Headline Deficit and Structural Deficit

The difference between the rich and the poor and middle class is that the rich are financial literate. The rich can look at a financial statement and can tell you about the financial state of that entity. The rich speak a different language than the poor. For example, they can tell you the difference between a headline deficit and a structural deficit.

A headline deficit from a cash accounting definition equals total outlays less total revenues. For example, a person spent $100 cash last month and brought in only $90 a month. His headline deficit is $100-$90 or $10.

A structural deficit is That portion of the public sector deficit which exists even when the economy is at potential. Government spending beyond government revenues at times of normal, predictable economic activity, as opposed to a cyclical deficit.

A good example of structural deficit is food stamps. Food stamps are mandatory government spending. Foods stamps are a mandatory payment that is due out there. The best description of structural of mandatory spending comes from Glenn Beck form his book Broke:

"When Congress creates a mandatory spending program (i.e the Social Security Program of 1935) it determines two things. First, who is eligible to participate in the program, and second, what the benefit formula (which is used to figure how much each participant receives) will be. From there, the program runs permanently on Autopilot. annual spending is not determined by Congress or the White House, but instead by demographics. Cost are a function of how many people are eligible, how many actually sign up, and where they fall in the benefit formula. So for example, if the poverty rate increases, more people enroll in food stamps, the cost of the program automatically increases, and the increased funding becomes a mandatory government obligation."

When a Michael Maloney says "The United States is the only country in the world where the headline deficit (on a cash accounting basis) and the structural deficit (mandatory spending) are getting larger." To someone that is not financially literate, that statement means nothing to them. On the other hand, a financially literate person will interpret it in a much different way. In short, the US is in financial trouble.

Comments

[Marta]

i think in this case it would be better to point on a difference between a structural and a cyclical deficit, as oppose to a headline deficit and a structural, because a structural deficit is, in fact, a component of a headline deficit and a cyclical deficit is another component.