Sunday, December 22, 2013

Manipulation of Economic Figures

I follow many different people on twitter, some of which are progressives. I find it informative to know all sides of the conversations. Occasionally something comes my way that I find amazing. Someone posted an article bragging about how the democrats have brought down the deficits leaving the Tea Party and GOP without a platform on which to run.

To the left you find one of those charts. I first noticed that it's inverted. In typical charts high figures are at the top. Although the chart is correct math-wise, the brain can often get the opposite impression. Now let's look at the labels. We must first note that it's a graph of debt per GDP(Gross Domestic Product). If the deficit remains steady or increases at a slow rate, and the GDP grows, the percentage will drop. As of 2012 the GDP was $15.6 trillion. At the end of the same period the total deficit was approximately $16 trillion. This would put the deficit at nearly 100% of GDP.

Looking at the charts we will see a slight decline of debt to GDP ratio. This is because debt has been growing annually at a pace lower than GDP growth. Sounds great, right? Let's look at actual debt. At the end of 2013 we now have more than $17 trillion in debt. Now let's look to why debt is growing at a lower pace. Budget spending has increased only 1.4% annually since 2009. This is because of T.A.R.P.(Toxic Asset Relief Program) that was placed into the 2009 budget. This alone increased the budget by $700 billion.

There hasn't been a budget passed since 2009. Each year government has practiced baseline budgeting – meaning discretionary spending of the current budget is increased 5%. This accounting trick made it look like annual spending increased only 1.4%. By doing this they were able to keep T.A.R.P. level spending while making the numbers look good. Because of budget Continuing Resolution battles deficit spending has dropped somewhat, but deficits still range from $500 billion to $1.5 trillion in 2009 as a result of T.A.R.P.

For political purposes some will argue that deficits don't matter as long as they are kept below a certain percentage of GDP. This is true and false. Deficits lower than 100% of GDP reduces risk of total economic collapse. This doesn't mean it's economically healthy. Today we have other countries that refuse to buy long term bonds because they are unsure of the United State's economic future. The value of the dollar depends on America's economic stability.

Democrats are in power so they get most of the blame. Republicans are not free of guilt. They are happy to play budget games and increase spending. When the GOP shouts from the rooftops they have cut spending in the latest CR, they actually only increased spending less. The GOP could have told you the exact same thing I have in this article, but they don't. The only time you get this information is from non-partisan economists.

Despite this blog having a Tea Party name I don't always agree with the majority. What we do all agree on is fiscal responsibility. If the country continues on this course the inevitable end is economic disaster. The only thing that saved the country from similar economic practices, which trapped the country in the Great Depression, was World War II and the dramatic drop in taxes and regulations that followed. It scares those in the two main parties that there are a group of people looking at fiscal matters with a non-partisan eye – even though the Tea Party is divided in the belief that there are only Republicans out there who will solve these problems. We do all agree on fiscal problems and their solutions, just not the who.

You can read the original article to which I reference and view all the charts in question at the Washington Post article: “The falling deficit has been a disaster for the GOP.”

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