTU was a couple of days ago?
Peter Whiteford
30 Jan 10 at 1:04 am
Was that some kind of obtuse joke, Peter?
Obama’s Statement on the Senate’s Passage of the FY 2009 Budget:
The Republicans, even including Bush – as best he could in the circumstances – were the ones trying desperately and vainly to stop the stampede to the deficit the US now has. The Democrats – and one Democrat in particular – backed or initiated EVERY SINGLE DOLLAR of expenditure making up today’s budget deficit. That man is Barack Obama, who yesterday lied to the Congress and the American public with a brazenness hitherto only associated with Third World tyrants and crackpots.
C.L.
30 Jan 10 at 1:22 am
But his first SOTU was a couple of days ago?
No, his first was last year after he was formally sworn in as Prez.
JC
30 Jan 10 at 1:34 am
SRL, further to
SenatorMr Kirk voting on the Democrats’ increase of the debt ceiling to $14.3 trillion, he has also voted on several other bills – which appears to be unlawful. If so, this is Third World junta stuff.C.L.
30 Jan 10 at 2:27 am
CL:
It’s the Demolition Party. The history of the party is to flout rules and conventions as they don’t think it applies to them. It’s basically a fascist group for the most part.
JC
30 Jan 10 at 2:40 am
CBO also provided the data for this graph.
CBO also provide data supporting the claim that the single biggest Bush deficit was due to tax cuts – 51% of the deficit
rog
30 Jan 10 at 7:13 am
450 economists wrote to Bush saying
Some legacy.
rog
30 Jan 10 at 7:14 am
CL repeatedly links to the WaPo graphic but it should be read in context
rog
30 Jan 10 at 7:23 am
JC – the media were describing the speech as his first SOTU, but he did address the Congress last year after election – maybe its called something else.
Sinclair Davidson
30 Jan 10 at 7:39 am
From the Wiki
Sinclair Davidson
30 Jan 10 at 9:07 am
“CBO also provide data supporting the claim that the single biggest Bush deficit was due to tax cuts – 51% of the deficit”
No, it is because he spent too much money for the revenue he raised. There is nothing more or less to it.
Semi Regular Libertarian
30 Jan 10 at 10:30 am
Here’s that WaPo/CBO graph showing that Obama has tripled the deficit, by the way.
Obama is the worst fiscal bum in US history.
Rog, I’m still waiting for you to confirm that you still believe “100 percent” of the Labor and Green Party are Nazis? Oh heck, silence equals consent so I guess the answer is yes. What’s your source for that figure?
C.L.
30 Jan 10 at 11:29 am
“silence equals consent”
That was the same tactic that J Edgar Hoover used against JFK
Nobody gives a rats about Hoover
rog
30 Jan 10 at 8:00 pm
Rat’s, Rog, rat’s. Apostrophes: learn about them, there’s a good fellow.
Hoover didn’t come up with qui tacet consentit. Did you read that in Zoo or what?
But look, I just want to know if you still believe that “100 percent” of Labor and Green party members are Nazis? Fair enough? So what is it: yes or no?
C.L.
30 Jan 10 at 8:48 pm
SRL
Keynes said burying banknotes in bottles wasn’t sensible.
The IS-LM model is so simplistic and lacking in essential variables of Keynes’ theory it is of little use in analysing Keynesianism as it applies to Keynes.
sdfc
30 Jan 10 at 10:00 pm
“Keynes said burying banknotes in bottles wasn’t sensible.”
Where did he say that? I thought he said it was better than doing nothing.
Capitalist Piggy
30 Jan 10 at 10:16 pm
He did say it was better than doing nothing. Doing nothing gives you deflation and depression when your downturn involves a big financial bust.
He also says it would be more sensible to build houses and the like (ie capital investment) and that it is not reasonable for a sensible society to be so wasteful. Or words to that effect.
sdfc
30 Jan 10 at 10:26 pm
So to Keynes,
(1) capital investment is better than (2) wastefulness which is better than (3) doing nothing.
Most people would agree that (1) is better than (2), yet I think most people would also consider (3) to be better than (2).
Capitalist Piggy
30 Jan 10 at 10:44 pm
No. He said it was a cure for unemployment – its at page 129 of the General Theory.
Sinclair Davidson
30 Jan 10 at 11:04 pm
“Keynes says whatever isn’t embarrassing to Keynesians”
LOL
Look at what happened in the US based on the results: the “stimulus” forced AS to shift back whereas it is meant to make AD shift forward. Having more stimulus will not reverse this.
The jig is up.
Semi Regular Libertarian
31 Jan 10 at 11:48 am
“capital investment is better than wastefulness”
How on earth do you determine what is and isn’t wasteful when you not only crowd out, but have no way of knowing true prices or relating this to the utility of society as consumers or resource users?
Semi Regular Libertarian
31 Jan 10 at 12:12 pm
Texas Republican Jeb Hensarling schools Obama on deficits:
C.L.
31 Jan 10 at 2:29 pm
Sinclair – injecting money into an economy with huge underemployment does raise employment. A case in point is the cash for clunkers scheme, which though not as wasteful as digging holes is still pretty wasteful and has seen a huge boost to motor vehicle production
That is the goal of monetary easing, unfortunately after a financial bust this monetary easing isn’t transimtted into the real economy because the transmission mechanism is broken. This was the experience in the US in the 1930′s and now, where private sector credit has fallen despite the huge increase in banks reserves. That is why it is sometimes necessary for fiscal policy to take up the slack.
CP – Doing nothing was tried in the 1930′s and failed miserably.
SRL – Crowding out only applies to a full employment economy. Most of the stimulus is yet to be applied, yet unemployment has already risen into double figures. Your comment about the AS curve does not bear scrutiny.
sdfc
31 Jan 10 at 5:09 pm
SDFC:
You’re making the mistake a lot of people are making which is to take the slow down in some money supply aggregates and then immediately translate this into suggesting that the monetary levers aren’t working.
As usual with Keynes’ followers they’re mostly looking at aggregates and not what is actually going on.
You need to be looking at the flow of funds rather than the aggregates itself as that will present the real picture. Incidentally velocity of M2 has turned upward in the US as one would expect after 18 months of heavy easing. We’ve always understood it takes that long…..
IF CONSUMER CREDIT IS DEAD, why doesn’t it lie down? The stock of consumer credit declined in November for the 10th straight month. Data due out Friday will no doubt confirm another decline in December. But then, why have recent months shown an increase in the sale of such big-ticket items as cars, furniture and jewelry?
Consumers could hardly be acquiring these durables on an all-cash basis, a neat trick when cash is short. But the decline in the stock of credit has been taken as self-evident proof that credit can’t be flowing. As already explained in his space, however (see “Economic Beat,” Dec. 14, for the latest review of the “bathtub analogy”), this confuses stock with flow. The retirement of old debt from the relative boom of a few years ago has been causing an unusual amount of credit to flow out. This factor has mainly driven the decline in the stock of consumer credit. And that’s hardly evidence that consumers are starved for credit, even though it’s been used as such.
But now that the sale of durables has been showing signs of life, purveyors of the credit-crunch myth should start asking themselves a challenging question: If consumers are starved for credit, why aren’t we seeing weakness in the sale of consumer durables?
In fact, we are seeing a certain amount of strength. The stock of consumer credit in fourth quarter ‘09 was noticeably below the same quarter a year ago. If that truly was evidence of a decline in new extensions of credit, we’d expect to see a decline in the purchase of consumer durables over the same period. But according to the fourth-quarter GDP report, consumer spending on “durable goods” was up 2.9% from the same quarter a year ago in nominal dollars. Similarly, economist Jason Benderly tracks consumer spending on durable goods that adds to the estimate both the full value of used-car sales and the retail purchase of building materials for home improvement. Given the steady decline in consumer credit through the second half of last year, you’d expect to find a decline in spending on consumer durables. But instead Benderly finds a 6.1% annual increase through the second half.
When the December figure on consumer credit gets released Friday, might lamentations finally cease about a credit crunch on consumers? Don’t hold your breath
JC
31 Jan 10 at 5:22 pm
oops:
That came out of this week’s Barrons from the Economics editor.
You know what, he’s right.
JC
31 Jan 10 at 5:23 pm
“SRL – Crowding out only applies to a full employment economy.”
To be polite, that is incorrect. This is our point of contention though. Why does the Government need full employment for there to be any crowding out?
Saying this is true infers something very strange can happen:
Does Government spending have a positive marginal cost to private users of capital or not?
I also note that acknowledging this contrary to the “crowding out only occurs at full employment” theory means that we can know that the IS-LM relationships can break down and that a liquidity trap may not exist in the normal sense.
What I said about the AS was right because there is no way the US could have had the price and output changes it did without that happening. I’m going along with observations, commanding the seas of data to conform to a theory. This unpredictable (in the Keynesian model and Keynesian derived IS-LM and AS-AD) result is cogent to unstable IS-LM relationships inferred by more realistic assumptions about G.
Unless you are saying that if only they had more, they’d be better off. This is hardly believable since the Romer et. al., forecasts have a 100% margin of error.
Semi Regular Libertarian
31 Jan 10 at 6:39 pm
sdfc – so how do you explain that unemployment has gone up and not down?
Sinclair Davidson
31 Jan 10 at 6:43 pm
SDFC: “Doing nothing was tried in the 1930’s and failed miserably.”
Do you mean in the USA? If so, then you are mistaken.
Capitalist Piggy
31 Jan 10 at 9:08 pm
From http://www.whitehouse.gov/omb/blog/10/01/28/Facing-the-Fiscal-Facts/
“A Wall Street Journal op-ed today by the prior Administration’s CEA Chair, Edward Lazear, observes that the ratio of federal spending-to-GDP has risen by 14 percent since 2008—and that the transition from 2008 to 2009 saw the greatest annual increase in spending in the last 30 years. Ed is right about the numbers—but let’s look at the facts. On January 7, 2009, the Congressional Budget Office issued its Economic and Budget Outlook for Fiscal Years 2009-2019. In that document, CBO projected that government spending would rise from 20.9 percent of GDP in fiscal year 2008 to 24.9 percent of GDP in fiscal year 2009. (Just for the record, that CBO projection was issued 2 weeks before the current Administration took office.) This week, CBO issued its updated Economic and Budget Outlook for Fiscal Years 2010-2020. That document shows that government spending in fiscal year 2009 turned out to be 24.7 percent…. It is thus correct that federal spending rose by roughly 4 percentage points of GDP between 2008 and 2009 — and it is also the case that the increase in spending has helped to stabilize the economy — but it is wrong to attribute that increase primarily to Administration actions since it took office. The increase was already on the books when we arrived.”
Peter Whiteford
31 Jan 10 at 11:20 pm
“The increase was already on the books when we arrived.”
Well, they should know:
Obama’s Statement on the Senate’s Passage of the FY 2009 Budget:
C.L.
31 Jan 10 at 11:41 pm
CP – Doing nothing was tried in the 1930’s and failed miserably
I’m not sure which President you mean. Hoover more than doubled federal spending as a % of GDP (http://www.brookesnews.com/090308useconomy.html), and the US economy collapsed. He also increased tariffs and unit labour costs. Was that “doing nothing” too?
Michael Fisk
1 Feb 10 at 12:46 am
[...] on from the previous post showing Rudd government spending I thought I’d compare the budget forecasts for both revenue [...]
It’s the spending, stupid II at Catallaxy Files
1 Feb 10 at 6:57 am
Jc – that’s a pretty embarrassing article from someone who’s supposed to be an economics editor. Does anyone really think that saying credit conditions are tight means that no one is borrowing or lending? That is just incredibly silly. A decline in credit outstanding is indicative of a pretty severe decline in the demand and supply of credit. To suggest growth in durable goods expenditures (and pretty weak growth at that) is evidence that credit is flowing freely in the US suggests the guy is either incompetent as an economic commentator or wilfully misleading.
Rather than read silly magazine articles, why not look at the Fed Senior Officer Loan Surveys which shows credit conditions continue to tighten in the US.
Just for the record thanks to government tax cuts and other stimulus which prevented even bigger employment declines disposable personal income has risen $329B (saar) on a year on year basis while durable goods spending has risen $43.5B YOY over the same period. Total PCE was up $103.2.
As for M2, St Louis Fed data shows M2 fell at a 2.8% annual rate between the four weeks ending 18 January and the four weeks ending 23 November 2009. The M1 multiplier hasn’t budged from its lows.
Michael
Those figures look impressive until you realise that the deficits in 1932 and 1933 were 4.0% and 4.5% of GDP respectively. When you couple such a half hearted response with the general banking collapse it is hardly surprising the economy remained in depression,
Reagan ran bigger deficits as big or bigger in 1982,83,84,85 and 86.
Sinclair
Whose to say the unemployment rate would not have gone much higher if not for the stimulus. In any case the big spending is set to occur this year.
To my mind the biggest problems the US has (apart from the financial crisis) was the huge procyclical deficits of the bush administration and that the US has been living beyond its means for too long.
SRL – you haven’t cited any data, all you’ve done is talk in abstracts. That strange thing that happens is that the economy has a massive output gap and a financial crisis.
sdfc
1 Feb 10 at 8:58 pm
“SRL – you haven’t cited any data, all you’ve done is talk in abstracts. That strange thing that happens is that the economy has a massive output gap and a financial crisis.”
I was talking about Obama’s results in general. Please tell me if they’ve had the desired effect, or as I said, as not.
You can’t polish a turd.
Semi Regular Libertarian
1 Feb 10 at 9:00 pm
SDFC: You claimed that “Doing nothing was tried in the 1930’s and failed miserably.” Yet Michael has shown you that the government did not ‘do nothing’. Spending as % of GDP increased from 4% in 1930 to almost 11% in 1936.
Capitalist Piggy
1 Feb 10 at 9:59 pm
SDFC:
I don’t think it’s a silly article. The flow of funds argument is a pretty decent way of showing what’s going on.
1. Velocity is finally turning up.
2. After the debauchery you would expect bad loans to be still working through the system which is obviously having an effect on the money supply.
3. Try and be little more optimistic rather than follow the rest of the crowd.
Monetary policy is doing its job despite the headwind from ad hoc, populist fiscal policy management.
JC
1 Feb 10 at 10:18 pm
SDFC again,
Alternatively, The American Presidency Project shows that Federal outlays were 3.4% of GDP in 1930 and jumped to 10.7% by 1934. This was definitely not “half hearted.”
Capitalist Piggy
1 Feb 10 at 10:23 pm
Another record for Obama:
Deficit to Hit All-Time High.
Budget: $3.8 trillion.
Deficit: $1.6 trillion.
C.L.
2 Feb 10 at 2:49 am
[...] January I posted this graph from the [...]
Cut spending. Really. at Catallaxy Files
13 Jul 10 at 10:34 pm
[...] II: To remind ourselves of some old posts. It’s the spending stupid and It’s the spending stupid II. Share [...]
Malcolm strikes back at Catallaxy Files
15 Mar 12 at 1:05 am