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View Diary: Midday open thread: Recaps, art from GWB and Reagan (54 comments)

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  •  Difference between debt and the deficit? (0+ / 0-)

    I need some help, the debt is falling so why do I hear the Deficit is huge and what is the difference??

    "The poor can never be made to suffer enough." Jimmy Breslin

    by merrywidow on Mon Nov 25, 2013 at 12:59:27 PM PST

    •  debt vs. deficit (2+ / 0-)
      Recommended by:
      wintergreen8694, merrywidow

      Assuming the context of "national"...

      Debt: This is the total amount borrowed by the government, to date.  In many ways, the economy runs on the government borrowing, so this should not be zero.  Due to inflation, the reasonable measure is as a percentage of GDP, and a perpetually growing (but manageable) debt is acceptable.

      Deficit: This is the difference between how much the government makes in revenue and the amount it spends that year.  Again, more meaningful as a measure of GDP.  Generally speaking, a given year's deficit is added to the debt.

      Basic economics measures the overall economy as a mix of public and private spending.  Countercyclical spending means government spending should go up in recessions/depressions (to make up for drops in private (business & consumer) spending), running deficits as needed, and go down when things are humming along (ideally, running enough of a surplus to undo some percentage of debt accrued during worse economic times).

      We have a growing population, so the numbers of the budget (and the deficit) should be expected to grow over time.  Simply comparing the national budget numbers under, say, Reagan and Obama makes no sense.  Sometimes people adjust for inflation, but that still doesn't really get at the differences.  Programs change over time, and national priorities change.

      We would probably be running a surplus right now, if the countercyclical spending hadn't been broken under W—the Bush Tax Cuts broke the surpluses Clinton had built up, and the subsequent recession had too little deficit spending to recover with any speed.

      Paul Krugman in particular has written a great deal on why large deficits aren't an issue, and why austerity is dragging everything down.

      As an aside, "debt" is automatically equated with "bad", but if you look at both people and businesses, debt can be good.  It lets one buy a car without saving up for it, and the same for a house.  It allows businesses to expand when they see an opportunity (by borrowing the money, then making enough of a profit to cover the debt).

      Debt can be good, if it's used to build or obtain something with long-term value.  Houses, cars, and education for families; warehouses, market share, new subsidiaries that supplement one's own business for companies; critical national infrastructure (bridges, roads, shipping routes, railroads, libraries, universities, research) for countries.

      It can also be bad, if it's unaffordable, undercuts long-term stability, or the leverage it creates can't be sustained.  For instance, buying a house at the edge of affordability, then losing one's job; buying a useless company that drain's the larger company's resources and drags it down; paying for tax cuts with borrowing.

      The debt is huge primarily because of the Reagan, Bush I, and Bush II administrations.  The deficit was huge for a couple years following the Great Recession, but it has been falling ever since as the economy recovers.

      •  Thanks so much for this. so debt is how much we (0+ / 0-)

        owe NOW and the deficit is like a budget where we can see we dont make enough to cover the coming bills...is that it?

        "The poor can never be made to suffer enough." Jimmy Breslin

        by merrywidow on Mon Nov 25, 2013 at 02:10:22 PM PST

        [ Parent ]

        •  Mostly yes. (0+ / 0-)

          I want to clarify one specific point: The debt is the accumulated weight of all the deficits to date.  It is not accurate to say it's what we owe "now" in the immediate sense -- it's issued as treasury bills, and those mature over time.  It is the total of everything we've borrowed, but we don't actually owe every penny of it right this second.

          Sadly, there is a lot of confusion (not just on the "it's always bad" side), due to both bad reporting and deliberate misinformation.

          They are often treated as the same, when they're not.  For instance: "The deficit is growing under Obama!"  No, actually, it's not.  It's shrinking, and actually it's shrinking much faster than it has in a long time.

          However, a lot of the time, people think that debt=deficit, and that's just false.

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