Deficit has a Numerator and Denominator

In: Finance Politics US Economy

1 Aug 2011

Ok, I’m pretty bored with the debt graphics, but Barry Ritholtz today had a few that illustrate the problem quite well.

This one makes clear our deficit is as much a result of falling revenue as it is of rising spending:

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The same numbers in percent of GDP make sense when you take the recession shading into account:

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I highly recommend you read the article and discussion over there.

2 Responses to Deficit has a Numerator and Denominator

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Matt

August 1st, 2011 at 10:02 am

Too bad he switched the colors of the lines between the graphs.

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Matt

August 1st, 2011 at 4:33 pm

Hmm… we had a pretty big drop in revenue from 2001-2004, but it started to come back after that. Things probably would have been fine if not for the housing bubble bursting, although the bubble probably produced a lot of revenue. If the Fed hadn’t kept rates so low from 03-05, then that revenue spike in 07 would be a hill, and who knows, maybe it would still be going up.

Our problems don’t stem from not taking in enough revenue. They stem from spending too much (historical average is 18-19% of GDP). Greece can’t solve its problems by taxing its citizens more, and neither can we. This is a bi-partisan problem. Bush shouldn’t have cut taxes if he was going to spend like he did. Obama shouldn’t have increased Bush’s 20-21% to 25-26%. Both would be a lot more popular if they spent less, not if they taxed more.

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