Default

Technically the US has defaulted before...on accident, and it wasn't pretty:

Terry Zivney and Richard Marcus describe the default in The Financial Review (sorry, I can’t find an ungated version):

Investors in T-bills maturing April 26, 1979 were told that the U.S. Treasury could not make its payments on maturing securities to individual investors. The Treasury was also late in redeeming T-bills which become due on May 3 and May 10, 1979. The Treasury blamed this delay on an unprecedented volume of participation by small investors, on failure of Congress to act in a timely fashion on the debt ceiling legislation in April, and on an unanticipated failure of word processing equipment used to prepare check schedules.

Obamacare

GOPers are afraid of Obamacare, but this is the scariest graph:

Paul Ryan's "solution" was to refuse to let it grow, as if this could be stopped through sheer force of will.

Shutdown

What to expect Day 1. 10 ways it could affect you. Why it happened. And the bigger looming problem of the debt ceiling.

Krugman

Here is yet another great reason I have trouble respecting Krugman these days. In fact at one point thought I would write a blog post listing all of his intellectual flips, but the list grew too long. As Alex points out at the end:

Now to be fair, Krugman covered himself in 2003 in a credible way he said “unless we slide into Japanese-style deflation, there are much higher interest rates in our future.” Thus, I do not fault Krugman’s forecasting ability. What I do fault is that despite a 180 degree about-face, one thing remains constant in all of Krugman’s writings, anyone who disagrees with him is portrayed as a mendacious idiot. In truth, Heritage today and Krugman 2003 both have legitimate concerns about the long-term debt situation of the United States and it would have been to the credit of Krugman 2012 had he acknowledged that point more fairly.

Yeah, Krugman covers his bases so as to have intellectual wiggle room. I get the reasons he does what he does - as a rhetorical style. But as an academic, I don't respect the lack of intellectual honesty and lack of openness Krugman now has. They were qualities I had so admired in the Krugman of old, despite our policy differences.

Deficit and Stimulus

Here is a very useful graphic on the budget deficit and its history. And here is a useful collection of papers on the effectiveness of the previous stimulus.

ECO120 Misc

1. The Economist's (mis?)interpretation of the effects of fiscal austerity. Alesina's correction.

2.  If China's Currency Rose, Would U.S. Get Jobs Back?: [NPR Audio]

3.  Some 3,000 Millionaires Claim Jobless Benefits, IRS Data Show. [Bloomberg]

4.  Study Finds the Mortgage Interest Deduction to be Ineffective at Increasing Ownership. [Tax Foundation]

Debt

Here is a good opportunity to learn a little about the debt.

Series of forums on national debt begin Sept. 28

Find out about national debt at a series of three forums beginning Tuesday, Sept. 28.

Forum I will be held from 6-9 p.m. Tuesday, Sept. 28, in 102 Wing Technology Center.

Budget Forecasts

The NYT recently had a good graphic on the budget deficits and Presidential forecasts. I've recreated it below. There are two striking facts. The first is how every, and I mean every 5 year budget forecasts calls for decreasing deficits if not in the first or second year, definitely by the third through fifth year, yet that is rarely the case. Forecasts are clearly not rational as the errors are biased, averaging almost 1% above actual. Notice the other striking thing, how much of a surprise the boom of the late 1990's was for the public coffer.

The Debt

I'm often asked about the "problem" our debt represents. Below is a largely good video explaining who holds the debt and the "problem" it presents. One VERY important caveat. While the author gets the idea correct that what matters is publicly outstanding debt, since inter-government debt is merely a wash, he does not accurately address this same issue when talking about bonds as financial assets. Remember that a US government bond is an asset to the holder, but a liability to the tax payer. We care about our net position as tax payers. Also, from an economic perspective, bond holders and tax payers are not the same people, so there are distributional consequences to changes in the level of the debt. But with that said this might help somewhat.

Bonding

I was just interviewed for a piece on WSLU/WPR concering this article in the Journal Sentinal.

According to the Legislative Fiscal Bureau, the state had $8.28 billion in general-obligation, transportation and environmental debt in mid-2006; the same debts totaled $4.41 billion in 1996.

The 87% increase was three times the U.S. inflation rate over that period.

Figures show that debt rose the most - by $1.8 billion- under Thompson between 1996 and 2001, when he resigned to become a cabinet secretary for President Bush. Debt increased by more than $1.5 billion in Doyle's first three years.

Todd Berry, president of the Wisconsin Taxpayers Alliance, said the growing debt is another risky budget decision governors and legislators have made to benefit themselves politically.

Also rising is annual debt-service payments on those bonds: Principal and interest payments on general-obligation bonds will exceed $700 million for the first time this year; and payments on transportation bonds will cost an additional $174 million.

That $874 million is cash that can't be used for other important programs. By comparison, that amount is close to what it cost to run the state's prison system last year.

There are two real issues. The first is that the increase in bonding burdens future generations, which is alright if they are the ones who benefit. The second issue concerns the state's bond rating. As it falls debt service costs rise, crowding out other budget items.

The article could have been improved by publishing the debt as a percentage of the state economy, as it has grown by 50% over the last 9 years. That makes the outstanding debt about 2.9% of Gross State Product in 1997 and about 3.6% in 2006. Not exactly an enormous increase.