pantom wrote:
Actually, according to the Office of Management and Budget’s historical tables (viewable at http://w3.access.gpo.gov/usbudget/fy2001/pdf/hist.pdf if you have Adobe Acrobat Reader installed), in Federal fiscal year 1999 we finally got a real, honest-to-goodness Federal on-budget surplus.
However, this on-budget surplus was only a paltry 0.7 billion dollars, which didn’t even begin to put a dent in the National Debt.
Jumping in to support an earlier post, here’s a link that everyone should read. Pay Particular attention to the charts.
Sorry, Tracer, but I have to pick a nit:
In section 7 of your cited document, page 111, it shows that the gross debt increased by 128 billion between 1998 and 1999. On that same line, you’ll see that the publicly held portion of the debt fell by about 90 billion. But as long as the total debt continues to increase, I don’t see how you could be running a surplus.
Southern Style:
Haven’t seen a chart, but I would guess there would be a correlation (NOT a convergence) between the lines for the early years of the Reagan admin. In the last half of his admin, military spending stabilized, but by then the damage had been done.
Also, it was the three things in combination - military spending, high unemployment, and the tax cut - joined, later, by the interest on the accumulated debt, that caused the debt to balloon under Reagan.
pantom wrote:
Hmmm.
The “Prior Fiscal Years” table at http://www.publicdebt.treas.gov/opd/opdpenny.htm seems to agree with these figures. It shows that the public debt was $130 billion higher on 30-Sept-1999 than it was a year earlier on 30-Sept-1998. (The Federal fiscal year starts on October 1st.)
But if the Federal FY1998 budget showed an on-budget surplus of $0.7 billion, and the Federal Public Debt increased by $128 billion in Federal FY1998, then where did that extra $128.7 billion go?
Created? How? I suppose that the money spent by the government in creating these jobs would have otherwise sat under some rich guy’s mattress. It is not the responsibility of the government to create jobs. Our society has a mechanism in place for creating jobs. It’s called a free market. It works well when left reasonably alone.
When talking about how the government creates wealth or jobs, people tend to ignore wealth that would have been created by the market in the absence of government “help”. Notice that the creation of 13 million new jobs over the course of four years still left the country with high unemployment. One of the reasons is that money was diverted from private interests to the government. An impressive record would be the “creation” of zero jobs.
Hence during the Great Depression, the people elected that conservative icon, Franklin Roosevelt. This is nonsense. When the economy is bad, the people elect a candidate who gives them hope. FDR did in the thirties, Reagan did in the eighties. They are also unlikely to vote for a candidate who they see (generally unjustly) as having screwed up the economy.
Let’s look at the figures:
Gross Federal Debt \2
------------------------
Outlays Gross
Year Surplus or as percent Federal As percent
Receipts Outlays deficit(-) of GDP \1 debt of GDP \1
1980 517,112 590,947 -73,835 21.7 909,050 33.4
1981 599,272 678,249 -78,976 22.2 994,845 32.6
1982 617,766 745,755 -127,989 23.2 1,137,345 35.4
1983 600,562 808,380 -207,818 23.6 1,371,710 40.1
1984 666,486 851,874 -185,388 22.3 1,564,657 41.0
1985 734,088 946,423 -212,334 23.1 1,817,521 44.3
1986 769,215 990,460 -221,245 22.6 2,120,629 48.5
1987 854,353 1,004,122 -149,769 21.8 2,346,125 50.9
1988 909,303 1,064,489 -155,187 21.5 2,601,307 52.5
1989 991,190 1,143,671 -152,481 21.4 2,868,039 53.6
If that came out at all right, that should show that reciepts increased quite dramatically during the Reagan years. That is, despite a lower tax rate, the government collected more money, like Reagan said it would. Granted, far more was spent, as can be seen, but the tax cut was more than made up for in terms of revenue collection.
Phew - there’s a few mixed up ideas in that lot. To give a full answer would take a few days, not a few minutes but here goes:
Bonds provide a known future income stream. If you hold them to redemption, you know exactly what you’ll be getting, whether it be in real terms (index-linked bond) or nominal terms (fixed interest bond). This means that if you have to pay a series of outgoes for the next 30 years, and you know what (fixed or real) amount you’re going to have to pay (i.e. an annuity, either fixed or real), a bond will cover you for that liability.
In the above, the price of a bond doesn’t even factor. Buying a bond gives you a stable match to an annuity-style outgo.
Now of course the market volatility arises when you need to buy your bond in the first place. Of course future interest rates are now a factor (actually the price of a (fixed interest) bond is essentially:
expected future rate of inflation + real rate of return + inflation risk premium.
but this is pretty much the same thing)
However if you have to match future bond-linked liabilities, you can do so by simply buying into the bond market as you receive your income in the first place. If the cost of bonds then rises, your assets rise with it.
Now I must insist on the caveat that I know the UK, not the US economy. However when it comes to government bonds, I strongly suspect that the following two statements still apply:[ul]
[li]The government can not default on the payment.[/li]
The confidence then is absolute. The government is not allowed to be bankrupt. Even the most highly rated S&P AAA company can’t claim this.
[li]The market in government securities makes the market in company stocks and shares together look like pocket change.[/li][/ul]
This means two things. One: your pension scheme won’t have to worry about a company defaulting on its payment - a rather destabilising factor. Two (and arguably more important): your pension scheme can buy and sell government bonds with impunity without affecting the market price. There’s no corporate issue that you can say that about.
To summarise that rather garbled mess of information: no government bonds means pension funds (in particular) would have to look to other means to pay their liabilities. The alternatives all have big disadvatages (whilst acknowledging that they have the advantage of higher expected returns that makes them worthwhile a long way from retirement). The stability that they rely on would be compromised.
Now as I alluded to at the beginning, I’ve glossed over a lot of points there and asserted some things that could really do with a little more thorough treatment. However I hope that I’ve helped you see the importance of National Debt securities to funds such as pension schemes in particular.
And lest you doubt the importance of life companies and pension schemes: in the UK at least they own about three-quarters of UK shares between them (dunno what the statistic is for bonds unfortunately, but will almost certainly be even higher).
I hope you see that although corporate debt would in some way go to fill the void, the issues are too small and there simply is not enough of it. Marketability and security of the asset would be untenable for funds to attempt to switch totally into it.
regards,
pan
Constant or current dollars?
Tracer: Good question on the 128 billion. Don’t know, actually.
waterj: I’ll have to answer you in detail on the next post (doing this from work cause my home connection is down).
To you two and Southern Style: thanks for posting all those facts & figures. Makes for a good debate.
waterj:
1 - On jobs: the late 70s were when the minicomputer makers were at their zenith. Those jobs came from Wang, DEC, Data General, Prime, and other companies, a lot of whom were killed off by the subsequent PC revolution of course. But those jobs weren’t created by the government. My contention is that Carter and Clinton have fostered a climate where jobs can be created and the economy can move forward.
2 - On recessions: my reference was to how Presidents act, not the intentions of the people who vote for them. Of course people voted for Reagan because they believed in him. I contend that they were betrayed when he threw so many of them out of work in the next two years.
3 - The tax cut: the tax cut of 1981, if Reagan’s ideology is to be believed, should have resulted in economic growth and a reduced and eventually eliminated yearly deficit. But as your own post shows, the next two years following produced no growth to speak of in tax receipts - in 1981, they stood at 599 bil, in 1983, two years later, at 600 bil. Unemployment, in the meantime, went to double digits at the end of 1982, two years into his term, and only began to decline in 1983. So much for the economic growth argument. Meantime, he broke his other promise too, as spending continued to increase: in 1981, 678 bil, in 1983, 808 bil. Deficits, of course, ballooned, the national debt tripled on his watch, and today we still labor under the debt that he and his successor piled on. On his own stated terms, he was an absolute, complete, utter failure.
FWIW: Tip O’Niel was President of the Senate.
Where has time (and my memory) gone???
sigh…
Sorry; that would be speaker of the House.
Some interesting charts and other stuff presented there by an extremely biased source. Don’t have time now to analyze them in more detail (maybe I’ll try this weekend), but a few points stand out to me immediately:
(1) As a college friend of mine is fond of saying, “correlation is not causation”. A lot of the argument seems to be an attempt to establish a correlation between, e.g., lower top tax rate and good things happening in the economy. But without considering other factors, it is hard to determine cause and effect. Sometimes rises in the highest tax bracket are accompanied by a capital gains tax cut; sometimes lowering that tax bracket is accompanied by plugging up of loopholes. I’m not saying I can argue for sure that there ** isn’t ** a cause-or-effect relationship, just that this data is far from sufficient to establish it. And, I wouldn’t be surprised if one could find equally…or more…convincing data that showed exactly the opposite correlation.
(2) In regards to the % change in real income from 1981-1989 broken down by quintile, a 6% rise for the bottom quintile over 8 years doesn’t sound that impressive to me. How fast is the GDP rising over the fast few years?..I think it is like 4 or 5% a year. (GDP per capita somewhat less, but still pretty fast.) Admittedly, the real income of the bottom folks hasn’t been doing that great under Clinton/Gore either…and this is one of the reasons why many of us liberals are no big fans of this Administration. (Although I think things have perhaps improved a little on that score over the last few years.)
(3) A lot of the statistics/predictions they have are pretty out-of-date in regards to the slow growth of the economy since Reagan left office. In fact, the things they say regarding the budget deficit and the rate of economic expansion are quite laughable in the light of what is currently happening…I wouldn’t want these guys to have been my economic forecasters back in '96!
pantom, help me out here – who WAS President of the Senate back then?
Hi jshore, welcome to the fray.
Your first bullet does well to start explaining exactly WHY tax cuts for the “rich” are essential to this countries continued success. If I may continue…
People that make $40,000 don’t have a lot of full time employees working for them. They can’t afford to. So it’s up to those people with considerably more income to share their “wealth” with others through payroll. These are the people that are currently vilified as being “rich”.
People that have a lot of money know its value. Not necessarily in exact dollars and cents, but in how to best put it to work to generate MORE money. When tax rates are high, they tend to invest it according to medium and long term strategies. Remember, as this board has repeated pointed out, money is taxed every time it is transferred. Long term investments are taxed less often than are short term ones.
When tax rates are comparatively low, short term investments are much more attractive. Capital expenditures for expansion are much more attractive. And with expansion comes additional employees.
So we get back to why tax cuts for the “rich” are essential to the economic health of this country. Without them, corporations are less likely to invest in people.
A related item is Research and Development. This takes cash. And often lots of it. The ONLY way corporations can spend R&D money is to actually HAVE that kind of money available to them. Borrowing R&D money is called mortgaging the company. If you can do it, you often pay exorbitant rates and sacrifice some ownership. If you can’t do it, your technology falls behind those that can afford R&D and you run the risk of losing the entire company.
On a global scale, when U.S. corporations have money for R&D it keeps them even (or ahead) of foreign corporations.
On a personal note, I’d like to see the tax rates dropped to where more U.S. corporations have more R&D money. Perhaps if U.S. R&D was better, we could better produce more products with international market appeal and trim something from the ever growing trade deficit.
Southern Style: being a true disciple of Bill Buckley (the part where he likes drugs legalized) hasn’t helped my memory much. Only the fact that you mentioned ol’ Tips’ name helped out my remembering him as Speaker.
It does occur to me, though, that you’re looking for the Majority Leader. The President of the Senate is, I believe, the Vice President.
Maybe I just need a lonnnnnnng nap.
Wake me up when the Republicans are back in power. 
Here’s hoping you get a real long nap, Rip van SouthernStyle, honey. 
Hi Kimstu,
After thinking about it for a while, I can’t afford a nice long nap. What with the Democrats trying to tax everything but my johnson I need to be as awake and alert as possible UNTIL the Republicans get back in power. Then I can nap – for a few minutes anyway.
And I’m sure the Republicans are thinking about a “johnson tax” to boost “morality” right at this very moment.
Thanks, Southern Style, I am glad to be a part of it!
I think you do a good job in your post of explaining the theory behind supply-side economics. And,a not-entirely-unreasonable theory it is. But, like all theories, it also has to be tested against reality. Of course, that Heritage article claims to be doing that… But I don’t think it does so very convincingly.
Just to point out a couple of the things that I find not-so-convincing about the supply-side theory though:
(1) It is not as if the money that goes to taxes disappears off the planet. It is used to build bridges, aircraft carriers, and, yes, even redistributively to help those less-well-off. It is not entirely clear whether these things will do more or less for the economy. In fact, I have heard it said that our economic expansion is very “demand driven” at the moment…And, since poorer people spend a larger percentage of their income, one could argue this would help fuel the economy more than if the rich use it.
(2) Having said that, I must admit that I agree with you that it is good to do more to encourage long-term investments that will drive economic growth. And, as for corporate R&D, considering it is currently paying my salary, I’m certainly not against it! However, just as “throwing money at the poor” won’t necessarily solve problems, I don’t think “throwing money at the rich” will either. I would prefer to provide people with the proper incentives to use their money in productive ways. (This can be thought of as correcting for various positive and negative externalities that otherwise exist. For example, it’s important to encourage companies to do more basic research in the long term because people—particularly in a bureaucracy—tend to be too short-sighted on this…Their rewards are often too short-term. Another reason is that one has to correct for the externality that a company that does basic research is helping not just itself but its competitors, which the company won’t think of as a positive benefit, but society as a whole might. [That’s a justification for the government funding research at universities and national labs too.]) Thus, I am in favor of some reforms to the tax structure that may include giving the rich incentives to use their money to generate investment and growth. I just don’t want to give them more money in net…because I simply don’t believe (as the satirical BillionairesForBushOrGore website likes to say) that “inequality is not growing fast enough.”
First, just wanted to note that I don’t mean to be vilifying the rich. I have nothing against them personally…Hell, I’m much closer to the top end than the bottom end myself. It’s just that I think that the rich are doing very well, thank you, and really don’t need to be getting help from the government. In fact, I don’t believe that I should be getting any tax cut (and I have told George Bush and at least one local candidate that). And, the fact is that easily more than half of the cuts which George proposes are going to those with incomes above me. (Whoops, I guess I’m getting too far off into the topic of another Great Debate thread now!)
Another thought on corporations and R&D: I’m not at all convinced that just giving corporations more money back in taxes would increase their R&D investments. The cutbacks we have seen in corporate R&D (and layoffs in general) where I work…and other places too…seem to have a logic driven by Wall Street. This is a time when these corporations are generally making fine profits (including the one I work for) and stock prices on average are appreciating at ridiculously high rates and yet these cuts happen. The problem is that the expectations of Wall Street keep causing the bar to be raised…and companies are competing more against each other for capital than against some sort of imagined reasonable rate of return. People are always greedy for more.
What I am trying to say, is if you just throw more money at all the corporations, they ain’t gonna suddenly say, “Oh, with all this money, we can just ignore our stockholders’ short-term demands for as high a return as for Company X and put the money into investing in R&D instead.” (Unless you are one of these do-no-wrong high tech companies that everyone is so infatuated with and then you can continue to lose money and people will still drive up your stock price into the stratosphere…Go figure! But that seems to be fading a bit.)