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Ballooning Debt & Deficits: How the Republicans are Making America “Great (in Debt)” Again

By Shlomo Maital

You, dear reader, are as tired of reading about the Republicans’ iniquities as I am of writing about them. Hopefully – this is the last blog on the subject for a very long time.

   The Trump Administration has made hypocrisy an essential element of everything they do, with unqualified support of Republicans, both in the House of Representatives and the Senate.

     The latest 2-year budget?   It calls for massive spending increases in defense and non-defense items, without showing how to pay for them. Add this to the unfunded tax cut.  The result?

* The ratio of debt to GDP will rise to 109% by 2027, and

*   the spending bill will add $1.2 trillion to the deficit by 2019.

   Under Obama, the Republicans rioted over Obama’s free-spending budgets. But it is a fact – deficits have risen far more under Republican presidents (remember Reagan’s tax cuts, unfunded?) than under Clinton and Obama. Clinton in fact balanced the budget!   Obama ran a small deficit.

     Make America great again?   Here is how Trump is doing that.

     Here is the list of countries with triple digit (over 100%) debt to GDP ratios:   Portugal, Italy, Eritrea, Belgium, Mozambique, Japan.

       You’ve done it Trump! You have managed in just one year to help America gain entry, very soon, to this unique club of great nations, with GRRRREAT debt to GDP ratios. America will soon drown in debt, on the Republicans’ watch.   Does this bring new meaning to the word “political hypocrisy”?  

     I predict this Trump Tweet:   GREAT world-leading debt ratio.  Historical. Fabulous.  Debt is great. I know — I did borrow and then bankrupt. Watch me bankrupt America too…piece of cake.  Make America broke.

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Rethinking GDP: Counting Creativity

By Shlomo Maital   

               GDP            

    We have long known that the key measure of our wellbeing, known as Gross Domestic Product, invented by J.M. Keynes, is flawed.  Now, America’s Bureau of Economic Analysis is rethinking GDP measurement.  Among other things, spending on innovation, known as Research and Development, will now be reclassified.  No longer will it be a mere business expense, as generally-accepted accounting procedures.  Instead, as it should be, R&D will be included in gross capital formation or investment.   As Bloomberg Business Week notes, in its latest edition:

    On July 31, the U.S. Bureau of Economic Analysis will rewrite history on a grand scale by restating the size   and composition of the gross domestic product, all the way back to the first year it was recorded, 1929. The biggest change will be the reclassification—nay, the elevation—of research and development. R&D will no longer be treated as a mere expense, like the electricity bill or food for the company cafeteria. It will be categorized on the government’s books as an investment, akin to constructing a factory or digging a mine. In another victory for intellectual property, original works of art such as films, music, and books will be treated for the first time as long-lived assets.

The effect of the change on America’s GDP will be quite small.  The impact will largely be a morale-booster.   For gross capital formation as a per cent of GDP, America ranks 123rd in the world (!) out of 142 countries, according to the Global Innovation Index 2013.    America invests only 16.2 % of its GDP.  If you account for depreciation and obsolescence, and deduct it from that 16 % (which is ‘gross’,  to get ‘net’), about 15% of GDP,  you find that America barely increases its capital stock at all.  U.S. infrastructure (roads, bridges, airports, public transportation, trains)  all show it.  Now, U.S. infrastructure will still look Third World. But at least the investment number will look a bit better.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
June 2019
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