This Is BIG (Think Of the Implications): 'California in Surplus' - Paul Krugman/NYT

[tblue37]

65. No, I am actually referring to the common

misunderstanding that makes people think that a "budget surplus" means we have paid off our debt, when in reality it doesn't reduce the debt unless it is actually applied to the debt to do so--which is, of course, not likely to happen.

A surplus just means that the outlays in a given fiscal year are less than what the goverment takes in, but since the outlays include interest on the debt rather than payments on the principle, the "surplus" just refers to a short-term situation, not to a reduction in debt, much less to a paying off of debt. The debt we owe is the total of years and years worth of huge deficits.

In every year that the government runs a deficit, that adds to the total debt, but when it doesn't run a deficit, it's like treading water rather than sinking deeper. If there's a surplus, then the money left over after the current bills (including interest on the debt) are paid can be applied to paying down the debt a little--if the people and the politicians don't mistake it for "free" (unearmarked, unspoken for) money, which, unfortunately, is what inevitably happens, specifically because the politicians deliberately play on the common misunderstanding of what "surplus" means.

The federal government still owes those trillions of dollars, even if the "deficit" disappears in a given fiscal year, and even if we run a Clintonian surplus at some point. That "surplus" doesn't mean we have paid down the debt, but a lot of people mistakenly believe it does. That's why the CheneyBush administration was able to push through ginormous tax cuts--because many people thought the "surplus" left by Clinton meant that there was no more debt to be paid off, so the Republicans were able to convince the public that the government had taken "extra" money in taxes that wasn't needed to run the country, so, the Republicanps said, the government should give that money back.

When the economy goes into a deep recession or depression, hiring collapses, and the government has to act as the employer of last resort, despite the debt, and despite the deficit, which increases the debt. Obama got as much stimulus as he could out of the obstructionist congress, but it fell far short of what was needed. But if the economy starts humming along again, so that we start seeing budget surpluses again, that would be a good time to begin paying down the debt, but that is not likely to happen, because politicians will encourage people to believe "surplus" means we don't owe so much money any more.

IOW, I am agreeing with you that California still has plenty of debt to pay down, even if it has a budget "surplus" this year. I also agree that instead of using a "surplus" to shovel more money at the super wealthy and at huge corporations, we need to invest in infrastructure and social capital. Unfortunately, though, I doubt that will happen, even if we start running surpluses.