Saturday, July 30, 2011

The Clinton Surplus Myth

But don't be fooled by the radio
The TV or the magazines
--Styx

I continue to hear Liberals wax poetic about the purported budget surplus during the late Clinton years. That surplus was an illusion--a product of government intervention and of accounting chicanery.

By 1998, the US economy was riding the wave of an economic boom. Part of that boom was a function of an exciting new technology--the internet. Another part was good old monetary intervention--i.e., loose credit. Together, these factors fueled massive speculation in the stock markets. Although I have no ready access to tax receipt data by category, the late Clinton years saw a massive windfall of capital gains tax receipts.

When a president can blow a bubble on his watch, then the inflow side of the ledger will certainly bulge. The key is for that president to jump ship before that bubble bursts...

Central to the Clinton surplus hoax was the accounting chicanery at work. Government accounting rules permit payroll taxes for Social Security to be treated as inflows. In reality, Social Security taxes are trust payments, not revenue for operations. As we know, however, government has been spending these trust payments, leaving IOUs called Treasury bonds in their place. (Payees into the Social Security system have essentially been transformed into creditors.)

Government borrowing to compensate for spending Social Security trust funds does not show up in the official federal government receipt/outlay data--except as interest expense.

It should be noted that if corporate managers attempted to account for the finances in this manner, then they would be spending some time in jail. Government officials, of course, get to play by their own rules.

The important point is this: During the late Clinton years, the national debt continued to increase.

Countries borrow to cover budget shortfalls.

1 comment:

dgeorge12358 said...

In short, one government agency, the Fed, prints money at minimal costs; another agency, the U.S. Treasury, spends it, but pays an interest to the Fed, which then returns the funds to the Treasury. (Federal Reserve Bulletin, October 2000, p. A5, A26).

If a corporation were to engage in such practices, its officers would soon be languishing in federal penitentiaries.
~Hans Sennholz