StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Why The Most Important Budget Event Of The Year Has Had No Impact

12 Nov 2013
Posted by Stan Collender

I'm willing to bet that most of you -- part of a readership that is far more interested in the federal budget than any group of typical Americans -- didn't know that the deficit was significantly lower in fiscal 2013 than it was in 2012.

For the record, the Treasury reported a little over a week ago that the 2013 deficit was $680 billion, a 38 percent drop from the approximately $1.1 trillion deficit in 2012 and 48 percent less than the $1.4 trillion deficit in 2009.

The 2013 deficit was 4.1 percent of GDP, the smallest since 2008. Fiscal 2013 was the fourth consecutive year the deficit has fallen as a percent of GDP. And the 4.1 percent-of-GDP deficit was almost a third less than the 6.0 percent that had been projected when the White House submitted its fiscal 2014 budget to Congress less than 6 months ago.

This actually was an extraordinary change in the deficit outlook and one that merited more than the perfunctory attention it received. 

So why didn't you hear much about it?

1. Deficit numbers, especially good ones, are just not that interesting.

2. Objectively, the $680 billion deficit for 2013 definitely was an improvement. Politically, however, it presented problems for the White House. Even though it was greatly reduced from both previous years and earlier forecasts, $680 billion still sounds troubling to nonexperts, that is, to average Americans, who are likely to think of it as too high even when it wasn't.

3. Because of #2, the White House clearly didn't want to discuss the greatly improved deficit outlook and take the chance that it would have to talk about the budget, a topic it has generally tried to avoid. The report from the Treasury with the final figures from 2013 was released late on a Wednesday afternoon when it was likely to get little attention. There was no presidential press conference or any other type of event to take the political equivalent of a victory lap.

4. Congressional Republicans didn't want to discuss the report because the news on the deficit was so good that one of their most basic messages -- that federal spending needs to be cut -- would have been undermined. This was true even though a $680 billion deficit presented all kinds of opportunities to demagogue.

5. No White House bragging plus no GOP criticism meant that there was no controversy to report about the 2013 deficit and, therefore, little political news surrounding the results. That meant that the news was just the number and (see #1) that seldom get's much coverage.

Because of all this, the most significant federal budget news of the year -- almost a milestone event that should have had a material impact on everything else going on  -- went largely unnoticed.

Budget sequestration in 2013

Sequestration - one word missing from your analysis.

The budget sequestration in 2013 refers to the automatic spending cuts to United States federal government spending in particular categories of outlays[note 1] that were initially set to begin on January 1, 2013, as an austerity fiscal policy as a result of Budget Control Act of 2011 (BCA), and were postponed by two months by the American Taxpayer Relief Act of 2012 until March 1 when this law went into effect.[1]

The reductions in spending authority are approximately $85.4 billion (versus $42 billion in actual cash outlays[note 2]) during fiscal year 2013,[2](p14) with similar cuts for years 2014 through 2021. However, the Congressional Budget Office estimated that the total federal outlays will continue to increase even with the sequester by an average of $238.6 billion per year[2](p3) during the next decade, although at a somewhat lesser rate.

The cuts are split evenly (by dollar amounts, not by percentages) between the defense and non-defense categories.


Thought-Provoking Post::

This analysis of why two sides are keeping quiet about our shrinking levels of “deficit spending” prompted me to think about how we Americans either seem not to understand basic accounting terms (such as the difference between an “Income Statement” and a “Balance Sheet”) or else seem not to care.

The analysis prompted a post on my own blog, which may be read here:

Why “Deficits” Don’t Always Matter:

Discussions about our national debt usually omit analysis of a debt-to-equity ratio. Conservatives in particular fail to differentiate between, say, buying an office building and taking a vacation to Tahiti.

What is America’s “debt-to-equity ratio”? Are we truly “spending” our way to an economic downfall?

Or might we actually be investing enough—whether in education or in preventative healthcare, or in roads for moving commerce and in rocket ships to eventually carry us to commerce in outer space, or in pharmaceutical cures for cancer, or in solar energy that will eventually free us from fossil fuels and global warming and energy shortfalls—to grow a country wealthy enough for our children and grandchildren to enjoy?

The above list comprises some examples of “capital investment.” Any or all might make up “deficit-spending,” if one confuses basic accounting terms and does not really understand capitalism. But if our shared, national “investments” are mostly sound ones, America’s future should continue to be strong.

(($; -)}

Clarification Requested:

It was hard to read the purpose implied by listing sequestration as an element of reduced deficit-spending. The Wikipedia definition did not enlighten further. We would appreciate clarification of what you were trying to say.

(($; -)}

Media coverage of the deficit numbers

I wonder if an additional reason for non-coverage is that many among the national elite use deficits to argue for entitlement cuts, as illustrated by the Washington Post in its frequent front-page discussions of the deficit. So, emphasizing falling deficits would undercut that argument.

Although I might have missed something, my sense is that the only mention of the sharp deficit reduction by WaPo was by its Wonkblog.

In addition, I found no mention of the deficit numbers on ABC, CBS, or NBC the day of or the day after the October 30 announcement.

Given this non-coverage, it is no surprise that most Americans appear to believe that deficits have been increasing each year under President Obama.

Advertising other blogs...

Gozo, I can appreciate that you are sharp and I admire that you have a blog about these issues...I must opine, however, that "advertising" your blog via Stan's blog seems a bit inappropriate.

Not really inappropriate.

Not really inappropriate. It's how blogs are supposed to work. TLDR version in the comments. Give a link to the blog to read more.

I will stand corrected if my

I will stand corrected if my blog ignorance is showing and I will offer apologies as needed.

It's just so nice to converse with fellow budget weenies. My thanks to all of you for your concerns and comments about budget issues. Gozo, if I owe you an apology, I humbly beg your acceptance.

$680 billion

I think the reason we didn't applaud the reduction in deficit is because the deficit is still $680 billion. To say that it's the lowest since the end of the last president's term isn't particularly newsworthy either. I think Americans are simply in a wait-and-see mode, especially as most forecasts show deficits and debt rising in the long term based on current policies.

Also, if we are to congratulate the President on deficit reduction, some of the credit goes to the House Republicans who--like it or not--have clamped down on spending substantially.

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