TCS Daily


Why I Like Deficits

By Jerry Bowyer - November 16, 2006 12:00 AM

A reporter once asked President Reagan if he had anything to say in defense of his deficits. "No" answered Reagan, "they're big enough to defend themselves." Liberals howled, and conservatives chuckled, but no one questioned the premise of the question: that deficits are inherently a bad thing. The argument has always about whether the bad thing called deficits are too large and whether they will ever be paid off, not whether they can actually be good for our country. For the record the answers are: no, they're not too big (see attached chart); no, they will never be paid off, and yes, they can be a good thing.


When strong nations go to war, they borrow money. Weak nations, not so much. That's because strong nations usually win, and winning nations usually repay their creditors. Rich and successful people don't have any problem getting someone to loan them money. The same holds for wealthy and successful nations. That's why, historically, the interest rate of a nation's bonds is a pretty good inverse indicator of investor confidence in the war effort. The more trouble investors see on the horizon, the more compensation they demand for the added risk.

The Rothschild banking clan kept an extensive network of couriers throughout Europe for just this reason. The Rothschilds were generally the first people informed about the turning points in battles, even ahead of heads of state. This gave them a tremendous edge in forecasting the bond markets upon which they built one of the world's greatest fortunes.

This is the way the world works, some might say, but is it right? What about the children? Is it really fair for them to shoulder the burden of our wars? Heck yeah, it's fair. Number one, they won't be children when they start to share the burden of the national debt. Number two, they benefit.

America has never paid off its original national debt. In 1800, we owed about $75 million. By the 1830s it got down to as low as $33,000. After the civil war, the debt exploded again. Ditto for WWI, WWII and WWIII (the cold war). My generation is now paying for the cold war. Do I mind? When I was a child 20,000 nuclear-tipped missiles were aimed at my country, and now they're not. I think that's a pretty good deal.

Since the national debt has never been paid off, some of that principal represents the borrowing that was used to fight the War for Independence. Some of my taxes, and the taxes of every generation of Americans, goes towards servicing that initial loan. Did Hamilton do us wrong by devising the financial structure of the deal? Does Adams owe us an apology for selling the bonds? Not likely. Every generation since 1776 has benefited from that first war.

There is a basic principle of financial accounting called 'matching.' It teaches that there should be some attempt to match, in time, the benefits of revenues with the costs incurred in pursuit of those revenues. It's why businesses depreciate long-term assets over a period of years. It's why local governments have capital budgets, funded with bonds, which they use to pay for infrastructure like roads and bridges.

Defense is a sort of infrastructure, too. It provides benefits for future generations, just like roads and bridges do. Is it some kind of rip-off that my kid's future tax bills will include interest payments from the war against Jihadists? Not if we win.

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61 Comments

not realistic
It's not realistic to think that people will consider the military a kind of infrastructure. Nowadays people take it for granted that, or in delusion, think that their country will always be the same, or free, etc. They don't even consider that if not for military there would be no America for themselves or their kids. They don't think they might have to fight for it again, and don't consider that part might be just like Mexico, and another part some islamo-fascist caliphate, and maybe a few parts balcanized and defended by the strong americans left over.

Great article
I remember the gnashing of teeth at the deficits during the Reagan years. They would never go away in my lifetime or, most likely, my grandchildren's time.

And how the same talk and the same fast shrinking deficits. How about we make those tax cuts permanent and shrink it even further?

Like China
Remember in the 80s when Japanese companies were buying so much in the USA: Rockerfeller Center, Pebble Beach golf course. Popular movies like Die Hard I and Rising Sun (a book, too) reflected the worry.

My question was always, "How are they going to move Pebble Beach to Japan?"

Toyota and Honda and Hyndai are building factories in the USA.

China, like many countries, are buying our bonds, not because they wish us well, but because it is in their financial best interest. And as long as they continue to do so, why would it be in their best interest to really attack us? They must also have an expectation that they will be paid and the US won't default, just as all the other major investors have done.

Oh don't even go there
This article is full of it! Pork and other discressionary expenditures are where the deficit comes from. If it were not for the expansions of Medicare, the farm subsidies, bridges to nowhere, etc. we'd not have any meaningful deficit.

premises, primises
We learn in school that any conclusion follows from a false premise. Today, tcsdaily dishes up the Republican canard that we are engaged in a "war on terror" in which our very survival is in doubt. If they really believed that, they would revive the draft and double US troop strength in Iraq.

Today, our main competitors for world domination are Europe and China. They are building their economies and we need to build ours. Every deficit dollar wasted by the government on military junk is a dollar that not spent on actual economic infrastructure.

Fiscal wisdom
Last year (fiscal 2005) we spent $408 billion just on servicing the Debt. That's just our interest payment. What did we get for it? Not even a Happy Meal.

On the other hand Social Security in the same period spent $530 billion on funding everyone's retirement. All that money went directly back into the economym after benefitting retirees.

Why don't we hear more about how we're wasting all that money on interest on the Debt?

It's like getting our military for free!
Here's an idea. If we need an expensive military to defend ourselves from swarthy guys with box cutters, why not ask the public to pay for it?

I don't see the logic behind putting our military expenditures on the tab and asking places like China to fund us. Aren't we laying ourselves open to a run on the bank one day, at a time when we really need our armies?

entitlements
It is entitlements not war that has created a huge portion of the national debt.

Voodoo numbers
Under the current administration we're hemorrhaging record amounts of money. Yet if in one year we borrow a tad less than we borrowed the year before everyone says "Hurrah! The deficit's going down."

Meanwhile the Debt goes up.

But even when measuring the deficit they're using funny numbers. I suspect you're aware of this:

http://www.usatoday.com/printedition/news/20060803/1a_coverart03.art_dom.htm

Free money
Japan and China, our major backers, both have nearly all their national savings denominated in dollars. That is the sole reason they have decided to support us in our path toward fiscal insanity. They are our facilitators.

Meanwhile, both are quietly seeking to diversify their holdings-- tiptoing toward the exits, as it were. Watch for the time when oil transactions start being denominated in Euros, for instance.

If a run on the dollar gets started, we get transformed overnight into the kind of hyperinflationary economy Europe saw between the world wars. Our money doesn't have anything standing behind it but the current good will of our creditors.

Meanwhile, enjoy your unlimited line of credit!

Absolutely right
Medicare, SS, and Medicaid make up 1/2 of the budget. Military spending makes up a smaller percentage of the federal budget today than when Jimmy Carter was President.

Source: http://cbo.gov/budget/historical.pdf

Now an expert on Iraq?
What commanding general in Iraq has demanded enough military personnel that a draft would be required?

And without any defense, how would you ensure that economic infrastructure won't be destroyed? Say DPRK demands South Korea stand down and join it? They lob a small nuke and destroy Kunsan. What would you do without a military? Bend over and say "thank you sir, may I have another"?

What is the % of GNP spent on defense relative to the past few decades?

China is spending more on 'military junk' than is the USA. Does that tell you anything?

Where did the 404B go, down a rat hole?
Who earned the interest and what did they do with it?

How much of that 408B went into the SS 'trust' fund?

One Treasuty Check, Another Treasury Check..Identical, but different.
So printing a check from the US Treasury to be spent by the recipient that has "Social Security" in the memo line somehow is spent differently from a nearly identical instrument that has "interest" in the memo line?

Some of those interest payments are even used by the very same retirees receiving a monthly SS stipend as retirement income. Some goes to insurance companies, who then turn around and pay-you guessed it, retirees who bought annuities, still other interest checks are received by pension, who (surprise) make payments to retirees.

I would prefer better fiscal management-but your distinction about the economic effects and social value of two government checks that differ only by the memo line is ludicrous.

Do you ever tire of getting tripped up by your own ideological rush to blather and technical ignorance, with its unbelievable magnitude and ease of disproof? I've gathered you are something of a professional pariah and pinata, but at least say something a little challenging once in a while.


Its like getting our social programs for free
Here's an idea. If we need an expensive social safety net to defend ourselves from alabaster guys secretly engaging in institutional racism, why not ask the poverty pimps to pay for it?

I don't see the logic behind putting our social safety net expenditures on the tab and asking places like China to fund us. Aren't we laying ourselves open to a run on the bank one day, at a time when we really need our armies, and not armies of people deprived of initiative, skill and incentives to do anything but pull the lever (or is that push the button now?) with the picture of the jackass on it?

It ain't Voodoo if you know it's there...
>"Under the current administration we're hemorrhaging record amounts of money. Yet if in one year we borrow a tad less than we borrowed the year before everyone says "Hurrah! The deficit's going down."

As I said, shades of the Reagan years. It is not just a "tad less" spending that is bringing down the deficit it is also record tax revenues due to our growing economy which, by the way, is due to those wonderful tax cuts.

While it is true that the government accountants use practices that would put corporate accountants in jail, the overall effect is a huge reduction in the deficit. I understand their practises but I never bother to show those who trumpet the "Clinton surplus" when one never really existed if you use the numbers referred to in your source article.

I always assume that people know that not all federal expenses are included in the deficit numbers. Just as the DJIA is not a fully accurate picture of the health of the US economy it is a good indicator of upward and downward trends. The same goes for the official deficit numbers.

The huge expense of SS and Medicare should be considered when you hear Hilary talk of "universal healthcare". Those numbers are nothing when compared to the price tag of that ill-conceived notion.

It would have also been nice to have had these numbers trumpeted from the mountain tops when SS was being discussed. Funny that articles such as this one never appeared during that debate. Back then SS was in good shape was wasn't in need of restructuring. I wonder what happened...

So anyway, while the deficit is huge, it is going down faster than anyone predicted. If you are really serious about bringing it down, support SS and entitlement reform.

Homework from Roy_Bean, from David Walker at the GAO
You'll have to download adobe's viewer and I'm not sure if you bother, but:

http://www.gao.gov/cghome/d07220cg.pdf

Slides 2 and 3 are very revealing. Military spending way down, entitlement spending, way up.

Roy, still in the bleachers, not even in left field.

Defense Spending
See my "homework" post above. As a % of GDP, less than half of what it was in 1965.

Its in pie chart form, easily digestible by TCS resident leftists and other economic illiterates.

Our creditors got it
Bondholders earned the interest, of course. But that's little consolation for us taxpayers, who lost the money and got nothing in return for it.

As you know, the SS trust fund only holds IOU's. But interest on the money the federal government borrowed from it reduced that amount by a number of billions. You could look it up if you're interested.

Duh
Checks with different account numbers are drawn from different accounts, even though they may be from the same bank. The SS account is managed by the federal government, like an escrow account, and is held separate from actual government revenues. But you already know all this.

By pretending you can't tell the difference between the taxpayer, out of whose pocket the $408 billion was taken, and the bondholder, who may have benefitted, you feign a stupidity I know you don't possess.

Har de har har
You wouldn't be confusing annual operating deficits-- plural-- with the accumulated federal DEBT, would you? When you say "the overall effect is a huge reduction in the deficit" it's apparent you're a little foggy on the distinction.

If you borrowed a thousand bucks in September, and only $900 in October, and this month you only borrowed $800, the amounts of your three consecutive operating deficits are going down all right. But you're still not making any money. The amount you OWE continues to grow.

I don't find this to be reason to crow.

SS takes in a lot more money than it puts out to its recipients, and the federal government borrows the rest. So in fact SS is helping keep the government afloat. But all this money will, beginning in the year 2018 or so, have to be paid back.

To harp on entitlement "reform" only shifts the argument to making the taxpayer/workers end up screwing themselves out of this money. And they have emphatically voted this approach down. SS reform is dead, and was done in while the R's were running Congress. Don't look for anything to change over the next two years.

What we really need to do is to stop starting wars and putting them on the tab.

debt payments are not burnt offerings
The money spent on dept mostly goes to pension funds and pensioners.

Money is never wasted unless paper money is destroyed and not replaced. Libertarians don't seem to understand that there are two sides to a balance sheet.

About those missiles...
not to nit-pick, but while there are fewer of them today, they're still pointed at us.

Only one slice of the pie
You assume I have never downloaded and viewed anything in pdf format. That would be wrong.

You also assume I can't tell a blind cat from a three corner bank shot. Far from all military expenditures appear in the Defense Department portion of the budget. War appropriations are all kept off-budget. Nuclear weapons production appears under the DoE. Military pensions, hospitals and other VA expenses appear someplace else again. Plus, all the black budget items.

Plus interest on the debt necessitated by military deficit spending.

http://www.warresisters.org/piechart.htm

Some day when I have a free moment I'll add it all up and compare the apples with the apples. But I think we both know already that spending on militarism is going up every year.

Oh Shut Up Already.
Sit down and shut up. You are an abominable waste of skin.

You can't or won't learn, so just shut up.

Brain dead, programmed ass.

Delusional. Quick show of hands from the sane folks
I don't assume anything other than you are utterly brainwashed, mendacious, disingenuous, envious are insufferable.

A week or so ago, you cited David Walker as the expert. Now you simply decide you can't trust the GAO to provide accurate information.

You are a loathesome piece of disingenuity.

Quick show of hands:

How many people think "warresistors.org" has ANY understanding of budgeting and how many think they are nothing more than consiratorial hacks feeding the delusions of legions of intellectually bankrupt fools?

I'm a little foggy?
>"What we really need to do is to stop starting wars and putting them on the tab."

You brush past entitlements and SS only to move to "starting wars" as our biggest expense?

That's like saying you can ignore the $1500/week you spend on your cocaine habit because what you really need to concentrate on is the $3/month you spend on toothpaste.

Yeah. You have a great grip on economics.

Really, if you aren't going to address the real drain on the US economy by the US government: SS and entitlement spending, then why WOULD you even bother reporting it? So you can point at it and say "Yep. There it is. Okay, let's cut military spending!"

It seems like your self-interest has over-ridden your economic sense. What little you possess anyway.

Tlaloc-Roy in Previous Life
Was posting as "Michael", (for some reason all the resident libs started using new monikers but fooled no one)when he admitted being something of a participant in the various pharmaceutical crazes of the day.

As you can see, there's a serious cognitive impairment. The interesting thing is that he thinks he's fine. Sort of like "seth Brundle" in the early part of the Jeff Goldblum version of "The Fly". He was unaware that he was slowly becoming a disgusting insect that would have to vomit on his food and actually thought he was brighter and more vigorous than he was before.

I'm a nice guy, so I hope he doesn't request to be "eliminated" when that last glimmer of sanity realizes what he's become.






Wasting Money
If you don't pay your creditors, thats a bad thing, thats why.

Aren't we grumpy today
Here's an interesting summary I just dug up.

Total military budget outlays, 2002: $457 billion.

Total military budget outlays, 2004: $754 billion.

This includes an interesting proration of the amount of interest paid on the military debt. Check it out.

http://www.independent.org/newsroom/article.asp?id=1253

Addressing the real drain on the US economy
Military expenditures are directly comparable to SS expenditures in magnitude. It doesn't seem that way because they are so split up in budgetary breakdowns. You have separate entries for DoD expenses, Dept. of Veterans' Affairs, military aid to foreign countries under State, the off-budget costs of conducting two wars, etc etc ad infinitum.

Here's a good total for all military expenses for 2004... $754 billion:

http://www.independent.org/newsroom/article.asp?id=1253

By contrast in 2005 we spent $530 billion in SS disbursements. And that all went to actual real live people-- people who paid in when they were taxpayers. The military budget is the money that's really flushed down the old rat hole-- it goes exclusively for the destruction of lives and property.

Envious, loathsome, disingenuous... a triple threat
I never said the GAO didn't give us accurate numbers. What I said was they measured what they measured-- which is not the same as measuring what we might like to know.

Now that you've looked at the article from War Resisters, I challenge you to find any errors of fact. For that matter, now that you've looked at my other reference, from the Independent Institute...

http://www.independent.org/newsroom/article.asp?id=1253

I challenge you to find any errors in their figures.

Actual total military expenses are going UP.

delusional liberals
Why am I not surprised that LG actually believes that terrorists are not a problem.

As to Europe being a competitor to the US ... In what alternate reality. Europe's growth rate is a fraction of the US's, has been for years and shows every sign of falling further behind. The best and the brightest are leaving Europe as fast as they can find someone to take them in.

It's true that China is growing faster than we are, but then playing catchup was always easier than being the leader. It's only by abandoning socialism that China has been able to make any progress at all. The more capitalistic they become, the less of a problem they become.

Money wasted
That money is wasted from my point of view. The government took in $408 billion of our dollars and spent them. Tell me what we got in return for them.

What?
Incomplete Numbers are Inaccurate Numbers and Irrelevant Numbers are Inaccurate Numbers.

Calling interest "defense" tells me why it is being paid-assuming the estimate is correct-but its still interest-it isn't buying tanks.

Care to find an article that estimates how much interest is being paid because of prior social welfare expenditures and on how our social budget is bigger than we think?

I'm sure your thrilled
That you could try the patience of a saint, which I assuredly am not. Once again, if your are going to attribute the cause of interest to be the nature of the expenditure - then we need to do that for everythin.

You ought to venture onto the pages that hack your sacred cows-welfare, activist overnment etc. Here's a couple

http://www.independent.org/newsroom/article.asp?id=1838

http://www.independent.org/newsroom/article.asp?id=1836

Against spending on militarism?
Consider the alternative:
Buying burkas for for your mother, wife, and daughters.
Paying taxes to support your local mosque.

I don't like having a big military bureaucracy, but it seems preferable to me.

"Millions for defense, but not one cent for tribute."
-- Representative Robert Goodloe Harper, Address, June 18, 1798 (Harper was the Chairman of the Committee on Ways and Means)

you would be right if...
you would be right if you could peg the money borrowed to be spent for the army. My feeling is it was spent making a bridge somewhere in ALASKA, or building a monument for MLK.given this, your argument fails...this is the first time when a read an article by JB with which i don't agree.

Great job Jerry...
This article is right on the mark. The usual suspects are busy calling each other the same names they call each other every day and throwing Googles around like this was a food fight instead of a serious discussion.

Of course, this was a difficult position to take but you make a very strong case. People don't seem to realize that without US Treasury debt the currencies of the world would have no standard of value. Great job, Jerry.

Nonetheless
Nonetheless the graph which is meant to show things aren't as bad as under reagan also shows the debt increasing by 5.5% of GNP in a few years. That is not sustainable.

The real drains on US economy
The military allows you to post your noxious coprography here.

One real drain on US economy is corporate welfare masquerading as "economic development", whether is financing stadiums for mega millionaires toy sports teams so they can pay prima donna athletes tens of millions instead of mortagages (the circus in bread and circuses)or paying for companies to relocate with indirect welfare like tax abatements or outright subsidies.

Another-social welfare that destroys families, allows children to have children and traps people in lives of desperation and ignorance. Huge armies of social workers, administrators and the like seem to be constantly engaged a never ending "war on povety". We need to withdraw immediately from that quagmire and admit poverty won.

Another-Agricultural Subsidies that a predicated on a view that farms are a lowly guy struggling to feed his 10 kids with a plow, a mule, 40 acres seed and sweat, when the reality is that the real beneficiaries are ADM, ConAgra and the like. Hell we have to pay more for our coffee because a sugar is jacked up-although if that screws Castro a bit, I'm ok with it.

Endless laws and regulations written in serpentine language designed to ensure that enriches the legal profession.

Never ending subsidies to "higher education" that while delivered in the name of providing "opportunity" to "all" or the "disadvantaged" has resulted in a culture of indulgence at the academy, where professors use GA's to do the unpleasant work of teaching and grading papers, while they pontificate like gods from olympus. Despite this, graduating students often arrive in the world under staggering debt loads because the price of education-is, and has risen faster than just about anything else for decades.




Ain't it awful
"The military allows you to post your noxious coprography here."

This one comment speaks volumes about you, more than anything else you've said. The military does not "allow" me to do anything. We do not live in a police state. Freedom of speech and the press is still legal-- how that must rankle you.

We are in agreement about corporate welfare. But it should hardly be surprising, in an environment where money is considered speech, that this is so. Those with the most money get to write the most laws.

This could easily be cured with publicly funded campaigns. And the costs would be vastly cheaper than those we now bear under the current system.

"Another-social welfare that destroys families, allows children to have children and traps people in lives of desperation and ignorance. Huge armies of social workers, administrators and the like seem to be constantly engaged a never ending "war on povety". We need to withdraw immediately from that quagmire and admit poverty won."

Actually, we did withdraw from that quagmire, back in 1996. I guess I'm not surprised you missed it. Not trusting the "MSM", you have apparently not read a newspaper in the past ten years.

The states limit welfare (AFDC) eligibility to a short period, after which time it turns into workfare. So the undeserving poor you think of are now the working poor.

But on the rest of it-- the staggering costs of higher education, the subsidies given to mega-rich giant ag concerns, the laws that require lawyers and the tax laws that require accountants to interpret-- on all those issues we are in agreement.

In-groups take care of their own. Just like the Congressional health plan-- you and I should have a plan one-tenth as good.

I get a nice pension
I get a nice pension from Washington State. Part of their portfolio is govt paper.

Money well invested-- that is, spent
That's very nice. So when you're asked to help pay interest on the national debt, it must be worth it for you.

If there were no national debt, do you think your pension fund would invest in something else?

In fact here's a really sobering thought. All the money that's currently invested in the national debt, if it was being paid down, would have to find a new home in stocks and bonds. I wonder what the effect would be of taking that money out of the public sphere and instead investing it in the business of America.

Wrong Again
This one comment speaks volumes about you, more than anything else you've said. The military does not "allow" me to do anything. We do not live in a police state. Freedom of speech and the press is still legal-- how that must rankle you.


On the contrary, your lame, pathetic and obvious attempt to impute the most ridiculous sentiments to me is telling about YOU.

The military allows you do everything, especially considering your obvious lack of sellable skills. Without those people who risk death, you might have been a death-marched subject of Imperial Japan, or a lampshade under Nazi Germany, or a brain dead resident of the workers paradise. Outside of those threats, the threat of U.S. power has made the ascent of other would be dominators impossible. So it is, we've been spared from Mao, Pol Pot, Castro, Hussein, Khomeini, or any other of the myriad of megalomaniacs that arise on a regular basis.

Absent our robust military, any of those nations would have dominated the world and simply abolished those freedoms. I treasure them and respect those people who do the heavy lifting to maintain them. Without those people, we are nothing but prarie grass before the next fire.

But hey, lets spend less money on the military. Its obviously a problem with you.










Roy discovers opportunity cost
If there were no national debt, do you think your pension fund would invest in something else?

You bet, but you guys wanted an elaborate welfare state so..


Don't blame social programs for the current mess
I wonder how it was so, that during the late '90s we were able to maintain social benefits, eliminate the deficits and start paying down the debt. Why shouldn't we just reset the government to 1997 rules and resume progress?

Won't Quit.
Please for crying out loud pen an original thought and stop peddling DNC emails. Its boring already.

1.) We didn't maintain social benefits, we changed them dramatically-you surely can remember Clinton being dragged kicking a screaming by **** Morris into triangulating into accepting welfare reform.

2.) We ignored the gathering storm, postponed realigning the military to face the new assymetric threats. Now we can't post 9-11. But if you want to argue that-you make sure you are where the dirty bomb or jetliner are when they go off.

3.) Price of government entitlements is rising because of the demographic torrent. Thats why 54% of our spending is now "mandatotry".

Anybody can balance a budget by "deferred maintenance"

Business of America: good place to invest social security trust fund, no?

A little too shaky for me
Business stocks are nice if I want to exercise my free choice. But if the SS Trust Fund were all invested there we'd be in a heap of trouble. Certainly you can remember what happened to stock value back in 2002-- and before that in 1987.

I'd rather have something that holds its value every year. That way I won't have to worry about taking money out in a year when the fund is valueless-- as happened to many people whose life savings were in stocks and they needed the money back in 2002.

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