Relevant and even prescient commentary on news, politics and the economy.

CBO Aug 7, 2015: Monthly Budget Review for July

Monthly Budget Review for July 2015
Bolding mine:

The federal government’s budget deficit amounted to $463 billion for the first 10 months of fiscal year 2015, CBO estimates. That deficit was $2 billion larger than the one recorded during the same period last year. If not for shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the 10-month period would have declined by $41 billion. On the basis of the government’s revenues and spending so far this fiscal year, CBO expects that the annual deficit will total about $425 billion, which would be less than the $486 billion that the agency projected in March. CBO will publish new multiyear budget projections later in August.

Hmm. $61 billion improvement over four months. Pretty significant however you slice it. And maybe puts some context on 75 year projections put out either by SSA or CBO.

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Debts, Deficits and Social Security

With the release of Tim Geithner’s new autobiography the old quarrel about whether Social Security does or even can add to “the deficit” has cropped up again. So rather than weigh in let me start from a more neutral spot. CBO produces a document called the Monthly Budget Review and in Nov 2013 it carried this title: Monthly Budget Review—Summary for Fiscal Year 2013 The introductory paragraph of the Summary of this Summary reads as follows:

The federal government incurred a budget deficit of $680 billion in fiscal year 2013, which was $409 billion less than the deficit in fiscal year 2012. The fiscal year that just ended marked the first since 2008 that the deficit was under $1 trillion. As a share of the nation’s gross domestic product (GDP), the deficit declined from 6.8 percent in 2012 to 4.1 percent in 2013. (The deficit was 1.1 percent of GDP in 2007, prior to the recent recession.)

and in turn was illustrated with the following graph: Fiscal Year TotalsFiscal Year 2013 outlays and revenues
Now in the normal course of reporting CBO gives figures for any number of ‘deficits’ including ‘on-budget deficit’, ‘off-budget deficit’, and ‘primary deficit’. But here they simply reference THE ‘deficit’ without qualification. So which of the three above adjectivally modified ‘deficits’ is CBO using in this Summary of its Summary of Fiscal Year 2013? Well none of them. Instead it is using a metric which by some measures no longer exists, at least under some readings of current law. Which has led to untold confusion. Confusion which I hope to unravel a bit under the fold.

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When it comes to finding money: People vs Corporations, $535 billion over 10 years

As we continue this fight regarding the national budget, funding for the people, (food, unemployment, medical), entitlements and the overall moral position this nation has and will take with its money, let’s recall the truth about a program that was sold and is still sold as a benefit for the people.   It’s cost is intentionally excluded from the overall budget discussions and thus remains hidden as to the extent of the benefit and beneficiaries.

The Medicare Prescription Drug law. Billy Tauzin (former congressman and former president/CEO of PHRMA, Dem from ’72 to ’95, republican there after):

it’s been good for the patients whom the drug industry represents

Dan Burton and Walter Jones, republicans were against it, for to them it was a “sellout” to the drug companies.

No offsets were needed.  The 15 minute vote was held open for 3 hours and was in the middle of the night because it was going to be defeated.  The longest roll call in the history of the house.  Threats to those who did not want to vote for such a huge wet kiss to the industry were of the Tea Party type.  They would run a person against you.  The Medicare boss, Tom Scully Bush’s “lead” negotiator went to lobbying for the drug industry “10 days after the president signed the legislation”.  He was negotiating for his lobby job during the bill negotiations.


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Three guesses on where chaining the CPI came from

It’s history lesson time again.

An awful lot of talk and writing about the chained CPI has been focused on the results of its implementation on Social Security. Using this formula for figuring the cost of living ends up reducing the money citizens will receive in their SS checks. One of our commenters, Denis Drew labeled it the Cascading CPI. That’s pretty much how I see it because the formula is all about suggesting that accounting for people substituting lower priced items (lower price includes technical improvements) for the higher priced items (higher price includes earlier versions in a products history) they used to purchase means their quality of life has not changed. The only way to make such an argument seem reasonable is if the concept of “quality” has no meaning in the market place. However, if “quality” accounts for something when purchasing a specified level of living, then the accounting is not of inflation but of deflation, and deflation now has to be considered to float on either side of the zero, being positive or negative. There is no concept of inflation in economics anymore.
What I’m suggesting here is that the chained CPI reasoning is a massive amount of conflation. When I start seeing concepts and perceptions being conflated, I get suspicious and start asking questions. Usually the first question is what’s behind the promotion of the conflation. What’s the history and in that possibly will I find the intention? And, as I taught my daughter, life is intention.
Using Mr. Peabody’s WABAC machine we set the dial for 1995. Ever heard of the Boskin Commission?  Its formal name: “Advisory Commission to Study the Consumer Price Index”. It was created on the order of the Senate Finance Committee. The Senate majority leader then was: Bob Dole followed by Trent Lott. William V Roth Jr. was the chair of the committee. 
This was the time of Newt Gingrich and the “Contract with America”.  The contract included social security reform. It also included welfare reform. (Clinton gave them that part of the contract.) Both were under the Fiscal Responsibility Act. You know, balance the budget rhetoric. Specifically:  An amendment to the Constitution that would require a balanced budget unless sanctioned by a three-fifths vote in both houses of Congress…

Gee, 3/5 of congress or 60 votes, what’s the difference now?

Boskin is Michael Boskin. He is this man. Rather accomplished. Held and holds some very influential positions.
He is also this man.

In 1993, Bill Clinton enacted an economic program centered around some public investment, coupled with deficit reduction with higher taxes on the rich. Boskin was very, very sure it would fail. In a Journal op-ed entered into the Congressional Record by grateful Republicans, he accused Clinton’s administration of “fundamental distrust of free enterprise.” He made a series of predictions: “The new spending programs will grow more than projected, revenue growth will be disappointing, the economy will slow, and the program will reduce the deficit much less than expected.”
Boskin repeated his prophecies of doom in a summerlong media blitz. Boskin labeled Clinton’s plan “clearly contractionary,” insisted the projected revenue would only raise 30 percent as much as forecast by dampening the incentive of the rich, insisted it would “take an economy that might have grown at 3 or 4 percent and cause it to grow more slowly,” and insisted anybody who believed in it would “Flunk Economics 101.”
With that setting here is some history by way of Fredrick Sheehan by way of The Big Picture blog: 
In the early 1990s, Senator Patrick Moynihan from New York warned his fellow legislators about rising social security commitments. Then the worm crawled out of his hole, so to speak. Federal Reserve Chairman Alan Greenspan testified before the Senate and House Budget Committee on January 10, 1995. He told the Committee the inflation rate was probably overestimated by 0.5% to 1.5%.
If Greenspan was correct, this was a godsend. Social security payments are increased each year at an inflation rate calculated by the federal government: the change in the Consumer Price Index (CPI). If the CPI could be increased at a lower rate in the future, benefits would rise more slowly, without Congressional action. This would reduce government spending and delight politicians, who knew of the looming crisis in social security but did not want to imperil their careers by reducing benefits, or, in this case, by cutting the rate at which social security benefits were raised each year.

The Boskin Commission was duly formed. Michael Boskin was the right man for the job. He had served as chairman of the President’s Council of Economic Advisers (CEA) from 1989 to 1993, a post previously held by such government functionaries as Arthur Burns and Alan Greenspan.
I’m starting to get a feeling here. “The fix is in” kind of feeling. Mr. Sheehan offers this quote: Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003, said at the time “the debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”
From an article in the Atlantic, 1997 by Thomas L. Palley titled: How to Rewrite Economic History.
The commission is itself a delicious example of such bias: All its members were on record prior to the establishment of the commission as believing the CPI to be overstated. At the same time, the commission took no evidence from such well-known economists as Janet Norwood, a former head of the Bureau of Labor Statistics, and Dean Baker, of the Economic Policy Institute, who believe that the CPI provides a reasonable reading of inflation. In effect, the commission took account of all the evidence of overstatement of inflation by the CPI and downplayed the evidence of potential understatement.
I would say the fix was in. It has just been a matter of time and timing as to when the final promise made in the Contract with America would find its way into policy. The Democrats implemented the welfare the Republicans wanted and now they are going to give them the Social Security. All of it can be summed up in the Contract ultimate goal: An amendment to the Constitution that would require a balanced budget unless sanctioned by a three-fifths vote in both houses of Congress…
The article, besides being a good review of the commission’s report points out the ramifications of accepting an argument that the CPI has been miscalculated for years (similar to Dean Baker’s points).
If cost-of-living inflation has been overstated, then the growth of the economy and real wages has been much higher than previously reported. The commission has thus solved the problem of stagnating wages, which is now revealed to be a mere fiction. Far from experiencing a “silent depression,” the commission implicitly claims, American families have never had it so good.
If inflation, wages, and income have all been misstated, years of research have been conducted using incorrect data. Thus much of this research, which purportedly confirmed the profession’s theoretical claims, is no longer valid.
Lowering the CPI inflation rate would therefore affect income-tax exemptions and push many middle-class families into higher tax brackets. Adopting the Boskin Commission’s findings would be tantamount to imposing a tax hike that would particularly affect lower- and middle-income families.
Both Democrats and Republicans have been keen to see its recommendations adopted, because they provide a potentially uncontroversial way to achieve deficit reduction. Raising taxes is unpopular, and little discretionary government spending is left to be cut. Restating the CPI as a measure of cost-of-living inflation offers an easy way to lower Social Security payments through reduced COLAs and raise tax revenues through reduced exemptions. The hope is that the CPI can be presented as an apolitical and boring technical issue that voters won’t notice.
Revising the CPI would get the Republicans off the hook of deficit reduction, while simultaneously advancing the interests of business. This, however, would occur at the expense of working Americans and the elderly. Revising the CPI would get the Democrats off the same hook, but at the cost of another shameful desertion of the constituencies they claim to represent.
I told you there is no concept known as inflation in economics anymore.
What we have been living with Obama is very clear now. There is only the conservative ideology in play within our government. It’s just a matter of degree and time in setting up the play as to when a given policy  will be implemented to achieve another phase of the goal.  Right now, it looks pretty much like the official implementation of chained CPI pretty much puts the final cog in the conservative economic machine of social order.
I asked in 2008 if Obama’s appointment of Jason Furman was a qid pro quo for the DLC/Clinton et al keeping the money issues while Obama gets to be president.  We have our answer for sure. There is no need to ask anymore as to the reasoning behind the policies and offers in negotiations that is Obama. It is what he wants. We are living the continual implementation of the conservative economic and thus social ideology that came in with Reagan and fully came out with Gingrich and The Contract with America. 
And that my dear readers is where the idea for chaining the CPI came from; yesterday and today.
It is not just the pain that will be experienced by all of us (you’ll get old too) with the chained CPI, it is the fact that voting away from conservative economics has not lead us away from conservative economics since Reagan.  Regardless of the party of the president or the majority of congress, the nation has not been able to achieve an ideological shift.  That is a true signal of a problem with our form of democracy.

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Austerity and Budgets explained

In support of Beverly’s latest post and all her past postings wanting for Obama (or the Dem’s in general I would say) to explain the truth about how a government’s money really flows, I present this video from the Watson Institute. (via Didby at Hullaaloo.)  I happen to agree, it would be nice if our president would get it straight, but…

The Watson Institute presents Mark Blyth on Austerity from The Global Conversation on Vimeo.

 Of course, my pet peeve is that no one is talking about our nation’s equity.  I am confident that the American family would get that part of financing as it relates to borrowing and investing.  Heck, how long was it before Amazon broke even yet they kept right on borrowing and growing?*  Or lets put it closer to home.  How many Americans purchased a home that was valued at and borrowed against for the purchase that was equal to their annual income?  What was the old rule…3 times the median income was the average home price?

*incorporated 1994, 1st profit announced 2002

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$1 trillion to be spent on direct hiring…that’s the ticket!

With all this stalemate posturing in Washington, today Chris Hayes has come up with the best idea I have heard yet to move the players. And, in my opinion actually solve our economic depression.

One trillion dollars to be spent on direct hiring by the government along with debt forgiveness.  A solution right out of the New Deal program. Unfortunately for Chris, Obama does not have the language within his vocabulary to recognize such an approach and thus in Obama’s own words: “…put us on a fundamentally different path because the country was ready for it.”
In fact, not only does he not have the language within his vocabulary to recognize a solution from history, he thinks the 60′s and 70′s were full of excesses (while noting Kennedy moved the nation in a new direction…right into the excesses of the 60′s?)*

Visit for breaking news, world news, and news about the economy 
Do you think anyone who remembers what it meant to be a leader in the Democratic Party was watching?  
*“I do think that, for example, the 1980 election was different. I think Ronald Reagan changed the trajectory of America in a way that, you know, Richard Nixon did not and in a way that Bill Clinton did not.”
“He put us on a fundamentally different path because the country was ready for it. I think they felt like, you know, with all the excesses of the 60s and the 70s, and government had grown and grown, but there wasn’t much sense of accountability in terms of how it was operating. I think people just tapped into — he tapped into what people were already feeling, which was, we want clarity, we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing.”  
Don’t get me going on the people wanting “clarity” (security state that even the congress can’t get info on) and “optimism” (the audacity!).

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The rest of the dinner table deficit/debt discussion: Equity

I promise, there are numbers here, but lets have some fun first and write a screen play to set up the point. It is long, but…

“Dear, I’m getting nervous. We seem to keep adding to how much money we owe and our income hasn’t changed for the better. What can we do?”
At this point of the conversation, the conservative ideology (Republican and Democratic Parties) suggests and encourages you to believe that the answer is something like: “Well Honey, as I look over the horizon I see no possibility for improving our current position. The only thing we can do is cut back on our spending. We have to stop spending on anything we don’t need to live. If we are willing to sacrifice then eventually we’ll have savings that we can then use to invest such that we have more income.”
Now, for most Americans at this moment in the euphemistically labeled “business cycle” Honey’s response would be: “But I don’t know where else we can cut!” Of course to the conservative there is always something that money is being spent on that is in actuality an indulgence for which one should repent and thus cut from their spending if said spending is greater than one’s income. This is true because no righteous individual would ever let the devil of consumption tempt them from the path to wealth heaven. Redeem one’s self through the power of restraint of consumption urges.

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‘Deficit Debate Driven by the Wealthy’

And another view on the upcoming election deals we need to worry about in addition to party agendas and deals. Doubling down on upward distribution of wealth remains the name of this game…it is hard enough to debate real budget issues without this party going on:

Deficit debate driven by the wealthy, by Michael Hiltzik, Commentary, LA Times: …The fiscal cliff is supposedly what lurks at the end of this year, when billions of dollars in tax cuts expire and government spending cuts mandated by the big deficit deal in 2011 kick in. According to the bipartisan Congressional Budget Office, the combination of a steep increase in the tax bite and a steep reduction in spending across the board could cut economic growth in 2013 to 0.5% from a projected 4.4%… The CBO says that by any traditional reckoning, that would mean recession.

Yet there’s still reason for most Americans to fear the deal-making aimed at avoiding the fiscal cliff. For one thing, the debate seems increasingly to be driven by the wealthy, who can be trusted to protect their own prerogatives while declaring everyone else’s to be wasteful. Just two weeks ago, a squadron of CEOs and bankers, including Dimon and hedge fund billionaire Pete Peterson, lined up behind a campaign to impose adult supervision on our squabbling Congress.

Their working brief is a document grandiosely entitled “The Moment of Truth.”It’s a deficit-reduction plan cooked up by former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles, an ex-investment banker claiming Democratic Party cred from his nearly two-year stint as chief of staff in the Clinton White House. …

In any environment of serious debate, Simpson-Bowles would be dismissed out of hand. … “The Moment of Truth” bills itself as a roadmap to deficit reduction, but it’s really a guide to cutting services and benefits for the working and middle class while raising revenues only modestly, if that. …

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Employment and Deficits: A Tale of Two Administrations

Stan Collender notes that, for the first time in four years, the U.S. Treasury reported a surplus in the month of April.  It isn’t just that there was a surplus in April of 2008, though.  If you look back through Aprils (data here), the last time that month showed a deficit is 1983—the April less than six months after the last official “double-dip” of recessions.
Stan offers three reasons that the White House doesn’t want to point out this good news.  I consider the first two somewhat silly—the GOP never hesitates to take about the deficit, except to deny its responsibility, and no politically-alert Democrat will see the April surplus as representative of “the wrong fiscal policy” so much as an indication that employment last year was better than it has been.
It’s his third reason that is most interesting:

While that’s likely to be $200 billion or more less than what was recorded for 2011, the deficit will still be close to $1 trillion and that would be hard to defend.

I’m assuming the phrase “close to $1 trillion” means that Stan assumes the actual FY2012 deficit will be lower than $1T.  The original projection was just under $1.3T. Getting that down to $1T would be 23% better than the original projection, not to mention the psychological gain of being back down below thirteen digits again. Even $1.1T would be just about a 15% improvement over the original projections.  If a 15%+ improvement in the deficit over your projections isn’t worth saluting, then what is?
Stan concludes:

This is a little-understood part of the federal budget debate. Even if the 2012 deficit was half of what it was in 2011, and even if that reduction were applauded by Wall Street and the economic community, it would still be a painfully difficult political issue. In fact, long after the deficit has fallen to the point where most economists are comfortable with it, the political advantage will still be with those who criticize it.

Far be it for me to argue, but…just for the sake of argument, I decided to compare President Obama’s record with that of the last sitting President running for re-election on The Two Issues that Abide, The Deficit and Jobs.

First, Deficit:

dFYFSD Obama v Bush

We don’t, of course, have the data for the deficit at the end of this year yet. (We have data for subsequent years of debt for the Previous Administration, of course, but nothing that would have been public knowledge by the voting in November of 2004.)

The story here is a clear one: the previous incumbent increased the deficit significantly; the current one has reduced it from the baseline he inherited. (If the current year ends up with around a $1T deficit, Year 3 will be around +$400,000.)

So the current Administration has been taking the deficit in the “right direction.”  But, of course, that’s only good if you are in a growing economy (for the Democratic knowledgeable; see Stan’s second point) or because the Previous Administration was “priming the pump” for the Great Growth that would follow. (After all, what the 2001 tax regression didn’t solve, certainly the 2003 Hubbard-Mankiw version would.)

So let’s check how well that Growth Thing worked.  I’ve already pointed out that the post-recession public-sector employment between the current and the previous Administrations was about 600,000 jobs almost nine months ago.  So let’s be as nice as possible and compare Total Employment Gains since their respective Recessions, knowing that we’re spotting the Previous Administration when looking at total Non-Farm Payroll:


The Obama Administration got employment back to the end-of-recession level after sixteen (16) months; it took the previous Administration twenty-eight (28) months. Counting from the end of the recession, the Previous Administration produced just under 1.4MM jobs in the thirty-four (34) months to the next election (Dec 2001-Oct 2004).

The Obama Administration has produced more than twice that (2.825MM) in thirty-three (33) months.
In summary, if we compare the current Administration to the previous one, it has (1) produced twice as many new jobs, (2) produced budgets that reduced the annual Federal deficit instead of making it greater, and (3) reduced our troop presence in wars started by the Previous Administration while finding and eliminating Public Enemy #1.

And the only thing it wants to talk about is the third.

As I said chez Collender, If this Administration is afraid to run on its gains because there is less “political advantage” in highlighting the improvements your Administration has produced than in getting bashed for something for which you will perpetually get bashed, then the country is truly lost.

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Welfare, I’m not hurting from it and neither are you.

A good friend and I got into an email debate. He sent me the latest message regarding how wonderful it is that Florida is going to be drug testing welfare recipients. I responded that I’ll consider the policy when we start testing all the CEO’s who get welfare for their sector of the economy, the lawyers, judges and all country club members.
I also noted welfare is not the problem He noted it’s not “the” problem, but it is “a” problem and he knows this from talking to people. I know of welfare too. I have served on two nonprofit boards, one for substance abuse and the other The Providence Center. My family adopted a family when I was in junior high. We had foster children. I was a day counselor for 2 weeks in the summer of ’73 for 7 to 12 year olds from 3 of the most horrible housing developments in the city of Providence. We had the “Institute” literally right around the corner from where I lived.  My daughter is doing a year with NeighborWorks America
Welfare is not the problem. But, my friend is a very smart person and an engineer, so I needed some numbers. Using this site I checked out what the ratio of spending on Family and Children and Housing is to our GDP. I used GDP and not the overall budget because hey, we all worked to earn that money and it might as well be used for something that is heart warming.  The following numbers are total national spending (Fed, State, Local).

The year 1962 is the first year that there is spending listed for both Family and Children and Housing. Prior to that only Housing is listed as having spending. For 1962, the combined total ratio was 0.0027. That is 0.27% of our GDP was spend on families, children and housing. I started with 1970 and went forward using the endings of the presidential terms starting with 1980.
1970: 0.0035
1980: 0.0092
1988: 0.0093
1992: 0.0134
2000: 0.0092
2008: 0.0097
2010: 0.0141
First of all, these are miniscule percentages of our GDP. Second, it sure looks to me like the best way to solve the “welfare problem” is to solve the economic problem.
Of course, this means nothing if we don’t have other government spending patterns to compare too. I mean, how do we know if welfare is “out of control” if we can’t compare it to other spending? The same data set has two other categories: General Government and Other Spending. You can click on each to see the sub categories. But, just so you know General Government consists of Executive and Legislative organ, Financial and General services. Other does not include: Pensions, Education, Health, Defense, Protection, Transportation or interest. Other is just that: Other. Here is how the numbers look.
This is how the numbers flow as log function.


Call me stupid, but it looks to me like what we spend on welfare is not much more than what the government is spending on just doing the government thingy, unless of course people can’t get a job. Interestingly enough, the share of GDP spent on welfare in 1992 and 2010 is the same. In fact, at the peak of unemployment of the 2001 recession which was 2003, we spent just 0.0098 on welfare.
Here is another comparison. In 2009 we spent $167 billion on Family/Children and Housing. That year, we also spent $161 billion in the Other category of “Economic Affairs”. I don’t know what that is, but if it has anything to do with what we are experiencing I don’t think we got our money’s worth. This item went from -7.0 in 1997 to 7.8 in 2002 to 17.5 in 2005 to 1.3 in 2007 back to 17.7 in 2008. It landed at -79.7 in 2010. Hummmmmmmmm. I think Glen Beck would like this category. You know, who’s been playing with the money in the cookie jar? In fact, why did we not know that a cookie jar exists?
It doesn’t make me feel good to think that we spend about as much on the top office operations of this country as we spend on helping people. Think about it. What percentage of the “welfare problem” do
you believe is a problem? You know those drug addled lazy moochers who are preventing all us moral and hardworking folks from living the good life of our congress persons. Be careful now. This is a trick question. See, it won’t take much of a “problem” subtracted from what we spend to find ourselves spending less to take care of families and their children than we spend on the top office operations in this nation. That’s just plain being cheap. Down right, out and out cheap SOB’s even if we leave in all of the “problem”.

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