Debts and Deficits

The yearly surplus or deficit in the federal budget is what adds up to become "the debt". A deficit in any one year is not a problem if it is temporary, e.g. because of a short recession. A deficit is a problem when it is deficits year after year that create a larger and larger debt. These are generally "structural deficits" meaning that the government is purposefully collecting less in taxes than it spends. In short, the government is over-promising and building up a debt for future generations to pay off.

Here are some comments by Bill McBride on his blog Calculated Risk:

There seems to more and more concern about the deficit and the increases in the National Debt. It is definitely scary, and I've been writing about this issue for a number of years.

Back in late 2000 and in 2001 (I started this blog in January 2005) I focused on the deficit - and the long term fiscal damage I felt the Bush policies would cause.

President Bush argued in February 2001 that his fiscal policy "returns ... the surplus to the American taxpayers". In his 2001 testimony to Congress, then Fed Chairman Alan Greenspan supported President Bush by offering projections of "an on-budget surplus of almost $500 billion ... in fiscal year 2010". The National Debt would soon be retired and the Boomer's retirements secure. Greenspan offered a projection of "an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs."

Mr Bush also said in February 2001: "After paying the bills, my plan reduces the national debt, and fast. So fast, in fact, that economists worry that we're going to run out of debt to retire. That would be a good worry to have."

I disagreed strongly with President Bush and Mr. Greenspan's projections. I argued the surpluses were a mirage, and the tax policies would create a significant structural deficit.

I became even more adamant about the Bush structural deficits in 2004 and 2005, when it because obvious that the small improvement in the annual deficit was because of the housing bubble.

...

Today I believe some people are getting upset about the wrong thing at the wrong time. As Samwick noted, during a recession the deficits will increase - from falling tax revenues, automatic stabilizers and stimulus spending. Maybe some people disagree with the stimulus package, but that isn't going to change (except additions like extending unemployment benefits again).

Eliminating the recessionary deficit requires the economy to recover, and unfortunately the recovery will most likely be choppy and sluggish, but eventually a recovery will happen. Eliminating the structural deficit will be much more difficult and will require hard choices, but now is not the time.

The time to concerned about the structural deficit was in 2001 through 2006, and hopefully again starting in 2011 or 2012.

Economists on the left, like Paul Krugman, don't get excited about small deficits year after year. That's because you can grow your way out of them. But once they get big enough, they grow faster than the growth of the economy and they become a long term concern because getting out from underneath them will take years and years of belt tightening.

It is this struggle of ideas between left and right over Obama's stimulus. If Obama can spend and create a deficit now but get growth, then the deficit will "pay for itself". However conservatives claim to hate all deficits so they foam at the mouth, and right now they are in the streets calling Obama a "socialist" because of the stimulus.

But curiously, these same "conservatives" weren't protesting when Bush created a trillion dollar debt with his tax cuts for the rich or a trillion dollar deficit with his unnecessary war in Iraq. So these "tea party" protesters are hypocrites. They are merely political partisans trying to unseat a legally elected President using direct action in the street.

As Calculated Risk points out, if you want to be a "tea party" protester, you should have been in the streets from 2001-2006. Not now. Now is a time when deficits are necessary to get the economy moving again.

Only the rich, who already have their big piece of the pie are not interested in growing the pie or in sharing the pie. They are behind the protests. They want to get rid of Obama and put a "tool" in again, another George Bush who will constantly demand "tax cuts" for the rich, capital gains "cuts", tariffs on imports for industries that bribe politicians with big donations, or bailouts to industries that flood Congress with lobbyists and use money to buy politicians.