The CBO’s Latest Con Job: Disappearing Data to Deter Analysis of its Deficit Scaremongering

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The CBO is resorting to such extreme measures to impede independent analysis of its scaremongering about the fiscal deficits that it’s hard not to conclude that it has something to hide.

Here’s one simple and egregious example. If you look at the CBO forecasts, they show the US getting to a 89.7% federal debt to GDP ratio by 2022 if no changes in policy occur. For economists and financial markets types, as well as the policymakers they lead by the nose, that 90% number is treated as a seriously bad outcome for very dubious reasons. It has the same stature as edge of the earth in maps from the days when people thought the world was flat, that if you go over it, all sorts of terrible things happen. That number comes from the work of Carmen Reinhart and Kenneth Rogoff in which they found that countries that had 90% debt to GDP ratio had lower growth levels.

The wee problem is that using that correlation as a guide is bunk. First, it mingles gold standard countries (which do have to do through all sorts of insane growth-damaging contortions to run sustained deficits)n with fiat currency issuers. Second, in the overwhelming majority of cases, the increase in debt to over 90% and low growth were the result of a large financial crisis. Thus there is no evidence that dorking with the debt levels would ameliorate the post crisis sluggish growth; the evidence from Europe (and the IMF has ‘fessed up to this) is that trying to cut deficits in the wake of a crisis produces an economic contraction, making debt to GDP ratios worse than they were before. Third, there are some striking exceptions to what among the policy classes is being treated as an inviolate rule, most importantly, Great Britain in its greatest growth period, from 1735 to 1875, had a debt to GDP ratio of over 100%.

But since everyone takes this phony danger level as real, let’s indulge it for a minute. Despite the CBO’s blatant deficit hawkery, if you run the data correctly, you don’t reach that scary level. The CBO has done the equivalent of cooking the data to produce its desired outcome. It omits financial assets held by the government from its calculation.

Now here is how you can see the CBO is not acting as a neutral analyst, as it is tasked to by statue, but a policy advocate. As we’ve pointed out, Thomas Ferguson and Robert Johnson took the CBO’s forecasts as of August 2010 and demonstrated that if you included the federal government’s financial assets, which it had shown as just under 8% of GDP, even in its worst case “low growth” scenario, debt to GDP stayed under 82% by 2020.

Having been alerted to the Ferguson/Johnson paper, “A World Upside Down: Deficit Fantasies in the Great Recession,” International Journal of Political Economy, Vol. 40 No. 2 (2011), has the CBO decided to deal honestly with the question? No. Like the mob faced with the prospect of a damaging witness testifying, it has done a hit job on the data. Its recent deficit discussions do not even reference this information. As Thomas Ferguson complained, “Talk about ‘Choices for Deficit Reduction.’ I finally found the numbers in an OMB report issued earlier this year. The CBO should be printing these right along with the gross debt; at least back in 2010, you could find them in the fine print of one or two CBO reports. Now not even a magnifying glass will help.”

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40 comments

  1. EH

    I’ve been suspecting that the white-hot hyping of the Petraeus kerfuffle has a purpose, and that purpose is to use Sally Jessy Raphael-caliber scandals to help hide things like this that will coalesce in a few months in the form of “fiscal cliff” rhetoric. It’s a setup.

    1. C

      I would disagree with you but there is some oddity about both the timing of the scandal (given that it seems the White House knew for months) and the extent to which it is being hyped or even acknowledged by the white house.

      On the other hand we are just after the election and this may not be the cover it may just have been held off until now for other reasons.

    2. RepubAnon

      More likely, nobody wanted to have the Petraeus scandal step on the campaign messages. Both the Obama Administration and some top Republicans knew – and neither said a word. Apparently neither side saw an advantage in letting this cat out of the bag.

      (I saw one comment that General Petraeus is working on a new video campaign: “Call of Booty”…)

  2. Can't Help It

    I am a newbie in this, but didn’t the US have a debt to GDP of over 100% as well after World War II. The world tolerated it then because well they were in far worse shape than the US and they had other things to worry about. I’d agree using some number like 90% alone is not a good explanation of how things are, but surely there is a point at which a certain level of debt will be disastrous. I would think eventually interst service alone would eat the government’s budget just like how it is in Japan. In the last 15 years, what does the US have to show for all the deficits and debts accumulated other than a continuing war and 2 stupid bubbles?

    Haven’t read the Rogoff’s book despite the glowing reviews, but does it say anything about the socio economic situation accompanying the 90% figure. Perhaps it simply reflects a nation who no longer has the willingness to face its own problems.

  3. Sleeper

    This fisical cliff stuff stinks. It is a ginned up crisis.

    Here’s what happened Congress using it’s power of the purse passed a massive tax cut and two wars which were financed on a credit card rather than increased taxes.

    Congress basically sells tax breaks to donors in exchange for bribes (donations). This is why the tax code is so massive and complicated.

    It really frosts me that the media talks about the president – any president – as raising taxes or lowering taxes – tax law is the sole responsiblity of the Congress and has been since the revolution.

  4. Francois T

    Basically, the CBO acts like the GOP did with the Congressional Research Service report on how and why higher taxes for the rich has no negative impact on economic activity: If you don’t like the data, make it go away.

    Jesus! Are we going to need the Tea Party to AGAIN save this nation from the anaconda choking of a Grand Bargain?

    1. rob

      The tea party never saved this country from anything,…tea party hacks are a main reason the fiscal/economic mess this country is in,is steering towards a trumped up austerity push.the tea partyiers are useful fodder for the elites to pretend there is something other than them keeping the “con” in congress…

  5. Francois T

    BTW Yves,

    Did Elmendorf tried to reach you again? *evil grin*

    You must be getting under his skin pretty bad.

    Please don’t relent; show no mercy and they shall fear you.

    1. steelhead23

      I take it from your veiled reference that Douglas Elmendorf is familiar with our patron saint and has actively tried to keep her out of his bailiwick. Matt, Matt, where are you? Isn’t the CBO non-partisan? Isn’t it all about making the least biased estimates of costs and benefits so our decision makers would understand the likely repercussions of their decisions? Now, I would suppose that from time to time, the CBO may acquire information the providers see as privileged and I would support their keeping such information secret, but Yves is saying that they are ignoring federal financial assets in their debt projections – even after having been alerted to their oversight by academics. Unless the CBO has published a rational rebuttal, ignoring such information suggests that Dougy should be Patraeus-ed.

  6. JGordon

    Great Britain is the only exception to the rule, so seeing the plural “s” is somewhat strange there. Also, Great Britain was currently groing through the industrial revolution at the time–nothing even 1/100th as comparable to that is going on anywhere today, especially considering that we have used up all the easy resources and are no going after the near-impossible to get stuff. Plundering the earth and turning it into fiat money was easy for Britain. It’s a whole hell of a lot harder for us.

    Anyway, what will happen is that we are going to keep creating endless gobs of reserve-currency debt-money without any corresponding real economic growth to sop it up, and then at some indeterminite point the rest of the world will just stop accepting it and America’s access to imports will instantly vanish. That’s all.

    Oh yeah, and considering that we now import about 2/3rds of our energy? It’s going to suck for the unprepared. By the way, I am not advocating any policy changes. There is nothing we can do change this outcome. So just let the crooks do whatever the hell they want.

    1. JGordon

      Gah, my typing is so bad. Well on the other hand at least you can be sure that I’m not a paid troll; they have impeccable grammar and diction.

    2. rob

      actually, I believe the US had debt to gdp levels over that amount during/after WWII.The history of that was the greatest period of expansion the country ever had…even if that is the only other example, the plural would be correct.
      and in that period, britian lost major colonies due to revolution,remember?,they also were in the process of building/protecting empire with their “balance of power”,gaming….actually, the british example seems very fitting to me.this is what we are doing.

      I’m not even going to get into the complacency involved in a statement tht says “do nothing,because there is nothing we can do anyway”… that alone..kinda gets you a troll award…
      Even if we are doomed to failure, we must resist…because someday,we won’t even be able to do that.

      word out to everyone, have you seen “zeitgeist”,one of say a dozen good movie attempts to show what we are up against…IMO definately worth a look….

  7. brick

    I think most people would have doubts about the 90% debt to GDP being a tipping point. I think interest rates, currency stability , size of economy and breadth of internal investors significantly alter tipping points.

    Having said that the CBO forecasts use unrealistic growth and revenue rates in my view. So much so that I expect the forcasts are virtually worthless.

    Debt to GDP is a pretty pointless measure anyway in terms of sustainability as far as I am concerned. GDP does not always contribute to government revenues, it can be shifted and taxed in different parts of the globe. Its better to think of wage/income growth to debt growth over a long time period (procyclical fiscal policy allowed).

  8. PaulArt

    OK, don’t jump on me coz I am not really supporting the CBO but here is a thought. I have rarely seen the Dems get into a lather over a CBO report while its the Rethugs who constantly foam at the mouth every time the CBO steps into it. Agreed that in the last few years the CBO has waded into areas that Angels fear to tread, namely issuing some bunk on the Ryan plan etc. However, if I was a Republican wanting to defang the CBO, I would make them issue apple sauce here and there and wait for clever people like Johnson et al to point out the errors and then say, ‘well, we GOPers told you that they were biased and bunkum’. Q.E.D?

    1. rob

      except to say that the repubs have no intrest in defanging the CBO… the CBO is pushing THEIR agenda…
      I see no reason to think the repubs have a problem with them as long as the info is part of their propaganda push.

      and fact is,When is the CBO NOT doing what the republicans want?…. after all, when the democrats control the direction of gov’t policy, the republicans play briar rabbit not wanting to be thrown into the briar patch.., but the democrats can be counted on to do what the republicans couldn’t on their own.
      It took clinton to pass NAFTA for them,It took obama to pass the republican healthcare plan ,to sell the store and give it to the financial sector,
      and now we watch as the democrats institute austerity for the republicans and go after the poor so the rich can feed.

  9. docg

    Ponzi economics remains Ponzi economics regardless. Call it a deficit and invoke Keynsian theories about deficit spending if you like, no matter. An economy dependent on borrowing that can only be repaid by additional borrowing, thus accumulating greater and greater levels of debt, is not a healthy economy, and at some point the bubble can be relied on to burst — just like that last one, which, as you may recall, hardly anyone saw as a problem either.

    What we need to understand is that this country is the wealthiest in the world, and in fact the wealthiest in history. The money is there, only it is being spent to purchase personal luxuries and power rather than being put to use for the general good. The notion that all those billionaires actually earned their billions is ludicrous. Such fortunes are made possible by society as a whole and society as a whole has a right to tax them appropriately.

    Most of our borrowing would be unnecessary if we returned to the sort of progressive taxation system we once had, even during the Nixon era. Social Security would certainly be no problem if all levels of income were taxed, instead of only the lower levels, and if all types of income were taxed, not only wages. Medicare would also be no problem if taxed on a progressive basis. The money is there. No need for a deficit and no need for deficit spending. We 99% are the victims of a systematic program of misdirection.

    Arguing endlessly over the deficit is charging the cape, not the matador.

    1. Finnucane

      You’re confusing private and public sector debt. The state sovereign in its own currency is not a private business or household writ large, as the MMTers never tire of reiterating. Not sure what you think of MMT (I think I can guess …), but at the very least I think we should agree that the “gubmit has to balance the books like a family does” trope is pernicious nonsense.

      Also, the state sovereign in its own currency doesn’t need to borrow a single shekel to finance its deficit spending. Hence, no “Ponzi scheme”.

      Finally, many people saw the 2007 finance/real estate bubble as a problem. It’s just that those people were as thoroughly ignored then as a macroeconomics forum held at UMKC is today.

      1. EconCCX

        @Finnucane, the US Government is a user and borrower of its “own” currency. It is credited at the Federal Reserve Bank for the issuance of coins alone. It must go hat in hand to taxpayers and bond buyers for the balance of its revenue. This sorry state of affairs derives from an era when USG had to borrow and repay in specie. The specie obligations were outlawed and abrogated, but the debt remains; and it’s payable in the liquid debt instruments of the owners of USG debt: Federal Reserve Notes.

        Federal Reserve Banks are privately owned; that’s in textbooks and not in informed dispute. To a Federal Reserve Bank, a US Government bond or coin is an asset, while a Federal Reserve Note (a dollar or n dollar bill) is a liability. That’s right on FRBNY’s web site. To repay the debt or to fund the government in coin, paying for a flow with a stock, would destroy the currency. Hence the USG indentures itself ever deeper to private banks.

        I repeat the challenge to MMT believers to document that USG can mark up balances at Federal Reserve Banks without recompense to the banks’ owners for the additional debt those private banks would be assuming. Please link to the ledger or budget entries or even to the laws if you can, not to mere MMT assertions.

        1. charles sereno

          Sorry for descending to “street talk.” Comments on this particular post have been predominantly “dummies” like me. I think that the best trolls go beyond proper grammar. They’re useful idiots, like you, demanding budget or ledger proofs which have been provided on this site over and over again. Put up your own concrete proofs or kindly go away.

        2. EconCCX

          They’re useful idiots, like you, demanding budget or ledger proofs which have been provided on this site over and over again. Put up your own concrete proofs or kindly go away.@charles sereno

          I’d start with the annual report of the Federal Reserve Bank of NY.
          http://www.newyorkfed.org/aboutthefed/annualreports.html

          Download the PDF “Financial Statements.” You’ll see that USG liabilities are FedBank’s assets, i.e. coins and T-Bills. You’ll see that FedBank’s own notes are the circulating currency of the United States. You’ll see the private ownership structure, and that the FR Banks are “separate legal entities.”

          Now, as you’ve asserted that “budget or ledger proofs… have been provided on this site over and over again,” can you link to any that shows the USG marking up its balance at the Fed? USG can no more do that than it can adjust its balance at a commercial bank. To write checks at FedBank, it must relinquish assets to FedBank.

          BTW, I may be a “troll” and an “idiot” but my economics professor was William S. Vickrey, an early proponent of the Job Guarantee. And I’ve owned my copy of MMT progenitor Abba P. Lerner’s Flation for 34 years, and stood with Lerner’s Functional Finance for most of that time. But the evidence supports Soddy, not the MMT neochartalists. Soddy proposed a 100% reserve currency, to make governments monetarily sovereign in reality, rather than in wish-fulfillment fantasy.

          1. Chauncey Gardiner

            Thank you for putting it out there, EconCCX. Rather than an academic “Aha! Gotcha on that one!” moment, suggest you might alternatively consider proposing solutions, including the form a VERY public negotiated settlement of both public and private debts might take, and the structure in its aftermath. Given systemic fragility, including the risks posed by derivatives, this is a very serious matter IMO.

            There are sound arguments both in favor of and against the current structure, but I feel few arguments can be made that has been ethically managed, or that the FED golden goose has been to the net benefit of We the People over the past 25 years.

          2. charles sereno

            First, I think what I said (shortened) was — The best trolls… are useful idiots, like you. Specifically, I wasn’t calling you a “troll” or an “idiot.” You are right to be offended by taking that implication. My intention was to stir up a response because I worried that you might be a troll, useful or not. Obviously, from your response, you’re not, and for that I apologize. At the risk of further complicating things, I take it you’re a senior person, like me. You cite people, mentors even, that are admirable (including 2 Nobelists). However, you answered the challenge I posed (in your final summation) by appealing to Frederick Soddy. Here’s a quote I dug up of his — “Let us now leave generalities and concentrate upon the question as to what precisely humdrum mechanical science can contribute to ECONOMICS. [emphasis mine] It insists primarily on the fact that life derives the whole of its physical energy or power, not from anything self-contained in living matter, and still less from an external deity, but solely from the inanimate world. It is dependent for all the necessities of its physical continuance primarily upon the principles of the steam-engine.” I don’t think the quote is something you’d reject, although it’s several generations old. I have 2 points: 1) Old is not necessarily wrong, even in Economics. This line of thinking, however, is definitely out-of-date; 2) I cannot give you a satisfactory go-uppance by citing chapter and verse from mutually acceptable academic or legal sources about the (MMT) arguments about banking fractional reserves. I’ve seen them, I know they’re there, and many others, more competent than I, can attest to them. I’m breaking all my own rules by taking up this much space. I’m sorry for that, and, again, for quasi-name calling.

          3. docg

            To clarify, I’m not opposed to deficit spending. Nor to economic stimulus. I 100% agree with Roosevelt’s stimulus measures during the Great Depression. And when the crisis hit in 2008, I was among those supporting massive stimulus in the form of a jobs program much like the WPA, as opposed to the huge TARPA giveaway to the banks and bankers, which helped the “economy” but not the people.

            And even today, I’d much rather see more jobs-oriented stimulus than the misguided efforts to lower the deficit proposed by Republicans. However: the deficit per se is not the problem. The problem is the Ponzi scheme fueling it, which has grown far too large and is in fact out of control.

            Call it what you will, justify it as you may with all sorts of technical jargon and rationalization, including all the wonk-speak about the US Govt budget not being like a family budget, the bottom line is that borrowing from Peter to pay Paul with no end in sight is NOT sound policy and sooner or later will lead to disaster. And printing money ain’t any better, just another way to blow the bubble.

            But regardless of any of the above, my real message, as stated above, remains: arguing endlessly over the deficit is charging the cape, not the matador.

            You can argue over deficits forever, but what really matters is that there is in fact PLENTY of money floating around, more than enough for every social program anyone might want.

            “There’s plenty a gold so I been told,

            Heave away, Santy Anno,

            Plenty a gold so I been told,

            Way out in Californio”

            And if you don’t believe me:

            https://www.youtube.com/watch?v=V26i_cHlpgA

            Oh, and by the way:

            “Nassau gals don’t have no combs,

            Heave away, Santy Anno,

            They combs their hair with a kipper backbone,

            All on the plains of Mexico.”

            In case anyone is interested.

          4. EconCCX

            Old is not necessarily wrong, even in Economics. This line of thinking, however, is definitely out-of-date @charles sereno

            Thanks, Charles. We can’t consider Soddy’s contribution to economics from that bare snippet. Here’s our grand discussion on NC, back on May 24. All of NC’s Soddy-oriented commenters out on the field, as never before or since.

            NC:The fable of moral arithmetic

            And a Soddy link cited therein. His clearest, most concise summation of the dangerous, futile and tragic engineering of debt-based money:

            Excerpt from Boyle’s ‘The Money Changers’

          5. Finnucane

            @EconCCX I believe you’re describing legal constraints, not fiscal ones. The government ‘must’ float debt issues I think that’s how people say it), but not in the same sense that a household ‘must’ balance credits and debits in the long term.

            @docg: you’re simply begging the question. If seeing that the state is no simoly a household writ large is too ‘wonky’ for you, then there’s nothing I can do for you. I’ll say, however, that condemning a position as ‘too wonky’ is not the same as proving it, or even alleging it, wrong.

            Please excuse the typos. I’m using a cheap little tablet that’s hard to work with, and the annoying floating ad is getting in the way.

          6. EconCCX

            EconCCX I believe you’re describing legal constraints, not fiscal ones. The government ‘must’ float debt issues I think that’s how people say it), but not in the same sense that a household ‘must’ balance credits and debits in the long term. @Finnucane

            Not being able to conjure up funds in someone else’s bank is more than a legal constraint; it’s a corporeal one. And I did mention, however obliquely, the proof platinum coin proposal wherein the Treasury deposits trillion-dollar coins with FedBank against which USG would write checks. I wrote last month about how this would crash the currency, and invited proponents to offer an alternative scenario.

          7. EconCCX

            Rather than an academic “Aha! Gotcha on that one!” moment, suggest you might alternatively consider proposing solutions…. @Chauncey Gardiner

            With the infinitude of public documents reachable at a click, I don’t think its an academic “gotcha” exercise to ask which ones support a particular claim. Otherwise we run the risk of being persuaded by a collection of self-referential bumper sticker assertions.

            As to my own preferred solution, it isn’t Soddy’s. Gradually complement debt-based currencies with competing service-backed currencies such as digital bridge tolls, Forever stamps and train tokens, denominated not in dollars but in units of the services themselves. Use these parcels of contract value for an ever-increasing share of daily transactions, and withdraw the public guarantee for unsustainable money forms, to where Treasury bills are sound but bank deposit “dollars” are loaned at marketplace risk.

  10. Schofield

    Wouldn’t it be wonderful if we could ever know China’s true debt-to-GDP ratio since they very successfully use MMT?

  11. Susan the other

    Nationalize the banks. If we don’t we’ll have decades more empire building. When sovereign money is controlled by the people there is much less global privateering. (I wonder if that is why the EU was crushed with debt and procrastination.) The rich are hoarding their money waiting for a break, either with Social Security funds or/and opportunities in Africa and Southeast Asia (again). Mitt Romney added South America to his wish list. It looks like a big push to buy up the world for pennies on the dollar. So whatever you do, don’t let Americans know they can control their own economy for their own benefit. The Tea Party turned out to be hapless brownshirts. The CBO was appropriated by a higher agenda. That’s how it looks to me.

      1. Patrick

        Curiosity I suppose. I don’t believe government should be run like a business, or even that business should be run like business as that is currently understood and practiced, but I’d like to know the reason why so many find the debt to GDP so important. I remember as a kid, in the 80s, a teacher once told me that if the deficit reached 50% of the GDP then there would be “serious” problems. He didn’t say why. He probably believed in the Wall Street Journal the way evangelicals do the bible. The link I posted seemed to have all the hallmarks of pro Wall Street propaganda, which is why I posted it. I’m just winking tittles into a cup. Please forgive, I’m one of NC’s least sophisticated readers.

  12. Twonine

    Senator-Elect Angus King was made aware of “A World Upside Down: Deficit Fantasies in the Great Recession” prior to his “debt crisis” town hall with Erskine Bowles. I’m sure he’s set Mr. Bolwes right on the subject by now.

  13. M Hughes

    This scaremongering is very similar to cult-like reverse dianetics: if you don’t tithe, the church won’t have as much money … duh. But, if the church is the people [and it is] we have just as much money, either way. Only difference is how much $ is made available to those who would have us believe that “they” should micro-manage the budget, for our own good, of course. “CBO is not acting as a neutral analyst, as it is tasked to by statue, but a policy advocate.” And, I would add this: Professional Peculators of Politics and Priestcraft are TAKERS. They are “policy” advocates. And it goes like this, “Follow me, do what I say, and everything will be a lot better” and they are always right [it always works out better for them] when they choose to promote their self-serving policies. Some of the TAKERS have long-range plans to do nothing else. ConJobs: Confidence Scammers. Full-time con jobs. …
    “Deficit Fantasies … has the CBO decided to deal honestly with the question? No. …
    If “we” don’t raise enough contributions to meet “our” budget, we may not have enough $ to pay people who should not be on our payroll, in the first place. Oh no.

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