Silknor wrote:@Thesh: Is there a solution to that problem that both parties agree would help? Each side his ideas on how to address it, but they tend to be diametrically opposed. There are exceptions that draw support across party lines, like immigration reform, but not many.
Well, not without increasing the deficit. Infrastructure spending may be possible to a limited extent, and tax cuts for below median income and increased EITC could help as well, and both parties would agree if they weren't so focused on fucking up the economy.
Also, I decided to do some math on the debt, and here's a good reason why just "cut spending" or "raise taxes" is bad policy without being really targeted and backed up by actual math. Now, looking at debt in a vacuum is useless, you need to look at debt to GDP ratio, as GDP is a good measure of your ability to pay back that debt.
So I'm going to get my multipliers from here:http://www.economy.com/mark-zandi/docum ... _24_08.pdf
Now, let's assume, for simplicity sake, that end of FY2012 debt and GDP were both $16,000 nominal (they weren't quite, but they were close). Let's say for FY2013 we were expecting 4% nominal GDP growth (this is close as well). Let's also assume that we were expecting $3600 bn in spending, and 16% of end of year GDP in revenue (again these are all close). Let's see what happens to our debt to GDP ratio without action:
Final GDP = Growth * Inital GDP = 1.04 * 16,000 = 16,640
Final Debt = Initial Debt + Outlays - Receipts = 16,000 + 3600 - 0.16 * 16,640 = 16937.60
Final Debt to GDP Ratio = 16937.60 / 16640 = 1.0179
Now, let's say we cut $50bn in spending, but in such a way that the fiscal multiplier was 1.
Final GDP = 1.04 * 16,000 - 50 = 16,590
Final Debt = 16,000 + 3550 - 0.16* 16,590 =16,895.60
Final Debt to GDP Ratio = 16,895.6 / 16,590 = 1.0184
Now, we have cut spending by $50 bn, but that cut in spending also cut GDP, and the cut in GDP also cut revenue. The net result is that although we have less debt in actual dollars, we have a higher debt to GDP ratio meaning our ability to pay off the debt is not as good. We have done nothing but damage. You would get the same exact results from a $50 bn across the board tax hike.
So earlier this year, the GDP decided to pass a $39 bn cut to food stamps. Based on the figures in the above paper, that has a fiscal multiplier of 1.73, so it actually cuts $67.5bn from our economy. Let's see what that, oh-so-brilliant scheme would have done to our debt to GDP ratio, had the Senate passed it:
Final GDP = 1.04 * 16,000 - 67.5 = 16,572
Final Debt = 16,000 + 3561 - 0.16 * 16,572 = 16,909.48
Final Debt to GDP Ratio = 1.020
So, what happens if we adopted the Ryan Budget? Well, I'm not going to dig through the whole thing, but it was 5.2 trillion in spending cuts over 10 years, and 5.7 trillion in tax cuts over 10 years
, so I'm going to go and just assume 520 billion per year in spending cuts, and 570 billion per year in tax cuts. I'm going to be fairly generous on the multipliers, and give Ryan 1.3 on the spending, and 0.7 on the taxes, as he is going to focus on infrastructure and social programs for the cuts, which have high multipliers, and tax cuts for businesses and the wealthy which have low multipliers; again, this is generous. This means net economic damage of $277 billion per year.
Final GDP = 1.04 * 16,000 - 277 = 16,363
Final Debt = 16,000 + 3080 - .16 * 16,363 + 570 = 17031.92
Final Debt to GDP Ratio = 17031.92 / 16,363 = 1.041
Go Go Fiscal Responsibility!
So what happens if we, let's say, spend $200 bn on infrastructure? Well, with a multiplier of 1.59, that gives us $318 bn in extra growth, so let's have a look:
Final GDP = 1.04 * 16,000 + 318 = 16,958
Final Debt = 16,000 + 3800 - .16 * 16,958 = 17,086.72
Final Debt to GDP Ratio = 17086.72 / 16,958 = 1.008
Hmm... That's pretty good, I wonder what would happen if we also increased some of those taxes on the wealthy? Maybe $250 bn, and let's say we hit all the main areas under "Permanent Tax Cuts" in that paper for a net multiplier of 0.4 and a loss to our economy $100 bn.
Final GDP = 1.04 * 16,000 + 318 - 100 = 16,858
FInal Debt = 16,000 + 3800 - .16 * 16,858 - 250 = 16,852.72
Final Debt to GDP Ratio = 16,852.72 / 16,858 = .9997
So, what does this mean? If we were actually responsible we could actually grow our economy and reduce the debt to GDP ratio at the same time; in fact, growing the economy is a good way to reduce the debt to GDP ratio, and shrinking the economy is a good way to increase the debt to GDP ratio (shocking, I know).
Now, these numbers are just estimates. They may be bound to some extent, as hurting the economy will increase spending on welfare, which has a positive effect on the economy, and spending on infrastructure would grow our economy and reduce spending on welfare, which has a negative effect on the economy. But the economy has virtuous and vicious cycles as well, in which strong growth can prompt new investment and over-hiring in anticipation of demand, which creates a feedback loop, and a decline in Real GDP can cause hiring freezes, a decline in investments, and layoffs, which can also cause a feedback loop that makes things worse. It's pretty much impossible to predict where those points are.
Summum ius, summa iniuria.