Because of the different (not expanded, but different) economic tool set that a state has, compared to a household, the state exists in an entirely different economic reality. It can continuously borrow money, because it borrows money from entities that print money. A household with a true deficit problem is one that has total debt increasing month-on-month, without an end in the very near, very visible future, because they are going to hit a borrowing limit, imposed upon it from the outside, based on how able they are to repay their total debt. A state with a true deficit problem is one that has begun to borrow at a pace that is beyond that which other states are willing to produce more currency to be loaned. One is based on a risk assessment made by a bank, while the other is based on an assessment of inflation, made by another government. A creditor bank wants all of its money back, plus interest. A creditor government wants incoming interest payments to be greater than the devaluation of their currency supply.
As long as the United States does not borrow too quickly (and there is no sign that we are anywhere near that point), you'll find that it is quite capable of borrowing forever. With two brief exceptions in the 1920's and late 1990's, the United States has been borrowing money for a century. A household doing that would be rendered unable to pay for even its basic needs, and would likely be jailed by its creditors. A state doing that can ascend to and maintain its position as the most prosperous nation on Earth. States and households are simply different kinds of economic actors, dealing with different economic realities, and it is, again, fatuous to equate the two.
You say that the state and the household deal with different economic realities but then you go on to discuss the tools the state has. That's a bait-and-switch. I'm trying to point out to you that the economic reality depends on the
math of the situation. And the math is the same whether you are a household or a state or a company. All the tools in the world cannot change that. They may postpone it, or they may disguise it, but they cannot avoid it.
The simple truth is that any entity that borrows money must pay out more than it borrowed. Because the USA is running a deficit in the first place, they have to borrow more money to pay for the money that they borrowed previously. It compounds on top of itself, and as a result we paid over $454 billion in interest alone during fiscal year 2011. That number is not going to go down, remain steady, or even limit its increase to the rate of inflation. And that's with interest at historically low rates. The problem will get even worse when rates return to their historical averages.
That's not even the worst part. The national debt totals about $16.4 trillion. The elephants in the room are the pensions, Social Security payments, Medicare payments, and other so-called "unfunded liabilities" that total $50 trillion or more. Those aren't even on the balance sheets, yet they need to be paid when the baby boomers start retiring -- which they are now starting to do.
The point is that even though the system is sustainable in the short term, it by no means is sustainable in the long term, let alone forever. A tsunami of debt is on the horizon.
We all use heuristic devices, like analogies, to simplify complex problems, in an effort to better more quickly find a solution. The problem is that you can take that too far, as you do when you equate a state's budget to a household budget. It's because you're utilizing this oversimplified heuristic model that you don't see why too much austerity might present a larger problem than ongoing deficits.
Deathfun's post wasn't an analogy. It was an explanation of the debt problem in simplified terms -- even though those simplified terms were merely dividing the numbers in question by 100 million. Here is the same chart using the latest numbers from fiscal year 2012:
Federal revenue: $2,469,000,000,000
Federal expenditures: $3,796,000,000,000
New debt: $1,327,000,000,000
Current national debt: $16,429,000,000,000
Fiscal cliff spending cuts: $15,000,000,000Family income: $24,690
Family expenses: $37,960
New credit card debt: $13,270
Outstanding credit card debt: $164,290
Total budget cuts so far: $1,500You talk about Europe's failure of austerity, as though they've attempted to solely raise taxes, which is simply not the case. Greece has attempted to do almost exactly what the United States would have done, had the budget sequester gone into place. They slashed spending across the board in an effort to reduce their deficit, but in the process destroyed so many jobs in the Greek economy that tax income plummeted, and their deficit worsened.
No, I said nothing about Europe's failure of austerity; I said "the budget problem cannot be solved with tax hikes" and that several jurisdictions were learning this. What I meant to imply -- and perhaps I should have made this explicit -- is that raising tax rates has caused tax revenues to fall in all of those jurisdictions. In California for example, the passage of Proposition 30, which was supposed to raise $6 billion, instead led to a $1 billion shortfall. In Maryland and the UK, hiking the millionaire's tax caused millionaires to move elsewhere.
Incidentally, since this problem requires taking a long-term perspective, it's entirely possible Greece's austerity actions
are working, but that we're not seeing the results yet. Just as the debt problem will take some time to play out, even in the worst case scenario, it may take Greece some time to recover, even if they slash spending across the board. The damage everywhere is well-entrenched. It wasn't caused overnight and it can't be fixed overnight.
It's also worth pointing out, since you seem to be on an anti-tax kick, that over the last half-century, the United States economy has boomed in the wake of increases in the income tax rate and faltered, following decreases in the income tax rate. I'll be the first to say that correlation does not imply causation, and my aim with that statement is neither to imply that tax cuts put a halt on economic growth, nor that tax increases automatically improve the economy. It does, however, indicate that modest increases in the income tax rate are not a threat to the economy.
With respect to the United States' deficit, remember that two largest spending programs of the Bush administration were not the wars or the bailouts, but the 2001 and 2003 tax cuts, and the effect of those cuts has been steadily growing over time. Those (and their extension in 2011) have been, by an order of magnitude over everything but the wars (the tax cuts were only $300 billion more expensive than the wars), the single largest item between our current position and restoring the Clinton-era budget surplus. (The CBO periodically does estimates of legislative impacts on a January, 2001 baseline, such as this recent estimate. The war numbers came from the Congressional Research Service.)
A tax cut, by definition, is not a spending program. But if you reread my posts, you will see that I'm not on an anti-tax kick -- at least not in this thread. I'm on a "what works" kick. And right now, any consideration of "what works" must consider spending cuts. Balancing the budget requires examining both revenue and expenses.
He's actually voided his right to post on this topic at all as far as I'm concerned. Jokes are fine in their place but when they show no attempt to understand the situation at hand, they're basically spam.
Actually, deathfun's original "joke" post showed the most understanding of the situation of anyone in the thread. It's a shame he's not backing up the image with a well-reasoned post, because he's actually correct.
They were "correct" for a completely irrelevant and different crisis. So in that sense, they are more a source of disinformation than information. IOW, they are fatuous right now.
They were
correct (without scare quotes) in the past, but for the current crisis, they've merely understated the problem. I've provided correct figures above.
"Even get this far" is the kind of quote in here that establishes you are just not getting the problem. The fiscal cliff crisis was not an effort to curtail the deficit. It was an effort to not curtail it too fast. Had they done nothing, the deficit would plunge faster than it is right now. The reason why you don't solve your debt problem with "Austerity Serioussssnesssss (tm)" should be obvious to anyone who is paying the minimal attention to the events in Europe. If you curtail the deficit too fast you actually damage the economy and then you end up the fiscal year with a *greater* deficit than otherwise due to the GDP dive. Every economist knows this, only the Very Serious Pundits hired by Fox news and other crazy outlets pretend they do not know the Earth is round and try to dumb us down.
I can only assume you're psychologically projecting, because this paragraph reveals your utter ignorance of the situation. The fiscal cliff was self-imposed by Congress in order to blackmail itself into solving the problem by a certain date. But instead of solving it, the current deal just kicks the can down the road another two months. And the reason the current deal was implemented was not out of any noble effort not to curtail the deficit too fast, but rather out of the baser motivation to avoid the political consequences from the fiscal cliff. Despite the political consequences, the "fiscal cliff" would have been a step in the right direction.
And I don't intend to fall for your attempt to curtail the discussion by invoking the No True Economist chestnut. There are plenty of economists warning that delaying the inevitable spending cuts is going to cause us greater harm in the long run, but nobody likes to listen to them because the truth isn't politically popular. It's better to face the pain now, even if the pain is large, than to postpone it to a point in time when it will be unavoidably greater. It's the same principle that the best way to quit smoking is to do it cold turkey, even though addiction withdrawal is not without its own cost.
Again another demonstration of complete unawareness of events. GB is trying to solve the deficit *too fast* with tax hikes but also spending cuts. They are performing exactly the Austerity solution. What they are ending up with is a recessionary spiral that is worsening the problem. Worsening.
Please make an attempt to read and understand what I wrote before posting such a ridiculous statement. Start with my response to BlueFlames above.
Be aware that your indictment of "strangeness" is so far-off of what is the economic consensus it's not even funny.
Ooh, another fallacy! This one is the Appeal to Authority. I wonder how many more you'll end up posting before you ragequit?
Here's a simple reasoning: you don't cut the deficit too fast when your economy is in a slump. You cut your deficits when the economy is booming.
This is the ideal strategy, yes. Unfortunately, the best opportunity to pay down the national debt in the 90s and 2000s has come and gone. Even though now is not the ideal time, the US can not affort to postpone what must be done.
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