Category Archives: Debt

Fixing “Warren Buffett Fixes Congress! Part 2”

The other day I added a post that had errors in it—Part 2 of  “Warren Buffett Fixes Congress!”. Part of the problem is that I was using an unposted draft written in response to an earlier “Buffett” email, and the data was old. But a more serious error is treating the gross national debt as just so many trillions of dollars. Today it’s maybe $16 trillion, a big scary figure, as deficit hawks and debt fanatics keep reminding us. But we can best make sense of the debt as a ratio, typically a percentage of the nation’s output, or GDP, because that tells us whether it is debt we can handle.

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Warren Buffett Fixes Congress! (Part 2: Republicans Win the National Debt Derby)

In 2011,  when Warren Buffett jokes about ending the federal deficit in five minutes, he mentions the immediate post-WW2 deficit. At 23% of GDP, it was the worst we’ve experienced in the last sixty-five years, but it disappears quickly (Figure 1). Then come three decades of controlled deficit spending, 1950 to 1980, with the federal government countering recessions by stepping in to provide support and boost demand. That was true of both Republican and Democrat administrations. After 1980, deficits go out of control, with the exception of the Clinton surplus in the late 1990s.

Federal budget/surplus, 1930-2011

Figure 1

Notice the 3% deficit boundary (red dashed line). If Buffett’s joke became law, members of Congress would be barred from re-election most of the time after 1980. (Vertical gray bars indicate recessions.)

Then, when Buffett mentions a national debt at over 120% of GDP, he’s talking about 1946, and the debt falls steadily from then to about 1980 (Figure 2). This is gross national debt: it includes debt owed to the public plus debt owed to federal trust funds (social security, medicare, unemployment, military retirement, federal civilian employee retirement, and so forth).

National debt, 1940-2011

Figure 2

Something happens after 1980. That’s when gross national debt as a percentage of GDP begins rising to its current level. In the 31 years from 1980 to 2011 the debt rises from 33.4% of GDP to 98.7%. That’s a rise of 65 percentage points, with 43 points scored by Republicans, 22 by Democrats.

So, from 1980 to the present, Republicans outdo Democrats at adding to the national debt by almost 2 to 1, with Ronald Reagan as all-time champ (Figure 3).

Nation debt growth, Republican & Democrat

Figure 3

By the way, recent news out of California (here and here) has it that the state Republican party is on life support, with membership down to 30% of eligible voters and party funds in the red. Maybe California will play its traditional role again as national bell-weather for cultural change. Who knows? Sometimes good things happen.

Warren Buffett Fixes Congress! (Part 1: Ending the Deficit in 5 Minutes)

Another email chain-letter landed in my inbox today, just like the one I got in July. Back then, I was too busy to post anything about it. But, now, with “fiscal-cliff” disinformation running high, it’s a good time to comment.

The email quotes Warren Buffett as recommending a law that would make all sitting members of Congress ineligible for re-election whenever the federal deficit tops 3% of GDP. Then it quotes a proposed Congressional Reform Act of 2012. Or is it a proposed constitutional amendment? It’s not clear. Finally, it says Buffett is asking everyone to forward the email to twenty people on their mailing list.

Of course, with the endorsement of Warren “Oracle of Omaha” Buffett, who could object?

But an almost identical email has been circulating since 2009, pushing the same legislation labeled each year as the reform act of 2009, 2010, and so on. None of these earlier versions even mentions Warren Buffett. Buffett had nothing to do with the current email and certainly did not say you should pass it on. This much of the story is well documented (e.g., here and here).

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Steal this book? Not necessary—it’s free!

Dean Baker has published a new book (hat tip, Ezra Klein), and it’s free: The End of Loser Liberalism: Making Markets Progressive. From the blurb:

 Progressives need a fundamentally new approach to politics. They have been losing not just because conservatives have so much more money and power, but also because they have accepted the conservatives’ framing of political debates. They have accepted a framing where conservatives want market outcomes whereas liberals want the government to intervene to bring about outcomes that they consider fair.

 This is not true….

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Deficits and IV-Bags

NPR broadcast an interview this morning with economist James Galbraith (U of Texas, Austin), who likens the federal deficit to an IV-bag in an emergency room, a lifeline to a very sick patient. The interview is a follow-up to Galbraith’s recent article in the Los Angeles Times (scroll down through the ads). The Morning Edition interviewer is David Greene:

Introduction (Greene). Many people have expressed concern about the deficit. Families who say they don’t like to carry debt say they don’t really like the idea of the country being weighed down by the same problem. Economists have long debated this point, and many say that a federal deficit is not such a bad thing. One economist who holds this view is Professor James Galbraith from the University of Texas. We reached him in Vermont.

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Charting Matters: Jobs Edition

Earlier this month, New York Senator Kirsten Gillibrand voted “no” on the budget/debt limit deal and said:

The fact is, there is nothing in this deal that will address the significant jobs crisis we are facing…. today we could have gone further in reducing America’s debt with a sensible compromise that both cut discretionary spending and raised revenues.

This was a gutsy decision, and Gillibrand has taken a lot flak from the usual right-wing bloviators. Only 6 Democrats voted against the deal (plus Vermont’s Bernie Sanders, an Independent). The rest of the 26 “no” votes were by Republicans who wanted more budget cuts which, by any credible logic, would cause more unemployment and lost jobs. Gillibrand is right about the jobs crisis outweighing debt concerns. Jobs are the immediate problem, while debt can and should be handled long-term.

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