Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

09 February 2010

The Gross National Debt and Our Gross National Politicians

The Gross National Debt is the sum of the Public Debt and the money the government owes to itself, such as to Medicare and Social Security.  The Public Debt is important in that the government has to find people willing to hold that debt in exchange for interest, but the real government debt is the Gross National Debt.  This is because when the Social Security Fund starts requiring the government to make good on its IOUs to Social Security so that retired people can be paid their benefits, the government will have to come up with that money or default on the Social Security program.  Coming up with the money may mean borrowing it from the public, finding additional tax revenues, or simply devaluing the money by printing it and paying the money back with less valuable dollars.  The devalued dollars will dilute the benefits.

Let us look at the public debt and the gross debt through the year 2008 graphed in terms of the national Gross Domestic Product (GDP):


The y-axis is mislabeled. The plot is as a function of the percentage of the GDP, not the fraction. The reason for looking at it as a percentage of GDP is because as the economy grows, it is better able to support a given level of debt. In 2008, the gross debt (in black) was 1.72 times the public debt (in red). We already owed the Medicare and Social Security Funds a huge debt. As you can see, the ratio of gross debt to public debt has been increasing in recent decades.

In 2001, Bush's first year in office, the Congress was divided with the Democrats in control of the Senate.  The gross debt was 57.4% of GDP.  In 2003, the Republicans came to control both the House and the Senate.  The 2007 budget was the last one enacted by the Republican controlled House and Senate and the gross debt at the end of 2007 was 65.6% of GDP.  The increase in the gross debt from 2001 to 2007 was 8.2% ( an average yearly increase of 1.17%), which Democrats like to blame on the Bush tax cuts.  Actually, government revenues went up by $576.8 billion a year in this time, so, as is so often the case, the reason for our expanding debt was clearly huge spending increases.  In 2007, despite the increased revenue of $576.8 billion, the government increased its gross debt by $499.3 billion.  That debt was caused by an increase of government expenditures since 2001 of $1.076 trillion!  Many of us Republicans were furious with our party and became very unenthusiastic supporters and that only because we recognized the Democrats as even worse.  The gross debt was, however, not quite as bad as it had been for a couple of years in the 1990s.

So, in 2007 the Democrats took over the House and the Senate.  Their first real budget was in 2008 and it increased the gross national debt from 65.6% to 70.2% of GDP in one year for an increase of 4.6%!  In 2009, with no worry that Obama would veto anything the Congress passed, they really went to town.  The Gross national debt increased to 86.1% of GDP.  In two years of Democrat control, the total increase in gross debt was 20.5%!  According to the OMB, the 2010 gross national debt is estimated to be 98.1% of GDP, for a three year increase of 32.5%!!!!!  This is an average of 10.83% increase per year under the Democrats, compared to the 1.17% yearly increase I used to think was awful between 2001 and 2007.  Actually, I still do think that was awful, but now it is more than 9 times more awful.  How do you express an order of magnitude more than awful?  Does that make the present regime's growth of the gross national debt awesomely awful?  The deficit this year may well be an underestimate, since it is also based on growth in the economy and in government tax receipts which many think are rosy projections, indeed.

Now, this is where reality falls off a cliff.  Next, we enter a real fantasy world.  In 2011, the new Obama budget submission to Congress hopes (it springs eternal) that the gross national debt will only increase to 101.0% of GDP.  They have some very, very rosy projections on how well the economy will do, despite Obama's heavy new taxes.  His proposed new taxes are expected to bring in $2 trillion more over the next 10 years.  Yes, this madman actually thinks he can lower the boom on the economy with backbreaking taxes and it will thrive and throw increased tribute at the feet of the great leader.  The leader will then be free to choose his friends and party lavishly with them, while most Americans carry some lazy and wrongheaded bureaucrat on their back to the feast.

Well, I have news for you kleptocrats.  It is well proven that increasing the tax rate on capital gains results in so many fewer capital gains transactions that tax revenues will go down, not up.  The expected increase in tax revenues of $105.4 billion from that source will never happen.  If you really wanted more revenues in time, you would decrease the capital gains tax rate.  But, if you want the People to think you are a socialist, redistributionist hero and you are trampling the necks of wealthy Capitalists, this sounds good.  But, Capitalists will change their investment behavior to thwart your evil plans and you will get less.  Way to shoot yourselves in the foot!

Obama plans to make the unemployment insurance surtax permanent.  Great, so employers will hire fewer people since that will raise the cost of labor, as will the preferential treatment for labor union goons.  He will increase taxes on oil and gas.  Great, that will result in less oil and gas on the American market and higher prices.  The economy will slow down everywhere.  An increase in oil prices is what started the recession in the first place, even before the collapse of the sub-prime mortgage market.

He will increase taxes on companies with operations abroad.  These companies already share the world's highest corporation taxes with Japan.  This is one of the reasons they have been increasing their operations aboard so much.  This is not rocket science.  If you want corporations to hire more people and produce more in the U.S., lower the corporation tax rate.  No, if you are wrongheaded socialist, you find a way to increase their taxes even more.  The proper response is for these companies to reduce their American operations even more and move their headquarters abroad to countries with lower tax rates.  This will happen in time, if these new taxes are not repealed and if the super-high corporation income tax is not lowered.  Then there is the brilliant idea of putting a special tax on banks.  Now how is that going to result in banks loaning more money to companies as they try to expand to grow us out of this recession?  How much of this tax is going to be passed on to every customer of a bank?  All, or almost all, of it!

Brilliant, Obama, just brilliant.  You claim you could not find a credible economist who would back any other policy when you spoke to the Republican Congressmen.  I will suggest two really good economists you might talk to:  Dr. Thomas Sowell and Prof. Walter E. Williams.  I could list numerous others as well, but I thought I would stick with two who would have been much better guardians of the Constitution and the economy than you are and who would have provided the American People a genuine pleasure in having a black American President.  It really is unfortunate that our first one had to be such an incompetent fool.

3 comments:

Greg said...

You know, as bad as Bush was on spending (losing his veto pen didn't help) Obama puts him in a whole new light. I'm sure you've seen that "billboard" with Bush saying, "Miss me?"

Democrats and fiscal responsibility? Heh. No one with any sense of reality has ever taken THAT seriously. Anyone who looked at California realized what would happen when the D's took over the Gov. Too bad we were right.

So do the R's only believe in sane spending policies when a D is in office? Will they get a clue as to how people feel about the egregious D spending insanity (and their own?) Will they realize why people like me send back their donation requests with nothing but snarky remarks?

Will the R's get a (bleep)ing clue???

I'm looking forward to November more than I have in quite some time.

Charles R. Anderson, Ph.D. said...

Thanks for your comment Greg.

Some say that Clinton was fiscally responsible, so Democrats must not be assumed to be fiscally irresponsible. In 1993 and 1994, the Democrats controlled the House and Senate with Clinton in his first two years of office. The public and gross debts were at their local maximum of the 1990s as a result. Then the Republicans took over the House and Senate and the debt started to decline in terms of the GDP through the remainder of the 1990s. This is not really Clinton's doing, since the amount of government expenditure is mostly controlled by Congress. However, it is usually true that the growth of government is slower when the House, Senate, and Presidency are not all controlled by the same party. Usually, the best combination is for the Republicans to control two of the three and the Democrats the remaining one. Then, they are less active simply out of the desire to thwart one another. That inaction is usually better for our liberties than is the alternative of active mischief!

I get a great many Republican solicitations for money and a few for the Democrats. I always return those to the Democrats with a statement that I am not a socialist and I strongly support individual rights. I rather often return those of the Republicans with comments opposing their excessive spending and sometimes of their excessive fears that family life is threatened by factors other than the public schools.

The good news appears to be that the Republicans are getting the Tea Party movement better than are the Democrats. The bad news is that they are still excessive slow on the uptake. But, overall, I am also looking forward to the November 2010 elections.

Greg said...

"Usually, the best combination is for the Republicans to control two of the three and the Democrats the remaining one. Then, they are less active simply out of the desire to thwart one another. That inaction is usually better for our liberties than is the alternative of active mischief!"

Yeah, I think that's right. I don't think that Clinton (either Clinton) was/is fiscally responsible, and those '94 Republicans deserve more credit than they get. I'd like to believe that having R's in all three would actually result in a far more limited Gov, but we saw the results of that.

Too bad they couldn't have stuck to that discipline in the Bush years, so I guess they DO need the opposition.

And I'm crossing lots of fingers hoping that the R's really GET the Tea Party movement.

What's be REALLY nice would be to have the Tea Party remain highly active after the elections (assuming they or the Rs win a lot.) It'd hold the Pols feet to the fire.

Hey, wait... that's ME I'm talking about. Ok, ALL of us have to remain active. :)