Will Trump’s Economic Illiteracy Start a Trade War?

❝ Donald Trump…and his commerce secretary, Wilbur Ross, continue to commit an economic fallacy that first-year economics students learn to avoid. They claim that America’s current-account deficit (or trade deficit), which is in fact the result of America’s low and falling saving rate, is an indicator of unfair trade practices by Germany and China, two current-account surplus countries. Their embrace of economic ignorance could lead to disaster.

❝ The current-account balance, measuring the balance of trade in goods, services, net factor income, and transfer payments from abroad, is equal to national saving minus domestic investment. That’s not a theory. It’s an identity, save for any statistical discrepancy between gross national product (GDP) and gross national income (GNI). It’s true whether you are liberal or conservative, populist or mainstream, a Keynesian or a supply-sider. Even Trump and all his deal making can’t change that. Yet he is threatening a trade war because of deficits that reflect America’s own saving-investment imbalance.

❝ A country runs a current-account deficit if investment exceeds national saving, and runs a surplus when investment is less than national saving. For a country with a balanced current account, a deficit can arise if its investment rate rises, its saving rate falls, or some combination of the two occurs…

❝ Americans should not allow themselves to be fooled. The emperor has no clothes, imported or domestic; and, apparently, he has no competent economic advisers, either.

RTFA for more examples and illumination. I know Trump won’t.

The truth about the deficit


This is reblogged from The Big Picture, Barry Ritzholtz’s blog

…If you are truly concerned about deficit, then what you must do is (eventually) raise taxes and cut spending — that is how you balance the budget.

Current deficit is now ~$550B, down from over $1T. Ian Shepherdson, the chief economist of Pantheon Macroeconomics, wrote “We are baffled by the idea that the pace of deficit reduction needs to be increased, given how rapidly the picture is improving already.”

If the tax cuts from 2001, 2003 were repealed, half of that deficit goes away.

If the FICA cap is lifted from $113k and allowed to rise to $250k or $500k, SS is solvent for 75 years…

Want to fix the deficit? Then make the hard choices to cut spending and raise taxes (even if you implement this in later years).

Sitting here in a family with at least one Recovering Republican who left that benighted party after 50 years of loyalty – it’s a treat to read my favorite RR, Barry Ritholtz. He’s one of the few financial analysts who actually understands how social security functions as an insurance program. There is nothing about SSA that contributes to debt or deficit. It is well enough self-funded that the creeps in Congress steal from it as often as they can get away with it.

The most recent survey that the NY TIMES did resulted in 76% of respondents in favor of eliminating the existing cap – which is around an income of $113K/year. Doing so would guarantee solvency well into the next century. You can’t do much better than that.

True or False? Deficit is falling at the fastest rate in 60 years


Obama cheats. He uses verifiable facts.

President Barack Obama aimed to refocus the national debate and put the economy front and center with a speech at Knox College in Illinois. It was the same place he spoke as a senator in 2005 about the need for the government to help the middle class. He stuck to that theme in this speech, but now as president, he summarized the improvements that have come on his watch.

He talked about millions of new jobs, burgeoning energy production, and the nation’s improving balance sheet. “Our deficits are falling at the fastest rate in 60 years,” Obama told the crowd.

In light of Obama’s ongoing battle with Republicans over taxes and spending, we thought this would be an interesting claim to examine. In this factcheck, we look at whether we are really seeing one of the most rapid declines in the deficit in many decades…

In 2009, the first year of Obama’s presidency, after tax cuts and new spending, the deficit was 10.1 percent of GDP. In 2012, the deficit declined to 7 percent of GDP. So that’s a decline of 3.1 percentage points.

You have to go back 63 years to the period between 1946 and 1949 to find a bigger four-year drop than what the country saw between 2009 and 2012. Right after World War II ended, the U.S. deficit stood at 7.2 percent of GDP. By 1949, America had a surplus of 0.2 percent. So that’s a decline of 7.4 percentage points.

We downloaded data from the Office of Management and Budget that shows the deficit as a percent of GDP all the way back to 1930. When we ran the numbers, we found, as Obama said, you need to go back to 1946 to find a larger change.

Our ruling?

Barack Obama said the deficit has fallen at the fastest rate in 60 years. While economists vary on how to best measure that decline, the president used an acceptable approach and his numbers are accurate. There are no statistical tricks in play…

We rate the statement True.

Which is more than you can say about the junk economics dribbling out the blowhole of Tea Party/Republican losers. Coming from a generally conservative, often pantywaist source like Politifact, I’d say this is strong proof indeed.

The new Republican disease — dwindling deficit disorder


Keeping an eye on the dimbulbs

For three years and more, policy debate in Washington has been dominated by warnings about the dangers of budget deficits. A few lonely economists have tried from the beginning to point out that this fixation is all wrong, that deficit spending is actually appropriate in a depressed economy. But even though the deficit scolds have been wrong about everything so far — where are the soaring interest rates we were promised? — protests that we are having the wrong conversation have consistently fallen on deaf ears.

What’s really remarkable at this point, however, is the persistence of the deficit fixation in the face of rapidly changing facts. People still talk as if the deficit were exploding, as if the United States budget were on an unsustainable path; in fact, the deficit is falling more rapidly than it has for generations, it is already down to sustainable levels, and it is too small given the state of the economy.

…America’s budget deficit soared after the 2008 financial crisis and the recession that went with it, as revenue plunged and spending on unemployment benefits and other safety-net programs rose. And this rise in the deficit was a good thing! Federal spending helped sustain the economy at a time when the private sector was in panicked retreat…

But after peaking in 2009 at $1.4 trillion, the deficit began coming down. The Congressional Budget Office expects the deficit for fiscal 2013 (which began in October and is almost half over) to be $845 billion. That may still sound like a big number, but given the state of the economy it really isn’t.

Bear in mind that the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy…

Right now, a sustainable deficit would be around $460 billion. The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The “cyclically adjusted” deficit — what the deficit would be if we were near full employment — is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion…

So we do not, repeat do not, face any kind of deficit crisis either now or for years to come…

Put it this way: Smart fiscal policy involves having the government spend when the private sector won’t, supporting the economy when it is weak and reducing debt only when it is strong. Yet the cyclically adjusted deficit as a share of G.D.P. is currently about what it was in 2006, at the height of the housing boom — and it is headed down.

The conservative hobgoblins inside the Beltway, the fiscal fearmongers in charge of the Republican Party still refuse to acknowledge John Maynard Keynes understanding of economics. What happens is every government that actually succeeds in bringing their nation out of recession utilizes Keynesian analysis and solutions. Sometimes they rename them to keep from offending fashionable conservatives.

Sometimes they’d rather keep a nation in the dumper and dying a slow death rather than aid workers and their families struggling through the economic doldrums. After all, they aren’t the folks who are hurting.

Sometimes – like today’s Republican Party – they’d rather keep saying NO while hoping that’s sufficient to put them back in charge of the economy they destroyed. That will require multiple episodes of ignorance and gullibility on the part of American voters.

Blair learned his lessons well from Bush, didn’t he? $16 billion in U.K. tax fraud from lack of oversight

martin20schranks20blair20bush20cartoon

The head of Britain’s Work and Pensions department charges that fraud in the country’s tax-credit system has cost taxpayers more than $16.2 billion.

Ian Duncan Smith said a system of tax credits targeting lower-paid Britons is open to abuse because of the inadequate number of checks on those who receive the assistance, The Daily Telegraph reported Sunday.

In an article published in the newspaper, Smith wrote that Britain’s welfare bill rose 60 percent between 2003 and 2010, with nearly $278 billion disbursed during that period…

The tax credits are based on a person’s estimate of salary for the coming year. At the end of that year, tax collectors are supposed to compare the person’s actual earnings against the estimate and reclaim any overpayments.

Smith said the revenue department conducted only about 34,000 checks a year on individuals who received what were considered “high risk awards.”

Even those found to have been overpaid often have not repaid the money, he said.

Blair followed Bush’s best practices all the way from war to poverty. No oversight. No responsibility. Nothing achieved beyond death, destruction and deficit.

Americans know how to solve deficits – is Congress listening?

A new University of Maryland study finds that when average Americans are presented the federal budget in some detail, most are able to reduce the budget deficit dramatically and resolve the Social Security shortfall.

Through a combination of spending cuts and tax increases, on average, respondents cut the discretionary budget deficit projected for 2015 by seventy percent. Six in ten solved the problem of the projected Social Security shortfall through adjustments in payroll taxes, premiums, and benefits. The projected Medicare shortfall was also dramatically reduced…

Unlike conventional polls [Program for Public Consultation] PPC consults with the public by first presenting respondents with information on policy issues and a range of options for addressing them. “When given information and a chance to sort through their options, most Americans do a pretty good job of dealing with America’s budget problems – better than most politicians,” says…Steven Kull, who directs PPC…

On average respondents made net spending cuts of $145.7 billion. The largest cuts included those to defense ($109.4 billion), intelligence ($13.1 billion), military operations in Afghanistan and Iraq ($12.8 billion) and the federal highway system ($4.6 billion) – all of which were cut by majorities.

On average respondents increased revenues by $291.6 billion. The largest portion was from income taxes which were raised by an average of $154.8 billion above the levels currently in place. Majorities increased taxes on incomes over $100,000 by five percent or more, and increased them by 10 percent or more for incomes over $500,000.

Majorities also increased corporate and alcohol taxes, and turned to new sources of revenue, including a tax on sugary drinks, treating ‘carried interest’ income as taxable (also known as the hedge fund managers’ tax), and charging a crisis fee to large banks. A plurality (49 percent) favored a tax on carbon dioxide emissions. But a sales tax was rejected by 58 percent of respondents…

Most respondents also successfully dealt with the problem of Social Security. Respondents were presented eight possible steps for dealing with the Social Security shortfall that will occur as the baby boom generation retires.

Six in ten respondents selected enough steps to resolve the problem. This was the case even though many of them also chose to make the problem more difficult by increasing benefits to low income retirees.

This parallels the study done by readers of the NY TIMES a little while ago. Time after time, when Americans are presented with simple objective information about taxes and policies they come up with common sense solutions that escape the petty analyses of our payola politicians.

Meanwhile, if you’re one of those amazing human beings who actually reads stuff, here’s a link to the full report.

The Americans surveyed suggested increased spending on education and social security. The total deficit reduction was over $437 billion.

How NY TIMES readers chose to fix the deficit

Reduce the size of the military rather than reduce pay for noncombat members of the military. Impose a millionaire’s tax rather than cut deductions for high-income households. Cap the growth of Medicare spending rather than raise the eligibility age.

These were among the choices made by readers who completed the online you-fix-the-deficit puzzle that accompanied a Week in Review article last Sunday. Since the puzzle went online, there have been more than one million page views, and more than 11,000 posted Twitter messages about the puzzle, most including their own solution. The Times analyzed those solutions, each of which cut at least $1.345 trillion from the 2030 deficit, to get a sense of readers’ choices…

The single least popular choice was allowing the expiration of the Bush tax cuts on income below $250,000 a year. Fewer than 10 percent of the solutions included that option. But when it came to tax cuts for incomes above $250,000, people’s opinions appeared to diverge according to their political views. Those who preferred spending cuts — a conservative group, in all likelihood — generally wanted this tax cut to remain in place. Among those who closed the deficit mostly with tax increases — probably a liberal group — the expiration was the single most selected policy.

The most popular option among all respondents? Reducing the military to less than its size before the Iraq war — included in about 80 percent of the solutions posted to Twitter. But cutting pay and benefits for the military was a choice of only 40 percent.

Given that Twitter users skew young, one arguable surprise was the reluctance to raise the eligibility age for Social Security (above 67, as is now scheduled) or Medicare (above 65). The four options that would have increased those ages, to either 68 or 70, were all among the 10 least popular. Making other changes to those programs — like reducing Social Security benefits for high earners and capping Medicare growth by cracking down on high-cost hospitals and doctors — received more support.

The puzzle remains online, and version 2.0 may lie in the future. Comments continue to be welcome. Given how far Congress seems from enacting any deficit-reducing proposal, this debate will probably be around for a long time.

At a minimum, the cost to American taxpayers to support members of the armed services is cut in half when they’re inside our borders instead of stationed in some other nation. The real number is probably more like a two-thirds’ saving. If – as our governments have continually prated – they are for our national defense, then, bring them all back home where they belong.

The excuses our Congress-critters make for kissing the wealthiest butts in the world should have worn thin a century ago. The promises of job creation are a crock. They have never come through. They don’t build factories or businesses with it. They sit on it.

CBO says public option to reduce deficit. Wasn’t that the point?


Here’s the Republican plan for healthcare reform

A preliminary estimate from the Congressional Budget Office projects that the House Democrats’ health care plan that includes a public option would cost $871 billion over 10 years…

CBO also found that the Democrats’ bill reduces the deficit in the first 10 years.

This new CBO estimate, which aides caution is not final, is significantly less than the $1.1 trillion price tag of the original House bill that passed out of three committees this summer. More importantly, it comes under the $900 billion cap set by President Obama in his joint address to Congress last month…

Senior Democratic aides told CNN that House Democratic leaders are likely to put this version of the public option favored by liberal Democrats in the final bill they are drafting…Speaker Pelosi made the case to House Democrats that this approach saves the most money and would put the House in a better negotiating position when it comes time to negotiate a final health care bill with the Senate.

Moderate, “blue dog” Democrats in the House largely oppose the robust public option and instead argue for a government run insurance option that could negotiate reimbursement rates directly with doctors and hospitals. CBO’s analysis of that approach was not available according to Democratic sources, but aides say the preliminary analysis shows it does not save as much as the approach pushed by Pelosi.

So, the hypocrites who front for insurance companies and healthcare providers [what a misnomer] will have to find a new fiscal lie.

Not that they won’t.

Record deficit lying in wait for next president

The next US president is expected to face a record federal budget deficit of almost half a trillion dollars. The White House has lifted its deficit forecast for 2009 to $482bn (£242bn) up from $407bn.

The forecast figure excludes about $80bn of war costs.

For no good reason whatsoever.

It is possible that the deficit for 2008 will also break the record of $413bn, which was set in 2004.

The deficit figure also is flattered by including the surpluses that are currently being accumulated by the social security trust fund, but that will soon turn into deficits in the next decade.

Unless our political whiz-bangs decide that people with six-figure incomes and up should also pay Social Security taxes like the rest of us!

And it takes no account of the potential costs of a full-scale Federal bail-out of the mortgage giants Fannie Mae and Freddie Mac, who have been given a Federal guarantee in the housing bill that has just passed Congress.

Most of these are questions that deeply concern the lives of American working people. Not that we’d expect Kongress and the Klown Princes of Konservatism to notice.