Deficit Review: January 2009 to date

http://www.treasurydirect.gov/NP/debt/search?start Month=01&startDay=20&startYear=2009&endMonth=08&en dDay=15&endYear=2013

Debt Held by the public*/total including intergovernmental*:
01/20/2009 6,307,310,739,681.66 10,626,877,048,913.08
...
08/14/2013 11,952,073,953,024.85 16,738,478,559,738.19

Increase:
Public:* 5.648
Overall:* 6.112

*including debt owned by the Fed.
Fed holdings of Treasury securities = $1.9 trillion.
Every dollar of interest paid by the Treasury on that $1.9 trillion goes right back to the Treasury. http://www.federalreserve.gov/releases/h41/current /h41.htm#h41tab3

**************************************
January 7, 2009 CBO projected deficit for fiscal year 2009, which ended September 30, 2009:

"CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP."

http://www.cbo.gov/sites/default/files/cbofiles/ft pdocs/99xx/doc9957/01-07-outlook.pdf

Projected Deficits:

January 2009:
$1.2 Trillion for 2009

May 2013:
$642 Billion for 2013
$560 Billion for 2014
$378 Billion for 2015

"If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, CBO estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.Because revenues, under current law, are projected to rise more rapidly than spending in the next two years, deficits in CBO’s baseline projections continue to shrink, falling to 2.1 percent of GDP by 2015".

http://www.cbo.gov/publication/44172
http://www.cbo.gov/sites/default/files/cbofiles/at tachments/44195-BudgetProjections1.xlsx

Math is hard: University of Chicago Bond version

From Chicago finance professor John Cochrane:

http://johnhcochrane.blogspot.com/2013/07/on-au.html

" But long-term bonds have a magic property: When the price goes down -- bad return today -- the yield goes up -- better returns tomorrow. Thus, because of their dynamic property (negative autocorrelation), long term bonds are risk free to long term investors even though their short-term mean-variance properties look awful.

Gold likely has a similar profile. Gold prices go up and down in the short run. But relative prices mean-revert in the long run, so the long run risk and short run risk are likely quite different."


Wow. Just wow.

First, let's look at a corporate bond or asset-backed bonds, such as mortgage-backed securities.
One reason a bond price can drop is a negative credit event.
In that case, the price of the bond drops because expected future cash flows have dropped.
Why in the world would this imply higher future returns?
Yes, the bond will offer a higher yield to maturity after the price drop.
And IF the bond does not default, it will produce  a higher return.
BUT, the reason for the price drop is an increased probability of default.
So no higher expected returns, just lower expected future cash flows.
If Professor Cochrane truly intended to include corporate bonds, well, I can't imagine what he thinks the world looks like, so let's assume he forgot about corporate and/or asset-backed bonds.
OK, mulligan.

What about Treasury bonds?
Well, one reason a T-bond price can drop is increased inflation expectations.
And yes, the nominal return from a T-bond increases after the price drops.
But the real return does not.

What asset pricing model is Professor Cochrane using where investors do not care about real returns from bonds, but care instead about nominal returns?

In exactly what sense are long-term T-bonds "risk-free" to an investor who cares about real returns?
After declaring long-term bonds to be risk-free, Professor Cochrane states:

"Gold likely has a similar profile. Gold prices go up and down in the short run. But relative prices mean-revert in the long run, so the long run risk and short run risk are likely quite different."

Does Professor Cochrane think gold is likely "risk free to long-term investors" as well?
Really?
In one sense, gold IS riskless:  gold is gold, and no matter the price, it will still be shiny.

But I'm really unclear as to where the idea that gold would somehow be akin to an investment that is risk-free in a nominal sense came from, other than perhaps the opinion that gold's price mean reverts (does it, I'm not sure...doubt it, though).

At any rate, I must agree with Professor Cochrane's larger point, I think Mankiw's exercise was a fun exercise in optimization, but makes little sense.
Like Warren Buffett, I see very little sense in owning gold for anything else but the joy of shiny objects.

The GOP, Medicare and Math

Howard Dean recently made news with an editorial at the WSJ.
http://online.wsj.com/article/SB10001424127887324110404578628542498014414.html?mod=WSJ_article_MoreIn_Opinion
Summary: His clients in the healthcare industry REALLY don't like the idea of controlling Medicare costs.

Reactions?
From Peter Orzag, a complete slapdown:  http://www.bloomberg.com/news/2013-07-30/critics-are-wrong-about-the-medicare-payment-board.html
From the Tea Party GOP, newfound love and admiration for Howard Dean.

So.
The Tea Party GOP is against:
 - efforts to control Medicare costs.
 - cuts to the Military (which is reasonable, given their preference for invading Iran)
 - cuts to Social security
 - tax increases (indeed, Romney tax cuts for EVERYONE)
 - deficits and debt.

Let's see the logic of this.
Here's the President's 2013 budget, more or less: http://en.wikipedia.org/wiki/2013_United_States_federal_budget

Medicare/Medicaid:         $   941 billion
Social Security:                $   883 billion
Defense/VA/Security*:    $ 1,035 billion
Total "Big Three":            $ 2,859 billion 
Add Net Interest:              $    246 billion      
"Big Three" + Interest =   $ 3,105 billion
Everything else: $ 702 698 billion  
Total Spending:                $ 3,803 billion

Total Revenue:  $2,902.
Total spending:  $3,803
Deficit:                 $901 billion.

Summing up:
The Tea Party GOP seems to be against cutting Medicare, Social Security, or Defense, and against raising taxes. 
Indeed, the GOP wants tax cuts.
And their number one issue is the deficit.

Math is hard.



*Defense/VA/Security:
DOD            $673
VetAffairs     140
State                60
Homeland       55
Nat Intel.        53
NASA            17
Justice            20  (FBI, Marshalls, law enforcement & prisons)
Energy           17 - for nuke plant/waste security http://antaresgroupinc.com/doe-2013-budget-breakdown/   

Total = 1.035 Trillion

The GOP plan to replace Obamacare

From Dylan Matthews:

...
Here’s how it would have worked:

• States would open health insurance exchanges where individuals and small businesses could buy coverage.

• Insurance plans on the exchanges would have to provide a base level of coverage set by the federal government.

• Insurers couldn’t turn down customers, including because of preexisting conditions (guaranteed issue).

• Individuals and families would get a refundable tax credit to pay for insurance.

• That tax credit would be financed in part by limiting the tax exemption on employer-provided insurance.

....

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/25/republicans-had-a-plan-to-replace-obamacare-it-looked-a-lot-like-obamacare/


I think I'll just pass this one along absent snarky comment.

Shorter Ponnuru: "We'd get caught!"

http://www.bloomberg.com/news/2013-07-26/drop-the-disastrous-plan-to-defund-obamacare.html

Ponnuru:

The plan is to oppose any bill to fund the government or increase the debt limit that also provides money for putting the health-care law in place. Because Republicans control the House, Democrats can’t continue borrowing or paying for government operations without Republican support. So, conservatives say, Republicans should insist on defunding Obamacare as the price of that support.
...
if Republicans stay firm in this demand, the result will be either a government shutdown or a partial shutdown combined with a debt default.
Either would be highly unpopular, and each party would blame the other. The public, however, would almost certainly blame Republicans, for five reasons.
First, Republicans are less popular than the Democrats and thus all else equal will lose partisan finger-pointing contests.
Second, the executive has natural advantages over a group of legislators in a crisis atmosphere. Third, people will be naturally inclined to assume that the more anti-government party must be responsible.
Fourth, some Republicans will say that government shutdowns or defaults are just what the country needs, and those quotes will affect the image of all Republicans.
 And fifth, the news media will surely side with the Democrats.

So, according to Ponnuru, the reasons America will blame the GOP for this brilliant GOP plan to shut down government,  are:

1)  People are meanies and just don't like the GOP.
2)  Obama is a big meanie too.
3)  People are biased against republicans.
4)  Some Republicans will tell the truth.
5)  The news media will tell the truth.

Does that pretty much sum it up, Ramesh?

Fiscal Times Fail (Why oh why cannot we have a better press corp?)

Apologies to Professor Brad Delong for copying his "why, oh, why".
I'll not use it again, but it is an inspirational phrase.
OK, on to the first post:


Well, this is pretty pitiful.
From Fiscal Times:

Government Wastes More Money than You Think

If we saved only half of the $788 billion we waste, we could dump the sequester, fix our infrastructure, bolster education, and grow the economy.

By JACQUELINE LEO, The Fiscal Times

July 24, 2013

Read more at http://www.thefiscaltimes.com/Articles/2013/07/24/The-Government-Is-Wasting-More-Money-than-You-Think.aspx#PIX7oQKOUEtgofVw.99

********************************

$788 Billion per year in Waste.
From the Editor of the Fiscal Times.

2013 Budget ($billions): http://en.wikipedia.org/wiki/2013_United_States_fe deral_budget

890 Social Security
940 Medicare/Medicaid
981 Defense, Security & State (incl VA)
246 Net Interest
$3.057 billion

Total spending: $3.8 billion.
So there is more waste in the rest of government than the rest of government spends?
Or is the waste in Medicare?
Social Security?
Defense?
Veteran's Administration?
Where IS that $788 billion in waste?

Let's check the Fiscal Time's math:
Here's her $788 billion of "waste":

1) $300 Billion Annual Tax Gap (~ $500 billion) $3 collected for every $1 in additional enforcement
Read more at http://www.thefiscaltimes.com/Articles/2013/07/24/The-Government-Is-Wasting-More-Money-than-You-Think.aspx#PIX7oQKOUEtgofVw.99

500 billion in "tax avoidance" that the IRS does not catch, less approximate cost of increasing IRS enforcement = $300 billion.

Yes, that is right, she says we should increase IRS enforcement efforts by roughly 1/3 of $500 billion, or $167 billion (The entire treasury department budget is only $110 billion, according to the wiki link above) in order to collect another $500 billion in taxes. 
She calls the difference "waste".
That's 300 out of 788.

2) $168 billion for Afghanistan and Iraq.
I may or may not agree that that money has been flushed down a rat hole every year. 
But I have never heard anybody describe it as "Government Waste" before.

OK, we are up to $468 billion:
$300 billion "not collected enough tax"
$168 billion Bush's wars Obama's wars.
That leaves $320 billion.
Wonder where that is.
I'm having fun, so let's go look:

3) $115 billion in Medicare Fraud.
Where does this number come from?
It appears to be a random number that would include much more than Medicare, taken from this article: http://www.publicintegrity.org/2013/07/01/12909/he alth-fraud-outrunning-federal-enforcement-efforts

Nowhere in the article does it cite that number as a Medicare fraud number. Here is the paragraph from which she apparently picked $115 billion:

The office also identified about $19.8 billion in waste and launched more than 1,000 criminal and civil investigations of individuals or health care businesses accused of cheating Medicare or Medicaid.

Estimates of annual losses to fraud and waste in the health care industry run into the tens of billions of dollars annually. Federal agencies reported an estimated $115.3 billion in improper payments in fiscal year 2011, and more than half that figure was attributed to Medicare and Medicaid, according to the Government Accountability Office.
Notable:
i) the article points out that due to the sequester, medicare inspectors are being laid off.
ii) Obamacare specifically targeted Medicare fraud and waste. Just sayin.

OK:
$ 300 billion "uncollected tax"
$ 168 billion Bush's wars Obama's wars
$ 115 billion "random number from an article about Medicare waste."

That's $583 billion, leaving $205 billion.

4a) $95 billion "GAO overlapping programs"
4b) $67 billion "Inspector general - across programs"

OK, that's $162 billion of waste self-identified by two government entities.
Did the author ever consider that there might be overlapping estimates from the GAO and the IG, and that those estimates likely also include some numbers related to Medicare?
Why in the world would you add both of those numbers together, even if they were accurate?
If anyone is still paying attention, this is the same type of "across all of government" number that the author grabbed the $115 billion for Medicare from.

But let's take a look at the $95 billion of "waste" identified by the GAO, which, by the way, never called it "waste": http://www.gao.gov/products/GAO-11-318SP#mt=e-repo rt&st=2

Here's an example: Addressing duplicative federal efforts directed at increasing domestic ethanol production could reduce revenue losses by up to $5.7 billion annually. 
Much like the $300 billion in uncollected taxes, this $5.7 billion is about "uncollected revenue"...saying that they could have more money coming in if they did something different.
This counts as "wasted spending"?

Homeland Security/Law Enforcement Strategic oversight mechanisms could help integrate fragmented interagency efforts to defend against biological threats.
So if we made all cops in the nation part of one national police force, we could save money?
Hmmm.
The GAO is saying that if we radically reorganized government, we might be able to save some money.
i) Congress can't even pass a farm bill, how is it supposed to radically reorganize government?
ii) That is not "waste"...it is a product of having suboptimal organizational design, from the viewpoint of the GAO, as directed by Senator Tom Coburn.

Now let's look at the $67 billion from the Inspector General:
http://www.thefiscaltimes.com/Articles/2013/06/25/ How-Obamas-Auditor-Vacancies-Waste-Billions.aspx#p age1

this is the support:
Indeed, a recent report by the House Committee on Oversight and Government Reform found that the number of unimplemented IG recommendations cost taxpayers $67 billion and the agencies with the most unimplemented recommendations, State Department, Department of Homeland Security, and USAID, all have IG vacancies.
That's it.
OK, I'm obviously bored, so let's go look for that $67 billion.
Well, well, well...it comes from Congressman Darrel Issa!
http://oversight.house.gov/wp-content/uploads/2013 /03/Staff-Report-Open-Unimplemented-IG-Recs.pdf

I read that report.
It didn't identify any of the $67 billion as "waste".
Instead, much like the GAO study, it was about possible revenue enhancement or reduced spending associated with changes in the way that government operates.
I tried real hard to find any solid numbers from the Issa report.
Maybe you'll have better luck.

Let's see where we are:

$ 300 billion "uncollected tax"
$ 168 billion Bush's wars Obama's wars
$ 115 billion "random waste # from article about Medicare waste."
$ 95 billion "GAO overlapping programs"
$ 67 billion "Issa report"

That adds to $745 billion.
That leaves $43 billion.
I'm getting bored, but let's look at the biggest remaining category:

$14 billion in "consumer fraud".
This turns out to be estimated annual waste improper payments from unemployment insurance: https://ows.doleta.gov/unemploy/pdf/StrategicPlan_ Improp_Pay.pdf

 The four largest root causes of UI improper payments: „« Payments to individuals who continue to claim benefits after they have returned to work (Benefit Year Earnings); „« Failure of employers or their third party administrators to provide timely and adequate information on the reason for an individual¡¦s separation from employment (Separation); „« Failure of claimants to comply with the states¡¦ work search requirements (Work Search); and „« Failure to register the claimant with the state¡¦s Employment Service pursuant to the state¡¦s law (ES Registration).
Well, finally we have some waste improper payments, I suppose 

**********************************

Summing up:

$300 billion of the "waste" was somebody's estimate of how much more tax we would collect (net)...assuming we spend an additional $160 billion a year on IRS enforcement.
(The current IRS budget is less than $15 billion.) 

$168 billion was money spent on Iraq and Afghanistan.
Those two add to $468 billion of the $788 billion.
In other words, almost 2/3 of the $788 was utter bullshit.

Of the remainder, three numbers are almost certainly overlapping:

$115 billion of "waste, including Medicare" cited in an article about Medicare waste.
$95 billion of "suboptimal organization" (GAO)
$ 67 billion of "unimplemented recommendations for efficiency".
By the way, that GAO report has no mention of $95 billion.
Nor any dollar attribution to waste.
When I did goog&bing searches for March 2011 GAO report $95 billion, all I get is right wing web sites and the office of Tom Coburn*.
I think Tom Coburn made up the $95 billion.
And "waste".

What kind of "journalist" claims $300 billion in potential additional tax revenue - assuming a massive increase in IRS audits after tripling the number of IRS workers - as "wasteful spending"?
What kind of "journalist" claims $168 billion spent fighting wars as "Government Waste"?
What kind of "journalist" claims $95 billion of waste from a report that has no waste and no $95 billion?

I think we know.

*Other than GAO links, none of which have $95 billion in them, and none of which label the report as describing waste and/or wasted spending