Media Resources on the Deficit/Debt Ceiling from The University of Texas McCombs School of Business
Need some background on the deficit and debt ceiling issues? We've collected the most recent writings we've published on the subject here at The University of Texas McCombs School of Business. Feel free to quote, link to, and repurpose these — but if you repurpose, PLEASE link back to the originals.
Call Renee Hopkins at 512-471-6746 if you have any questions or want to try to reach a potential McCombs source.
Here's the collection of UT and McCombs resources on the deficit and debt ceiling issues:
- McCombs Professor Lew Spellman has been writing about the European debt crisis and the spread of the problem worldwide for Texas Enterprise and for the Alcalde.
- Our Lingo video series of short business-term definitions with whiteboard animation has featured “contagion” among other potentially relevant terms:
- Michael Granof, the Ernst & Young Distinguished Centennial Professor in Accounting at McCombs, recently offered an updated accounting of the government’s financial challenges based on the just-released 2010 U.S. Treasury Financial Report. The bad news, according to Granof, is that we're actually worse off than we think — if more realistic accounting methods are used, the deficit is actually $2.1 trillion. The good news is that there are ways to shrink that deficit, and Granof shares his ideas on how.
- In the four-part Texas Enterprise series Deflating the Deficit: How to Tame America’s Fiscal Beast, reporter Steve Brooks talks to University of Texas faculty members — including Tom Gilligan, Dean of The University of Texas McCombs School of Business, an economist who is an expert on deficits — to get the scoop on the government’s shortfalls. Brooks discovers that the red ink might be even deeper than you thought. He traces the bipartisan history of the crisis. He details how government debt is starting to affect American business. He concludes with some good news: The deficit is deflatable, and UT professors have good ideas on how it can be done.
Here are summaries of and links to the four parts of Deflating the Deficit:
- Part 1: Measuring Our Nation’s Debt -- In early August, America will max out its credit card. In May, the U.S. national debt hit the $14.3 trillion allowed under current law, and about Aug. 2 Treasury Secretary Geithner will run out of options for shifting money around to keep the federal government’s balance sheet under the current debt ceiling. However, unlike you and me, the federal government gets to raise its own credit limit — the debt ceiling. Congress has been playing a high-stakes game of chicken over whether to allow it again. But to Michael Granof, accounting professor at the McCombs School of Business, that $14.3 trillion is just a drop in a bucket of red ink. “The real debt,” he says, “is that number on the balance sheet — plus $43 trillion.” How big are our federal deficit and our national debt, really? Economists use more than one yardstick to measure them. The federal budget uses the shortest yardstick, but to Granof, it’s not necessarily the most accurate one.
- Part 2: How Washington Learned How to Embrace the Deficit — What a difference a decade makes. Eleven years ago, the budget of the U.S. government was $236 billion in the black. Today, it’s $1.6 trillion in the red, and the national debt has nearly tripled. How did it climb so far, so fast? Call it Deficit Attention Disorder: an irresistible urge to cut taxes and increase spending, whether or not the nation can afford it. It afflicts both major political parties, say faculty at the McCombs School of Business. Over the past 80 years, each party has relaxed standards and upped antes, making the national debt perhaps the most bipartisan program ever to come out of Washington. “The parties keep fighting over it, but nothing’s getting done,” says Jim Nolen, senior lecturer in finance at McCombs. “Republicans were supposed to be fiscally conservative, but when they have no checks and balances, they like to spend as much as the Democrats.” It wasn’t always so.
- Part 3: The Deficit Takes a Big Bite Out of Our Economy — When the world’s largest bond fund dumps the world’s safest bonds, the investment world takes notice. That happened over the past year, as the PIMCO Total Return Fund reduced its hoard of U.S. Treasury securities from $147 billion to zero. The culprit, said manager Bill Gross, was the national debt. To date, America’s mounting deficits have been an abstraction, a threat a couple of generations down the line. But there’s evidence, say faculty at the McCombs School of Business, that they’re starting to take a toll on the U.S. economy. “We’re getting close to the tipping point,” says McCombs finance professor Lewis Spellman. One closely watched indicator is the ratio of the nation’s debt to its Gross Domestic Product. Four years ago, it stood at 64 percent. At the end of 2010, it hit 93 percent. That figure sets off alarm bells for some economists.
- Part 4: Solving the Deficit Step by Step — Your doctor sounds the alarm: Your weight has hit the danger zone. You ask for a miracle drug that could slim you down overnight. His matter-of-fact reply: Eat less and exercise more. Like losing weight, the steps needed to deflate the federal deficit are not drastic, say faculty at the McCombs School of Business. The chief obstacle is not economic practicality but political willpower. “We’re a wealthy country with a solid central bank,” says Dean Thomas Gilligan. “We can work through this.” How much should America restrict its fiscal calorie intake? A reasonable target, say many economists, is to maintain publicly-held national debt at its current 62 percent of Gross Domestic Product. With no change in current policies, that number would top 350 percent in 75 years. To bridge that gap, calculates the Treasury Department, will take spending cuts and revenue hikes that add up to 2.4 percent of GDP. That would amount to $360 billion this year, and larger amounts as the economy grows. “That’s what it needs to add up to immediately, and it needs to be lasting,” says McCombs senior lecturer Sandy Leeds. “If we can keep our debt-to-GDP ratio constant over 75 years, it would be an amazing feat.”