Taggert J. Brooks, PhDChair and Associate Professor of Economics

University of Wisconsin-La Crosse

Budgets: Austerity vs. Investment

Long run versus Short run

Short run

12345678910111213141516171819202122232425262728293031323334353637383940414243444546474849505152535455565758596061

-8

-6

-4

-2

0

2

4

6

8 Postwar Recessions (1946-2008): Cumu-lative Decline from NBER Peak (pct)

1990

2001

2007

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4

2012Q1

-8%

-6%

-4%

-2%

0%

2% Change in GDP since Q1 2008

US

France

Germany

Spain

Italy

The Fiscal Cliff

Long run

Growth in Real GDP/capita, 1300-2100

Government Spending

Defense Infrastructure Education Transfers Health Other?

Medicare and Med-

icaidDefenseSocail Se-

curitySafety Net

Benefits for VetsInterest

Infrastruc-ture

Education

Research

International

Other

0 5 10 15 20 25 30

Federal Spending as % of Budget

Future versus Present

Present

-15.0

-10.0

-5.0

0.0

5.0Actual Budget Balance with 5 Year OMB Forecasts

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0Budget Balance as Percentage of GDP

Year Democrats

JapanGreece

ItalyBelgiumPortugal

United KingdomIceland

HungaryFranceAustria

United StatesIreland

NetherlandsSpain

PolandGermany

TurkeyFinland

DenmarkSlovak RepublicCzech Republic

CanadaSweden

KoreaNew Zealand

MexicoNorway

SwitzerlandLuxembourg

Australia

0 20 40 60 80 100 120 140 160 180

2010 Debt to GDP Ratio

1913 1921 1929 1937 1945 1953 19611969 1977 1985 1993 2001 20090

25

50

75

100

Top Marginal Tax Rate

Democrats

DenmarkSwedenBelgium

FranceFinlandNorway

SpainUnited Kingdom

IsraelGermany

CanadaPolandGreece

SwitzerlandJapan

United StatesTurkeyKoreaChile

MexicoOECD Ave

0 10 20 30 40 50 60

Taxes as Percent of GDP 2005

Future

Means-Tested Transfers

AFDC/TANF (Temporary Assistance to Needy Families)

CTC (child tax credit) EITC (earned income tax credit) Medicaid SSI (Supplemental Security Income), WIC (The Special Supplemental Nutrition

Program for Women, Infants, and Children) Food Stamps, General Assistance, Housing

Assistance, Free and Reduced Lunches

Social Insurance Transfers

SSDI (disability insurance), Medicare, Social Security Retirement, UI (unemployment insurance), Veterans Benefits, WC (workers compensation)

Transfers to All

Medicare Social Security Retirement

1960197519902005202020352050206520800

10

20

30

Medicare and Medicaid Spending Only

Ryan’s Cap Federal Spending

Percent of GDP

19601970198019902000201020202030204020502060207020800

10

20

30

40

50Spending as a % of GDP

Medicare and Medicaid

Ryan’s Cap

Total Fed Government Spending

Louis D. Brandeis

“We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”

-

5.0

10.0

15.0

20.0

Top 1% of Income Earners Share of Total Income – U.S.

Louis D. Brandeis

“We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”

Thanks. Questions?

Taggert J. Brooks, PhDAssociate Professor of EconomicsUniversity of Wisconsin-La Crosse