President Biden boasted during his State of the Union address about cutting the deficit by a record $1.7 trillion. His putative conversion into a born-again deficit cutter is belied by this week’s Congressional Budget Office federal budget report for January, which shows the deficit has doubled in the first four months of this fiscal year.
CBO reports that the budget deficit from October through January swelled to $522 billion from $259 billion in the same period last year after adjusting for a timing shift in payments. Receipts are tracking $43 billion lower than last year, mostly owing to reduced individual income taxes, while spending is running $220 billion higher.
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The budget deficit more than tripled to $3.14 trillion in fiscal 2020 owing to numerous Covid bills. It fell slightly to $2.7 trillion in 2021 because individual and corporate income tax revenue surged—not because of spending discipline. As pandemic welfare payments expired, the deficit last year clocked in at $1.4 trillion.
During his State of the Union, Mr. Biden blamed deficits on his predecessor. But the deficits during the first three years of the Trump Presidency totalled $2.5 trillion—less than in the first year of Mr. Biden’s. The deficit is on a path to increase again this year owing to the infrastructure bill, Inflation Reduction Act (IRA) and end-of-year omnibus blowout.
Samuel Gregg reimagines fusionism.
Scott Sumner is correct: Economic nationalism is a negative-sum game. A slice:
Most politicians don’t understand the economics of subsidies. It’s not a question of subsidies helping one country and hurting another; all countries suffer.
Here’s what politicians don’t understand. It is not possible for governments to subsidize “industry” as a whole. All they can do is boost one industry at the expense of another. If the US subsidizes industries A, B and C, then we implicitly penalize industries D, E, and F. Two hundred years ago, Ricardo developed the concept of comparative advantage, which explains why helping one set of industries effectively hurts the remaining industries. Back in the 1990s, Paul Krugman pointed out that for many people, included even high-level policymakers, “Ricardo’s Difficult Idea” is hard to grasp. Policymakers view the world in partial equilibrium terms when they need to look at things from a general equilibrium perspective.
Every time we put a tariff on steel or aluminum imports, we give a cost advantage to Asian and European firms that use steel and aluminum, such as carmakers. Every time we subsidize US chipmaking, we give a boost to Asian and European firms that do not make chips.
Unfortunately, it’s not a zero sum game—industrial policies are negative sum. In another article, the Economist points out that these subsidies reallocate global production in a highly inefficient fashion….
Here’s part 23 of George Selgin’s important series on the New Deal and recovery.
Is Californian Housing Policy a Form of Central Planning?
Vanessa tweets: (HT Jay Bhattacharya)
Sorry, I am not living my life constantly worried about the next pandemic. Living in survival mode is not a healthy coping mechanism and we should not be subjecting our kids to this constant fear mongering.
