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The Bureau of Economic Analysis ( is the federal government agency that manages the NIPA (National Income and Product Accounts) for the U.S. Just recently we saw the release of first quarter 2018 real GDP growth but these estimates arrive with a considerable delay after the end of a calendar quarter. Often it is useful for individuals to have some advanced predictions about future real GDP. The Atlanta Federal Reserve Bank has a project which generates such predictions, a project called GDPNow. I provide this link here for those interested in a prediction of future real GDP.

It may also be of interest to readers to know that the current forecast for second quarter real GDP growth from this source is now 4.1 percent which, if accurate, suggests that the recent tax reform has indeed had a very substantial impact upon U.S. real economic activity. This should not come as a big surprise since there are other sources of information (such as statements by the Federal Reserve) consistent with the view that the economy is now in a boom.


The 2018 Social Security Trustees Report

June 21, 2018 Leave a comment

The Trustees for the Social Security program recently issued a report on its financial condition (here is a summary of the report), getting substantial media attention. I thought it might be useful here to discuss for readers the report’s statements about the trust fund. Warning: equations lurk below.

An Accounting Constraint

The assets in the Social Security trust fund obey the relationship

End of Period Assets = Assets at the End of Last Period + Interest Earnings + Social Security Payments from Workers – Social Security Payments to the Public

which describes how assets rise or fall over time. So the equation states that assets at the end of, say, 2018 will be assets at the end of 2017 plus interest received on assets plus funds received from workers paying into the Social Security system less any payments made to people by the Social Security system. The last three items are all for 2018. It is true that in the past Read more…

Just Another Day at the California DMV

I follow a blog by John Cochrane who is a Senior Fellow at the Hoover Institution (his blog, The Grumpy Economist, is linked on this blog in the right-hand column). I just read a post that he wrote about going to the California DMV office and, quite honestly, I just stared in disbelief at what I read. Check his full post for all the details but below is a snippet of what he wrote. It speaks for itself. As anecdotes go, this one is a stunner.

I arrived at the DMV yesterday at 9 AM. My number came up at 5:45 — you have to wait anxiously all day as you have 10 seconds to respond to your number. At 6:05, 10 hours after arrival. I was informed it was too late to take my written test so I would have to come back. As usual the place was packed, no food, no drink, two filthy restrooms.

(California has an appointment system but it takes two months to get an appointment, so if you need something now or can’t book a free day two months ahead of time, you wait. 10 hours. Then you still get an appointment to return two weeks later as they won’t get to you.)

Despite 13.2% top income tax rate, 7.5-9.5% sales tax, gas taxed to $3.80 a gallon, California cannot operate a functional DMV. Even Illinois, good old corrupt, bankrupt, Illinois, can operate a vaguely functional DMV. (Direct election of the secretary of state may have something to do with that.)

Estonia, this is not. Piles of paper flow around. Technology is about 1992 — there is a number system, so you don’t stand in line for 10 hours. But no indication where you are in the queue or when they might get to you.

Rebellion was in the air. Most people do not have my time flexibility. The very nice lady next to me had taken the day off work and had to arrange child care, which was going to end at a finite time. This was her second day of waiting. She was ready to start the revolution.

This is not unusual. It’s just a completely normal day down at the DMV.

Financing Government Deficits with Money

May 10, 2018 6 comments

In an earlier post, I described the budget constraint faced by the federal government. Here I want to point out how a deficit can lead to inflation. I will also indicate how the European Union (EU) and Greece are related to this discussion since there is an interesting difference between the U.S. and Greece regarding deficits and inflation.

Financing Deficits by the Central Bank

Suppose that the government has a deficit meaning that its spending for all purposes exceeds its tax revenue and that the government is unwilling to raise tax rates and/or cut spending. Now imagine that lenders will not lend to the government by buying the bonds that the government has tried to sell. In this situation, one financing option (bond sales to the public) for deficits is unavailable.  If nothing else is done to deal with the deficit, the government simply runs out of money and must shut down its operations until new tax money arises. But there is another option in the U.S. and many other countries; the central bank (the Federal Reserve in the U.S.) can buy the bonds sold by the government.

To see how this works, consider what the Fed can do. The government sells the bonds sold by the government and creates bank reserves as a result. Bank reserves would just be deposits at the Fed owned by banks. Those bank reserves will expand the money stock and so we have the Fed “printing” money to finance the government’s deficit. But to paraphrase the late Milton Friedman, inflation is a monetary phenomenon. Thus the government’s deficit can be accompanied by inflation. This appears to be happening now in the socialist paradise of Venezuela. But for Greece the situation is different because of its membership in the European Union (EU). Read more…

The Government Budget Constraint

May 3, 2018 1 comment

My last post reported on the latest Congressional Budget Office (CBO) analysis of the federal government budget showing unprecedented increases in the ratio of government debt to GDP. That ratio emerges from the government’s budget constraint which is the topic addressed here.

The Government Budget Constraint

The government’s sources and uses of funds are collected together into one expression, known as the Government Budget Constraint, which states that the sources of funds must equal the uses of funds by the government. The table below lists these items.

Uses of Funds Sources of Funds
Spending on Goods and Services Tax Revenue
Interest Payments Government Bond Issue
Net Transfer Payments

The uses of funds include spending on goods and services, interest payments, and net transfer payments to the public. This latter category includes, among other things, the Social Security and Medicare programs. So Net Transfer Payments rise as the entitlements crisis unfolds. If interest rates on government debt rise, interest payments by the government must rise as well.

On the sources side of the ledger, the government gets tax revenue which it uses to pay for its spending and/or it may issue government bonds to pay for spending if its spending exceeds its tax revenue. So the CBO report said that the government will be running deficits increasing in size into the future and thus will have to issue increasing amounts of government debt to finance its spending.

But this table does not include the role of the Federal Reserve which is included in a related concept which we discuss now. Read more…

The Latest CBO Long-Term Budget Outlook

The Congressional Budget Office (CBO) is the research shop for Congress. It is their job to provide an analysis of many economic issues and one such task is the budget outlook. Their latest report on the budget contains a picture which speaks volumes about the fiscal position of the federal government. That picture is given below.

This picture is the ratio of the stock of government debt to GDP which the CBO expects to arise given their latest projections for the U.S. economy and the laws on the books which dictate government spending by the federal government. Note that the CBO expectation is that the debt/GDP ratio will rise to levels never before seen in the history of the U.S., even during wars. This picture concisely states the nature of the emerging entitlements crisis. Absent any changes in fiscal policy, there will be historically unprecedented levels of government deficits and spending that are implied by current laws.

But there is one hidden aspect of this picture which the CBO is making. The CBO is assuming that it will be possible to finance the deficits implied by this picture but there is no economist that is able to guarantee such a position. The reason is that deficits of the sizes implied here would be well above the trillion dollar range which would be completely outside our history of experience. Thus there is no way to know, since we have never seen these deficits, that a debt crisis would not emerge (the situation with Greece is instructive on this point). Put differently, we cannot guarantee that the federal government would be able to borrow the funds necessary to achieve the debt/GDP ratios in the graph above.

If the government cannot borrow all that is needed, then what? I will write about this in a follow-up post soon.

Population in “Blue” States

March 23, 2018 Leave a comment

Every so often, I see reports in the media about residents fleeing so-called “blue” states. So in these states, controlled by Democrats, it is sometimes claimed that people are fleeing supposedly because of the government policies driving out residents of these states. I wondered where these numbers came from and so I went to the Census Bureau ( to see if I could verify these media claims. Consider the data that I found.

The U.S. Census is done every decade in the U.S. so the demographers at Census must estimate population in non-census years. California and Illinois are states often mentioned as losing population so I chose these two states in selecting data. The table below has census data from 2010 and the latest estimate for each state in 2017 that I found.

2010 Census 2017 Estimate Change
California 37,253,956 39,536,653 2282697
Illinois 12,830,632 12,802,023 -28609

The numbers reveal that California is estimated to have gained population between 2010 and 2017 while Illinois fits the narrative of population loss. Note there is another aspect of population loss: the population growth rate could decline so it may be that the story can be salvaged by showing a declining population growth rate. But this is clearly not what I have seen in media reports so I did not look for such evidence.

The next census will provide more data about population trends and such new data could possibly salvage the story about migration in the U.S. and the implication of these flows for political parties. Until then, the reader should be skeptical of media claims about population trends between states.

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A blog by John B. Taylor

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One economist's views on economic policy.

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