Infographics: Visualizing The Deficit & Proposed Solutions

Two cool debt ceiling/deficit-related infographics caught my eye today.

The first, by the Center for American Progress, shows the percentage of savings that would come from tax increases under various proposals to address the deficit, including those offered by Obama, the Gang of Six, and the Simpson-Bowles Commission. It backs up the assertion of Paul Krugman and other commentators that Obama has already given a lot to anti-tax Republicans and what he is now offering is actually right-of-center.

The second infographic, from this weekend’s NY Times, shows how our two most recent presidents contributed to the deficit. Policy changes under Bush cost $5.07 trillion while those during Obama’s tenure added $1.44 trillion (projected over ten years). To be fair, Obama’s term isn’t over yet and so far he has increased spending at roughly the same rate as Bush: on average he has added $580 billion in spending for each year of his term, compared to $630 billion a year under Bush. Much of Obama’s new spending, however, was in response to the economic crisis and I think it’s clear that he doesn’t plan to continue increasing spending at the rate we saw during his first two years in office.

Source: The New York Times, July 24, 2011

How To Teach The Recession? The Financial Crisis As Case Study

How do we teach economics students about one of the most fascinating case studies in our recent economic history and one they can probably relate to personally? Hoover Institution fellow John B. Taylor, a well-known economist who teaches at Stanford, has some ideas on how the recent crisis can be used to teach economic theory. As Taylor points out, the history of the recession is still being written so professors will have different views on what lessons it holds. He offers a few of his own in the form of slides from a recent talk he gave on the topic.

Two graphs I found particularly interesting:

Graph by John B. Taylor, Stanford University

Graph by John B. Taylor, Stanford University

The first graph shows the failure of increases in personal income due to the stimulus to increase spending on personal consumption. This data supports Milton Friedman’s personal income hypothesis (PIH) that people make their consumption decisions based on their long-term income expectations, and short-term changes in income (like tax rebates and other temporary stimulus measures) don’t have much of an impact on consumer spending. The second graph shows how targeted incentives – like the “Cash for Clunkers” program that offset the cost of newer, more fuel-efficient vehicles for people who traded in their old cars – can bend the PIH and increase personal consumption spending.

You can find more on Taylor’s blog.

Lessons From the Financial Crisis For Teaching Economics
John B. Taylor // Hoover Institution // June 6, 2011