THREAD:
So you're running the U.S. economy.
Q: How big should the U.S. budget deficit be?
A: Bigger than the trade deficit, to avoid crises.
Not expecting that answer? Wondering why? Learn about one of the coolest economic concepts, the sector balances. 1/
There are 3 sectors described by CBO: 1. Govt: The federal budget balance. 2. Foreign: The current account, roughly equal to the trade balance plus some investment-related $ flows. 3. Private: Household savings minus business investment. 2/ cbo.gov/publication/54…
Government sector: CBO uses the federal budget deficit as its measure. In 2020, the U.S. ran a 15% GDP budget deficit; it had been 2.4% in 2014 (about historical average) and increased to 4.6% in 2019. 3/
The foreign sector is the U.S. current account balance (mostly trade plus some investment flows) multiplied by -1, as we view it from the foreigners' perspective. A U.S. trade or current account deficit is a foreign surplus. It has been about 3% GDP for a decade. 4/
The third sector is the private sector, saving minus investment.* It was in deficit from 2002 to 2008, then reversed dramatically in the Great Recession.
*CBO includes state & local government budget balances here, as they use federal budget as government to simplify. 5/
Putting them all into one graph, we see the first graph in the thread again. Note that the 3 balances in 2020 add to zero, as they do each and every year. This is a mathematical identity (equation that must hold true) based on how the sectors are defined. 6/
Yes, you read that correctly. The sum is always zero. Here is the data table used to create the chart, and a handy FRED link for the chart and data. 7/
tps://fred.stlouisfed.org/graph/?graph_id=549449
Looking at the equations in the table in graphic form, you basically have the federal government spending $ into the private sector and removing $ via taxation. You don't want the private sector in deficit (i.e., accumulating debt) for very long; bad things happen... 8/
...like the GR in 2008. Private sector ran sizable deficits in the decade prior, borrowing via foreign surplus and was forced to stop borrowing suddenly and deleverage. Note this drove the government deficit up to maintain the identity. 9/ levyinstitute.org/publications/s…
Trump's goal of lowering the trade deficit and increasing the budget deficit via tax cuts were not compatible. If the red line moves farther from zero, the sum of the blue and green lines must shift up; people spend extra money injected by government on imports too. 10/
Here is a quiz you can use to see if you got it; solutions on next tweet. 11/
Quiz solutions: 12/
So why should the U.S. run a budget deficit larger than the trade deficit (foreign surplus)? Because that's what it takes to have a private sector surplus. You want government steadily injecting money into the private sector, at a level that doesn't create inflation. 13/
If the U.S. takes its trade deficit (~foreign surplus) of 3% GDP as a given, then the budget deficit has to be at least 3% GDP so private sector in surplus. That's the floor. The goal is not a budget surplus.
🧵Monthly economic update, through the February 2025 results, Trump's first month. First, we added 151,000 jobs in Feb and are now nearly 7 million jobs above the pre-pandemic peak, which was regained in June 2022. We've set records for number with jobs monthly thereafter. 1/
Job creation (Establishment Survey) has averaged about 200,000 over the past 3 months, very solid historically. 2/
The more volatile Household Survey was mostly negative, with a 588,000 decline in the number employed and 203,000 more unemployed. The unemployment rate increased from 4.0% to 4.1%, still very low by historical standards. 3/
🧵Where does the national debt come from? 1. Recessions, which cause revenue to fall and automatic stabilizer spending (like unemployment insurance) to rise w/o legislation. 2. Tax cuts 3. Wars 4. Recessions, via stimulus legislation 5. Interest 1/ cbo.gov/sites/default/…
Recessions and the responses (automatic and legislative) are the primary driver. 10 of the last 11 started under Republicans. Every Republican president since Benjamin Harrison, who served from 1889 to 1893, had a recession start on their watch. 2/
Budget deficits have increased under every Republican but Eisenhower, and fallen under every Democrat but Kennedy. Deficits increase/worsen 3.25% GDP on average under Republicans, and fall/improve by 3.0% GDP under Democrats. So who's the party of fiscal responsibility? 3/
🧵Monthly economic review, through the Jan '25 data, Biden's last month. First, we added a decent 143,000 jobs in January. We're up about 6.7 million jobs from the pre-pandemic peak, which was regained in June 2022, and 16.1 million vs. Biden start. 1/ fred.stlouisfed.org/series/PAYEMS
The monthly job creation rate had been fading, but surged in the past 3 months to a robust 237,000 average. This was after benchmark revisions, done routinely each year. 2/
No matter how you slice it, job creation under Biden was faster than Trump, even comparing Trump pre-pandemic (180k/mo) to Biden post-recovery (217k/mo). 3/
🧵The MSM created 4 fake crises (Inflation, Immigration, Housing, and Crime), which helped Trump get elected while hiding record prosperity. Here are slides explaining the counter-arguments to such misinformation, plus a few charts and links included for more details. 1/
Facts regarding the false narratives on housing and crime. 2/
Wages & Inflation should be reported in context. Purchasing power is what matters.
☑️Wages have outgrown inflation.
☑️Real (inflation-adjusted) wages have always been higher than 2019 during 2021-2024.
☑️Biden has the highest avg. real wages among the last 11 presidents. 3/
🧵President Biden's economic legacy, in charts. First, the unemployment rate at 4.1% on average is the lowest (best) among the last 14 presidents, for FRED data back to 1948. 1/
The real (infl-adj) hourly wages for production & non-supervisory workers (the bottom 80% of the private sector) averaged higher under Biden than the last 11 presidents. In other words, workers had more purchasing power under Biden than other presidents, despite inflation. 2/
Taking the first two charts together, Biden has the best combination of unemployment and real wages among the last 11 presidents. This is the best reading on the "Prosperity Matrix" of any modern president. 3/
🧵Monthly economic update, through November:
First, job creation was +227,000 jobs, or +283,000 after upward adjustments to Sept & Oct. We're now +16.4 million jobs from when Biden started and +7.0 million vs. pre-pandemic peak regained in June 2022. 1/
🏆Biden is the only president with positive job creation every month in office.
No matter how you slice and adjust it, job creation is much faster under Biden than Trump:
The unemployment rate increased by 0.1% in November, to 4.2%. The historical average back to 1948 is 5.7%. The 2022 & 2023 annual average of 3.6% was lower than Trump's best of 3.7% in 2019. The last 3.5% year was 1969. 3/