U.S. Deficit Hits $374.2B, Setting Record...Your thoughts?

Tom · Oct 21, 2003

Looks like President Bush set a new record for our Deficit.
http://story.news.yahoo.com/news?tmpl=story&u=/ap/20031021/ap_on_go_pr_wh/budget_deficit_9

Ironically the last record was set by his father back in 1992 with $290 Billion.

I know that President Bush is not directly responsible for our economy, but what are your thoughts on how he is handling our situation so far? And quoting from President Reagan, are you better off now than you were 3 years ago?

codex57 · Oct 21, 2003

I don't think it's his fault at all. Yeah he's an idiot who's too aligned with big business, but it's mainly Congress' fault. Typically, it's Congress who does things that up spending or jack up the deficit. It's basically a combo of the two warring parties getting in their stuff every now and then. Dem's wanna raise spending while Repub's refuse to raise taxes. Repub's pass laws that let big business get out of huge amounts of taxes thus lowering revenues or pass retarded laws allowing big bus to grossly pollute and then the US gov't has to spend a ton of money cleaning it up.

Bryan330i · Oct 21, 2003

This is bad, bad news IMO. [:(]

To say that I do not follow the current administrations view on economics would be an understatement, and just don't even bring up the subject of the Bush economic plan when my brother the economist is in the room.

Quote from Associated Press:

Twenty years ago, in 1981, new President Ronald Reagan prodded Congress to pass a huge tax cut, mostly for the wealthy. One of his aides slipped and said the plan's small cut for lower brackets was a "Trojan horse" to lure Congress members into supporting it.

Reagan promised that the reduction would jump-start America's economy through the "supply-side" principle: i.e., the investor class would have more money to spend on factory and business expansions, creating jobs and causing money to " trickle down" to the working class.

[rofl]

This makes me laugh, who will build and hire with no demand? Sorry, but I "vote" for more demand-side policies. It just makes more sense to me. Stimulate aggregate demand and EVERYONE benefits. I just don't get the supply side first thing, where the hell will the demand be and how far down the road can one expect to see it. [???1]

wileycoyote · Oct 21, 2003

I'm no economist, but here's what I think.

1. The US deficit is a meaningless number. It cannot be accurately calculated, and has no bearing on the US economy.

2. A country's "economy" is best expressed and the GDP per capita rate of change (not inflation adjusted).

3. Production efficiency can be calculated as the difference between the infinite sums of cost and the infinite sum of profits.

4. The only way to increase GDP per capita rate of change is to increase production efficeincy.

5. With rare exception, to have something done in the lease efficient manner possible, let a government agency do it.

Conclusion - The less the government does, the more efficeint an economy will be. Cutting taxes is simply a means to reduce government activities, thereby improving the economy.

Proof:

Dan works for the IRS. It costs the IRS $50,000 per year to employ Dan (It takes a lot of Dan's to enforce the nearly 6,000 page US Tax Code). In exchange for the $50K Dan earns, the US GDP is increased precisely $0. Dan, sad to say, is dead weight. Let's cut Dan loose from our sinking ship and see what happens.

Dan gets a job working at Central California fruit packing company. It's a bit of step down, because they don't offer all the same benifits, but still it's a decent job. Dan's new job costs his employer $40K a year. In exchange for the $40K, the US GDP is increased by the profit of the packing company (minus taxes, hopefully less now that the IRS doesn't need to pay Dan) divided by the number of employees.

If Dan works for the IRS his salary is pure expense to the economy. If Dan works for a business, is salary is an investment that (hopefully) returns a profit.

Cut taxes -> Reduce Government -> Improve Economy

Tom · Oct 21, 2003

Proof:

Dan works for the IRS. It costs the IRS $50,000 per year to employ Dan (It takes a lot of Dan's to enforce the nearly 6,000 page US Tax Code). In exchange for the $50K Dan earns, the US GDP is increased precisely $0. Dan, sad to say, is dead weight. Let's cut Dan loose from our sinking ship and see what happens.

Dan gets a job working at Central California fruit packing company. It's a bit of step down, because they don't offer all the same benifits, but still it's a decent job. Dan's new job costs his employer $40K a year. In exchange for the $40K, the US GDP is increased by the profit of the packing company (minus taxes, hopefully less now that the IRS doesn't need to pay Dan) divided by the number of employees.

If Dan works for the IRS his salary is pure expense to the economy. If Dan works for a business, is salary is an investment that (hopefully) returns a profit.

Cut taxes -> Reduce Government -> Improve Economy

But you can also argue that Dan will use the $50k he makes to purchase cosumer goods.

wileycoyote · Oct 21, 2003

Indeed, and unless he's stuffing his matteress, he probably will. But the $50K he spends is simply redistribution of the original 50k that the IRS collected. All of Dan's "work" is wasted. The basis of all economies is refining raw materials. Dan's IRS job does not refine raw materials or provide any other benifit to the economy.

Tom · Oct 21, 2003

wileycoyote said:

But you are forgetting that the majority of the federal taxes are from corporations and not average Joes like you and I. This will come out of the company's bottom line. You can argue that this will force corporations to go overseas in order to keep the cost low. I believe in aggregate production, so wherever production is cheaper and more efficient is where it should be. This not only will increase production overall, but it will keep prices low for everyone.

Bryan330i · Oct 21, 2003

Good point. But the government over the last three years has increase the relative number of government employees by numbers never seen before in history. Even the IRS keeps hiring some agents. The only drop is a very slight number of civilian positions. Civilian positions are as follows: (In thousands)
2001 2710
2000 2708
1998 2789
1996 2847
1990 3128

So we are making some progress on this end. 418,000 drop from 1990. I just don't know how we are going to pay for all of the rest of them.
[???1]

wileycoyote · Oct 21, 2003

I don't think I follow you. Corporations pay taxes on profits (well, they're supposed to, but with a 6,000 paged tax law, hard to say who really pay's what) on foriegn or domestic production. Weather Calvin Clien jeans are made here or in Malaysia, CK still pays US taxes. If they can make more money buy manufacturing them outside the US, good for them, but now Dan is out of work and on welfare... Which is exactly the same as working for the IRS. Economic prosperity is based on eficeincy of the available work force. Government jobs, with very rare exception are a drain on the economy.

Tom · Oct 21, 2003

wileycoyote said:

Sorry, if I was being unclear. As I remember, corporations make up for the majority of the tax collected by the Federal Government. In addition to their taxable income, their shareholders also get taxed.

If indeed Dan does go on welfare, it's the governments hope that Dan will use this money again to help stimulate the economy creating more jobs or put this towards an education/training program for another career, this is what we call human capital.

The economy is something that is very hard to predict, you are right in your opinion that perhaps if the government kept out of it, the economy will straighten itself out. Others on the other hand believe that government intervention is the best way to deal with a bad economy. I guess we'll just have to wait and see. [:D]

Abdoman · Oct 21, 2003

I agree with wileycoyote. One point to be aware and one of the reasons for the increase in the deficit is terrorism - I for one would rather have a more secure country and a larger deficit.

PuShAkOv · Oct 21, 2003

I would have an opinion but my posts are being deleted for some reason. [V]

skandalous · Oct 21, 2003

Tom said:

If indeed Dan does go on welfare, it's the governments hope that Dan will use this money again to help stimulate the economy creating more jobs or put this towards an education/training program for another career, this is what we call human capital.

If only it was true. [rolleyes]

codex57 · Oct 21, 2003

wileycoyote said:

The problem is you cut the job from the wrong part of gov't. Ok, say we dump Dan and others like him from the IRS. Dan goes to work for fruit packing company. We supposedly gain $40K worth of taxes and production from Dan working there. Well, that's where the problem occurs. B/c there are no more "Dans" working at the IRS, Dan's employer (the fruit packing company) "forgets" to pay taxes. Employers around the country "forget" also. Then we're really in the hole. Can you imagine the state of our gov't if the Fortune 500 companies "forget" to pay taxes?

Kirby · Oct 21, 2003

I look at it from a slightly different angle. The discussions above, all absolutely valid, make my brain hurt [?|]

because of the obvious incongruities and paradoxes that you all correctly point out. So I just take the "Do something, right or wrong" "Lead, follow or get out of the way" approach. My issue with Bush is that while he has clearly done this with international policy, I have yet to see any solid action at all regarding domestic policy and especially the economy. Or maybe I'm just not seeing it?

junglestylz · Oct 21, 2003

Generally speaking it is a common issueof defecits "playing catch up", Look at the era directly after the Vietnam War. The countries defecit wasn't all in all that bad until aout ten years after the war had ended. Not even the war expenses shined through until damn near 5 years after the war had ended. It is both illogical and irrational to blame the current president for "ruining the economy". Not to mention the fact that there are these people that use the war, and the economy to rag on our current president. What kind of dent do you think would be made to the national defecit if we were allies with a country that holds more oil than damn near any other country on the planet. We would probably get about ten cents a gallon off of our gas prices for liberating Iraq. Not only knowing that we increased the quality of living. But the governement would quite possibly get damn near fifty cents a gallon off of what they are paying that country right now. GTiven there is an extra fourty cents a gallon gross profit that the government is making simply by keeping us satisfied, but raising the taxes at the same time, how much money would go back towards paying the defecit¿ I also ask one thing. If defecits are so stricken in stone, whatever happened to the billions upon billions of dollars worth of defecit that Germany owed all the allied countries after WW2. If you honestly think that thye payed off all of that debt you are in for some serious disapointment. All in all, They are doing better because we keep buying their cars...¿ [paranoid]

We are helping cure someboy else's debt's before our own. [thumb]

Bryan330i · Oct 21, 2003

wileycoyote said:

I'm no economist, but here's what I think.

1. The US deficit is a meaningless number. It cannot be accurately calculated, and has no bearing on the US economy.

I disagree. I think it is very dangerous to be issuing too much debt. We need to pay it back at some point in the future. Just imagine if the US decides not to pay pack it's debt from the trillions of dollars in debt instuments issued, this would create no less than a world wide economic disaster. This is the percentages of US debt held overseas and the percentage period change " 2003 0211355.3 36.182% 22.974%"

And guess what, I think we will be stuck paying this back, or at least reducing it and rolling the rest.

vlad · Oct 21, 2003

Tom said:

Just who authorized the tax rebates? And I have suspicions that the underlying reasons for these rebates were to boost our President's ratings Have you seen any guesstimates on exactly how much it cost tax payers to organize and mail out those checks?

And no, I am not better off than I was 3 years ago! My IRA? It's currently at 54% of what it was three years ago! In the last year and a half, most of my plant's manufacturing has moved south of the U.S. boarder or Taiwan. I really think that I am one of the lucky American's not to have lost my job over the last three years, but I have severe fears that my number is quickly coming up.

I am no economist, and definitely no politician. I wish I could offer constructive comments on how to fix the current situation. But I can't. All I know is that something is broke with our country's economy. I would love to believe that our current, (or any future), President could "fix" this flat tire that we've been riding on to the next gas station that's no where in sight. But being the pessimist that I am. I believe that anyone that's smart enough to be able to fix this "flat tire", is also smart enough not to run for the Presidential Office.

OK, rant off! On a positive note; Things could have been a lot worse than they are now.

epj3 · Oct 21, 2003

Re: Re: U.S. Deficit Hits $374.2B, Setting Record...Your thoughts?

vlad said:

I agree with you. I would get into this discussion but people always say that becuase I am 17 that my opinions or the facts I give are bull. But both my parents are worried about their jobs. My dad, who makes most of the money that supports our family, works for a company that made over 2 billion dollars of profit 5 years ago.

They got new CEO's who screwed up, but all the plans they had to build the company back up were halted by the crappy economy.

I also know that my friends parents who are VERY well off got a LARGE amount of money from the government both in tax returns and in the 'child tax writeoff', were as we got next to nothing. My parents didnt get a dime for ME, only for my sister.

I guess i do not cost money...

Bryan330i · Oct 22, 2003

The thing people do not realize about government spending is the multiplier effect. Those in politics talk of government spending like it's a bad word. Why??? Because they know the average American has little economic knowledge and would never understand the multiplier effect of money throughout the economy. They see it more like their own checkbook and when the money is gone, it’s gone. The truth is that the impact of economic benefit is exponentially greater than the spending. PROVIDED!!!! the spending is on US interests here and works for the benefit of the US people. Cut a $50k per year employee and you have cut far more than $50k from the economy. Shift $20billion from the US economy, well, you have just taken exponentially more from the US citizens.

Multiplier Effect

Initial increase in government spending results in increased income
Increased income [disposable income] is either:
Spent
Saved

That part which is spent [Marginal Propensity to Consume] flows back into the circular flow as consumption.

That part which is saved [Marginal Propensity to Save] flows back to the government

This process continues until the additional savings is equal to the initial increase in government spending

Total impact on spending is greater than the initial increase in government spending

The multiplier tell how much total spending increases as a result of the additional increase in government spending

MULTIPLIER = 1/[1 - MPC] = 1/MPS

U.S. Deficit Hits $374.2B, Setting Record...Your thoughts?

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