The Iron Yuppie

Kudlow's Money Politic$: A Roaring Start

I thought this was a very interesting analysis of the budget, and certainly seems to indicate that things are getting better on the deficit front. I am not an economist, so please take all this with a grain of salt, but in last week's announcement about the trade deficit, the following was mentioned in Mr. Kudlow's report:

• After the first three months of the fiscal year beginning last October, cash outlays increased by 6.1% overall, while tax collections grew by 10.5%.
• The 2005 deficit is on track to drop to $355 billion from $413 billion in FY 2004.
• At this pace the new year deficit as a fraction of projected GDP will descend to 2.9% compared to last year's deficit share of 3.6%.

These facts, of course, will be interpreted differently depending if you're in favor or against the Bush administrations policies. Pro, you'll say that his tax cuts encouraged spending and increased employment. Con, you'll say that the economy would have done even more if it had not been for him. Unfortunately, all we have to draw the conclusions from is what you see there. Did the stock market rise because the capgains were reduced? Or did the US government leave money on the table? Ah the challenge of being an economist.

One thing that was mentioned in the comments, which I have no data on either, was that what is actually going on to reduce spending is a shifting of the expenses from federal budget to the states. Interesting thought and this might actually be ideal for how the country appears to be lining up. Today, if you don't like the way your government is behaving when it comes to an issue (stem cell research, as an example), your only choice is to found your company in another country. If states become more empowered, as California has done, you can still do what you'd like to do within the good-ol' US of A.