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Friday, November 2, 2012

Why NOT Balance the Budget?

On 10/30, in an open thread at AB, I posted a summary of my experience (up to that time) in commenting at Confounded Interest, a blog by GMU Prof Anthony Sandler.  The CI post in question has since been taken down.

This generated an interesting discussion (that I unfortunately lost track of) with some links to good information that I don't want to lose.  Keeping a link to that post is one of the reasons for this post.

Another is to show some interesting data that mcwop provided:

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.

1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.

1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.

1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.

1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.

1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

1998-2001: U. S. Federal Debt reduced 9%. Recession began 2001

2004-2007: U. S. Deficit Reduced 61% (from $413B to $160B) Great Recession began 2008

I had read somewhere (attribution lost) that balancing the budget was the route to recession, with IIRC a six for six record.  The above list show 8 such examples.

Food for thought.

5 comments:

Master Of Interesting Links said...

L. Randall Wray wrote an article about this very topic:
http://www.nextnewdeal.net/federal-budget-not-household-budget-heres-why?author=83

BadTux said...

I'm not sure whether you're seeing cause or effect, though. That is, recessions / depressions cause the deficit to rise, while booms cause the deficit to decline (well, if things are being done right), so what you're seeing may be effect, not cause. Just sayin'. Though I agree that trying to reduce the deficit during an economic downturn is just nuts for way too many reasons.

- Badtux the "Correlation is not causation" Penguin

Jazzbumpa said...

I certainly understand that correlation is not causation. In fact, If there is any way to prove causation, I'd like to know about it.

The possibilities I can think of are -
1) causation
2) coincidence
3) unidentified common cause
4) reversed cause and effect

Did I miss anything?

But, let's assume or the moment that the list is both accurate and complete, and that big reductions in Fed Debt always and everywhere led to recessions. If so, then you have a very strong case for causation.

Cheers!
JzB

Steve Roth said...

Jazz, you may be remembering one of these?

http://www.asymptosis.com/the-meme-that-refuses-to-die-government-debt-must-be-paid-back.html

http://www.asymptosis.com/does-reducing-the-federal-debt-cause-financial-collapse.html

http://www.asymptosis.com/this-time-is-different-federal-debt-didnt-dive-before-the-depression.html

Jazzbumpa said...

Steve -

Yeah, thanks.

I think I missed this time it's different, though.

Lots of food for thought here.

Cheers!
JzB