THE DEFICIT HAS GONE DOWN....A LOT

HUFFINGTON POST:  The government on Monday reported a $97.6 billion deficit for July but remains on track to post its lowest annual budget gap in five years.
July's figure raises the deficit so far for the 2013 budget year to $607.4 billion, the government says. That's 37.6 percent below the $973.8 billion deficit for the first 10 months of the 2012 budget year.
The Congressional Budget Office has forecast that the annual deficit will be $670 billion when the budget year ends Sept. 30, far below last year's $1.09 trillion. It would mark the first year that the gap between spending and revenue has been below $1 trillion since 2008.
Steady economic growth, higher taxes, lower government spending and increased dividends from mortgage giants Fannie Mae and Freddie Mac have helped shrink the deficit.
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PAUL KRUGMAN N.Y. TIMES

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You probably won’t be surprised to hear that voters are poorly informed about the deficit. But you may be surprised by just how misinformed.

In a well-known paper with the discouraging title, “It Feels Like We’re Thinking,” the political scientists Christopher Achen and Larry Bartels reported on a 1996 survey that asked voters whether the budget deficit had increased or decreased under President Clinton. In fact, the deficit was down sharply, but a plurality of voters — and a majority of Republicans — believed that it had gone up.

 

I wondered on my blog what a similar survey would show today, with the deficit falling even faster than it did in the 1990s. Ask and ye shall receive: Hal Varian, the chief economist of Google, offered to run a Google Consumer Survey — a service the company normally sells to market researchers — on the question. So we asked whether the deficit has gone up or down since January 2010. And the results were even worse than in 1996: A majority of those who replied said the deficit has gone up, with more than 40 percent saying that it has gone up a lot. Only 12 percent answered correctly that it has gone down a lot.

Am I saying that voters are stupid? Not at all. People have lives, jobs, children to raise. They’re not going to sit down with Congressional Budget Office reports. Instead, they rely on what they hear from authority figures. The problem is that much of what they hear is misleading if not outright false.

The outright falsehoods, you won’t be surprised to learn, tend to be politically motivated. In those 1996 data, Republicans were much more likely than Democrats to hold false views about the deficit, and the same must surely be true today. After all, Republicans made a lot of political hay over a supposedly runaway deficit early in the Obama administration, and they have maintained the same rhetoric even as the deficit has plunged. Thus Eric Cantor, the second-ranking Republican in the House, declared on Fox News that we have a “growing deficit,” while Senator Rand Paul told Bloomberg Businessweek that we’re running “a trillion-dollar deficit every year.”

 

Do people like Mr. Cantor or Mr. Paul know that what they’re saying isn’t true? Do they care? Probably not. In Stephen Colbert’s famous formulation, claims about runaway deficits may not be true, but they have truthiness, and that’s all that matters.

Still, aren’t there umpires for this sort of thing — trusted, nonpartisan authorities who can and will call out purveyors of falsehood? Once upon a time, I think, there were. But these days the partisan divide runs very deep, and even those who try to play umpire seem afraid to call out falsehood. Incredibly, the fact-checking site PolitiFact rated Mr. Cantor’s flatly false statement as “half true.”

Now, Washington still does have some “wise men,” people who are treated with special deference by the news media. But when it comes to the issue of the deficit, the supposed wise men turn out to be part of the problem. People like Alan Simpson and Erskine Bowles, the co-chairmen of President Obama’s deficit commission, did a lot to feed public anxiety about the deficit when it was high. Their report was ominously titled “The Moment of Truth.” So have they changed their tune as the deficit has come down? No — so it’s no surprise that the narrative of runaway deficits remains even though the budget reality has completely changed.

 

Put it all together, and it’s a discouraging picture. We have an ill-informed or misinformed electorate, politicians who gleefully add to the misinformation and watchdogs who are afraid to bark. And to the extent that there are widely respected, not-too-partisan players, they seem to be fostering, not fixing, the public’s false impressions.

So what should we be doing? Keep pounding away at the truth, I guess, and hope it breaks through. But it’s hard not to wonder how this system is supposed to work.

US BUDGET DEFICIT SHRINKS FAR FASTER THAN EXPECTED

N.Y. TIMES

Since the recession ended four years ago, the federal budget deficit has topped $1 trillion every year. But now the government’s annual deficit is shrinking far faster than anyone in Washington expected, .... The thrust of a new report released Tuesday by the nonpartisan Congressional Budget Office, estimated that the deficit for this fiscal year, which ends on Sept. 30, will fall to about $642 billion, or 4 percent of the nation’s annual economic output, about $200 billion lower than the agency estimated just three months ago.

The agency forecast that the deficit, which topped 10 percent of gross domestic product in 2009, could shrink to as little as 2.1 percent of gross domestic product by 2015 — a level that most analysts say would be easily sustainable over the long run...

 

Over all, the figures demonstrate how the economic recovery has begun to refill the government’s coffers. At the same time, Washington, despite its political paralysis, has proved remarkably successful at slashing the deficit through a variety of tax increases and cuts in domestic and military programs....

 

With the government running a hefty $113 billion surplus in the tax payment month of April, according to the Treasury, analysts now do not expect the country to run out of room under its debt ceiling — a statutory borrowing limit Congress needs to raise to avoid default — until sometime in the fall. That has left both Democrats and Republicans hesitant to enter another round of negotiations over painful cuts to entitlement programs like Social Security and Medicare, and tax increases on a broader swath of Americans, despite the still-heated rhetoric on both sides.

For the moment, the deficit is largely repairing itself. Just three months ago, the Congressional Budget Office projected that the current-year deficit would be $845 billion, or about 5.3 percent of economic output.

The $200 billion reduction to the estimated deficit comes not from the $85 billion in mandatory cuts known as sequestration, nor from the package of tax increases that Congress passed this winter to avoid the so-called fiscal cliff. The office had already incorporated those policy changes into its February forecasts.

Rather, it comes from higher-than-expected tax payments from businesses and individuals, as well as an increase in payments from Fannie Mae and Freddie Mac, the mortgage finance companies the government took over as part of the wave of bailouts thrust upon Washington in the darkest days of the financial crisis.

 

Meanwhile in Europe.....

HUFFINGTON POST

The eurozone is now in its longest ever recession – a stubborn slump that has surpassed even the calamity that hit the region in the financial crisis of 2008-2009.
The European Union statistics office said Wednesday that nine of the 17 EU countries that use the euro are in recession, with France a notable addition to the list. Overall, the eurozone's economy contracted for the sixth straight quarter, shrinking by 0.2 percent in the January-March period from the previous three months.

Austerity measures have inflicted severe economic pain and produced social unrest across the eurozone, where the average unemployment rate is a record 12.1 percent and higher in some places. In Spain, it's 26.7 percent and in Greece 27.2 percent.

 Other major economies have faltered this year but none are in recession. The annualized contraction in the eurozone, based on this quarter's figures, of around 0.9 percent contrasts with the equivalent expansion of the U.S. of 2.5 percent. Meanwhile, China, the world's No. 2 economy, is growing around 8 percent a year.

For many analysts, that discrepancy highlights Europe's flawed economic approach since the end of the financial crisis. Instead of keeping the spending taps on – as the U.S. has largely done – the region concentrated on austerity even though companies and consumers weren't able to plug the gap left by the retrenching state.
However, there have been some recent indications that Europe's leaders are willing to ease up on their adherence to cuts and tax increases at a time of recession. Some countries, for example, are being given more time to meet certain economic and financial targets.

Maybe the French should have stopped protesting gay marriage and instead gone to work or bought some stuff. France slipped back into a recession as the entire euro-zone economy shrank more than expected in the first quarter of 2013, according to European Union data released Wednesday. France’s economy shrunk by 0.2 percent, its first decline in four years, and officials worried that France will continue to fall further behind throughout the year if it can only keep up the current pace. Germany, the largest economy in Europe, posted modest growth after suffering a sharp decline in the last quarter of 2012, with the EU Statistical Office commending Germany for “slowly picking up steam.” But things were especially bleak for Italy, the third-largest economy in Europe: its economy shrunk by 0.5 percent, putting the economy in recession for its seventh straight quarter.

Read it at Reuters

May 15, 2013 6:46 AM