Wacky deflating bar-flailing federal deficit graph!

Honestly, I spent too long before posting this on an attempt to think of a turkey-day tie in to this subject. Maybe: As your gut expands this day the federal deficit is shrinking! Or: Tomorrow is the start of the annual holiday consumption business cycle while the federal deficit deflates due to decreasing counter-cyclical expenditures! Yeah, I know, SEO gold. Needless to say, I give up. Here is a deficit graph that was making the rounds recently:

This comes from an Investors Business Daily post, which notes:

Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II.

In fact, outside of that post-WWII era, the only time the deficit has fallen faster was when the economy relapsed in 1937, turning the Great Depression into a decade-long affair.

I do believe it! But mostly that’s because I follow the monthly budget review from the CBO. The deficit has shrunk in the last three years, including 8.7 percent as a share of GDP in 2011 to seven percent in fiscal year 2012. Does this mean we don’t have a long-term budget issue? Well, not really, but it should be a cautionary lesson to the wacky inflatable arm-flailing tube men of the national debt. They won’t take that lesson to heart, though, because those types of individuals are not actually all that interested in the deficit. Instead, like many singe-issue oriented folks, they’ll use whatever the current situation is to push a-prior policy objectives (re; tax cuts, tax reform, entitlement reform).

The point I’d like to make is that much of the erstwhile hysteria is really misplaced, as Suzy Khimm notes:

[…] part of the reason that the federal deficit has recently hit new heights is because of cyclical factors — an outgrowth of the economic downturn and the government’s efforts to put the brakes on the recession — not just structural ones. And the reason that it’s now coming down is that the government has undertaken austerity measures […]

The idea has been made over and over again — that the dramatic increases in the deficit has been mostly auto-pilot counter-cyclical spending coupled with depressed revenues (PDF):

Moreover, we would normally expect to see shrinking deficits as the economy recovers and temporary government measures sunset. That’s a big reason why some have said that we have a long-term debt problem, sure, but more importantly we have a short-term jobs crisis. But I feel as though you would never know that by casually reading the front pages of dead-tree media or reading your Dido Head e-newsletter.

Postscript: Happy Thanksgiving. Remember the cherpumple from last year?


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