Tuesday, July 11, 2017

US Leading in Government Deficits

Two weeks ago, I wrote a post about US national debt and deficits and concluded that past governments have put our country in a very tough place with few good options that could restore economic growth. Some friends wondered whether the US is alone is this distinction. So I found some IMF data to compare the US against other key countries.

The first line in the table below gives you US information. After averaging annual government deficits of 3.5% of GDP from 1999 to 2008, the deficit is now 4% in 2017. Thus the deficit is now worse. We had deficits in all 7 years since 2011 with the highest deficit in 2011 of 9.6%.

In all these categories, the US was worse than the EU and the other comparison countries. While all these countries are habitual debtors, Canada was slightly better since it had a surplus in one of those seven years. Germany had only two deficits in those seven years. Wunderbar!

When it comes to 2017, the US and Japan were tied with deficits of about 4% of GDP. Germany posted a surplus in that year of 0.6% of GDP. The UK, Canada, Italy, and the EU had deficits that were smaller (better) than 3% of GDP. The difference between 3% and 4% might seem small but remember we are taking these numbers as a percentage of GDP, which is $15 trillion in the USA. Also keep in mind that four is 33% higher (worse) than three. I next looked at a table with similar data for emerging markets and found that even this comparison is not good for the US. China, Russia, Mexico, Turkey and Romania among many others all had smaller (better) deficits than the US in 2017. Of course the US beat Brazil and Venezuela, Pakistan, and India. Way to go team!

The US stood out from the pack in having recorded the highest one-year budget deficit between 2011 and 2017. Japan came close with 9.1% and the UK's was 7.7%. The rest were virtually half or less than half of the US budget deficit.

Conclusion: the US tends to have larger deficits than other comparable world leaders -- both before the recession and after. We not only have larger persistent deficits but we also juice them higher when faced with a major recession. Apparently government deficits are our drug of choice.

I then found another table that compared the US to 39 other advanced nations. In 2017, there was not one single country with a budget deficit larger than the US deficit of 4% of GDP. There were 10 countries in 2017 that had surpluses: the Netherlands, Luxembourg, Latvia, South Korea, Macao, Iceland, Singapore, Hong Kong, Norway, and New Zealand. These countries typically have budget surpluses.

The US has a deficit problem whether we compare the numbers in dollars, in percent of GDP, in one year or over many. It is clear from looking at 40 major industrial countries that such behavior is neither typical nor desirable. We are hooked on the government spending drug. I think we need an AA meeting.

Budget Data for Selected Countries and Regions
Source: International Monetary Fund, World Economic Outlook, April 2017, Table A8.
2017: Budget position in 2017. Minus indicates deficit.
Fiscal Year 2017 ends September 30, 2017
99 to 08: the average budget position from 1999 to 2008
Change: Change from that average to 2017
# Defs 11 to17: How many deficits from 2011 to 2017
Highest 11 to 17: Highest annual deficit from 2011 to 2017
2017 99 to 08 Change # Defs Highest
11 to 17 11 to 17
US -4.0 -3.5 Worse 7 -9.6
EU -1.5 -2.0 Better 7 -4.2
Germany  0.6 -2.1 Better 2 -1.0
France -3.2 -2.6 Worse 7 -5.1
Italy -2.4 -2.9 Better 7 -3.7
Japan -4.0 -5.5 Better 7 -9.1
UK -2.8   -1.9 Worse 7 -7.7
Canada -2.4  1.1 Worse 6 -3.3


  1. In the 2016 campaign, the deficit was hardly discussed. Few of the Trump and Clinton supporters cared about the deficit. None of the Bernie supporters did. Each group had fantasies about how to solve the problem. Trump imagines a 3-4% growth rate which he imagines will get us out of the deficit. Clinton thought of higher taxes and Bernie wanted to confiscate the wealth of the dreaded 1%. Americans refuse to believe the reality that spending needs to be cut and taxes raised. We are about to see how reality bites with the vote to increase borrowing limit. Thank God for having that vote.

  2. Dear LSD. Yeah, the D.C. gang’s addiction to debt needs assistance. Call 911. Oooops, no answer. Last fall I was encouraged by the R trifecta—WH, House, and Senate. Now more discouraged with bright lighting lighting up the percentage of entitlements vs. discretionary spending: roughly 75% vs. 25% (including interest) and no path in sight to mitigating the former—hate to admit it but Rs are almost as culpable as Ds in ballooning up deficits. Though not germane to your deficit topic, lately folks have been jawboning about the transgenerational distribution of wealth from the young to support the old—Soc. Sec., Medicare, Medicaid—that will sap/hinder potential for economic growth toward DJT’s 3% hopium. Even if the addicts in D.C. could cure their addition us old fogies will be a drag on deficit reduction. I don’t see deficits/debt coming down in my crystal ball. Still no answer @ 911.

    1. Thanks Tuna. AA might be more help than 911. As for us old fogies -- we have known about us for about 50 years. It was predictable how much would be needed to feed our JD habits. But alas, we kicked that can down the road for half a century. Even now there are acceptable reforms to Medicare and SS that might have minimal drag on the economy. But that's no fun. It's more fun sticking a finger in the other party's eye. Medicaid has a part in all this -- the topic of next week's wail. Cheers, Larry