My first post on the hatred of economics was here. My feelings towards economics have not mellowed in the two months since I wrote that. I believe that the word “hate” is badly overused these days. There are many things that I dislike but do not hate. I do not hate my Congressman, Eric Cantor. I do not hate dogs that bark in the middle of the night. But I hate economics. I despise it.
Right now our politicians are having a debate on the federal budget. The United States is spending some trillions more than it is taking in. Everyone agrees this is true, everyone knows that it’s projected to remain true, everyone agrees there are dire financial consequences if the government does not change course. The Democrats want to change course with some minor tax hikes on the rich and some cuts in spending. The Republicans want only cuts in spending. If they can’t reach an agreement, horrible consequences will erupt on August 2, give or take a few days. All the political action for the past year or so has been building up to this moment. This is the big thing.
What most folks aren’t thinking about is the fact that this moment didn’t have to happen. It was not very long ago–eleven years back, to be precise–that the federal budget looked great. We had a balanced budget. That meant no annual deficit at all. The government was taking in more money than it was spending. Projections from the Congressional Budget Office–that’s the committee in Congress whose job is to project this sort of stuff–assured us that we were looking at smooth financial sailing for years to come. Two trillion in surpluses was forecast. It was sunshine and rainbows and roses. What more could you ask?
Fast forward eleven years and here we are on the verge of financial catastrophe. What went wrong during those eleven years? This article tries to break down the disaster. One way to break it down is by presidential administrations. The government racked up 7 trillion in new debt under Bush and almost 2 trillion under Obama thus far.
Alternately, we could break it down by where the money went. The wars in Iraq and Afghanistan cost 1.3 trillion and counting. (And that’s not including the amount we’ll spend taking care of wounded veterans for the next eighty years.) The Bush Administration’s tax cuts reduced federal revenue by 1.7 trillion dollars. The Medicare Prescription Drug Bill cost us 272 billion dollars, while the stimulus package in March of 2009 wrapped up another 719 billion.
Various other little things cost various other amounts. The bottom line, however, is that when you add it all up, it doesn’t bring you anywhere close to a explanation for all the missing money. So where did the rest of it go?
The answer is that much of the money never existed in the first place. That is to say, much of what the CBO projected eleven years ago never actually came true. For one thing, there projections were based on the assumption that the economy would continue doing well. It didn’t. We hit a medium-sized recession in 2001 and a major recession in 2008. Because of these, tax revenues were vastly lower than expected, and much of the projected wealth simply vanished.
Of course we can now say that the CBO should have known better. They should have planned for recessions. They should have been aware of the risks. We all know the saying: “Hindsight is always 20/20.” But while we quote that constantly, we should be aware that foresight is not always 20/20. Foresight is highly variable, depending on the people who are foreseeing.
In the Book of Genesis, Joseph advises Pharoah to store up grain during seven fat years so as to be prepared for the seven lean years to follow. One may question the wisdom of setting national agricultural policy based on dream interpretation–I don’t think anyone would want to do so today. But one cannot question the wisdom of preparing in case of disaster. As we see in Genesis, the Jewish people were aware of this almost four thousand years ago.
Yet here we are today and we’ve totally forgotten about that. Our wise masters in Congress, on Wall Street, and in economics departments around the country can’t be bothered with the wisdom that’s endured for thousands of years. They think they know better. They think that their models, statistics, economic projections, and so forth can cope with any possibility, so there’s no need to be prepared. The preparations are supposedly all included in the modeling and the projections, thus eliminating any need to think about them separately.
Yet, in reality, things fail to work out as the projections say they should. And that’s another one of the many reasons why I really hate economics.