Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Monday, March 7, 2011

I (Almost) Love it When Karl Smith (Almost) Agrees With Me

I've had my differences with Karl, and haven't been shy about letting him know about them.

Not this time.  (Well, not at first, anyway.) Karl dug up a WSJ op-ed piece by Charles G. Koch - of Koch Industries infamy.

Karl's takedown references and belies this Koch quote.

Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year—double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year’s projected budget deficit is more than $1.6 trillion.

Here's Karl:

The clear implication is that our budget deficit is the result of overspending. Now there are a lot of reasons people will point to as to why that’s not the case this time, the economy, the Bush Tax cuts, etc.

However, I want to make the more general point that spending is pretty much never the cause of budget deficits. Or, to be a bit more formal, variations in spending do not predict variations in the deficit. Variations in tax revenue, however, do predict variations in the deficit.
.   .   .
Now of course the deficit is mechanically related to spending and revenues, so what does it really mean to say that revenues are “more predicative.”  It simply means that revenues bounce around more than spending and where revenues bounce so does the deficit. Spending is more or less smooth. Its only real changes are associated with war and peace.

He then shows his version of this graph, which I first posted here.

 In a nutshell, federal deficits are caused mainly by revenue shortfalls.  The only problem on the expense side is military spending.

Alas, Karl goes badly wrong before he finishes, but - hey - half an agreement is better than none.

I guess. 

After rereading his post in prep for this one, I had to go back and kick him in the ass.

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