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# The Amazing US Government Receipts-Surplus (Deficit) Relation during the Clinton Presidency

Summary: An amazing linear relation between the US government receipts and the surplus (deficit) was observed during the two Clinton terms. Deficits turned into surpluses as the receipts increased. This can be explained using the classical breakeven analysis for the profitability of a company. Perhaps, we can apply this finding to design the US budget that will produce surpluses year after year.
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## Clinton years y = hx + c = h(x x0) = 0.5845x 945.04 = 0.5845 (x 1616.93) r2 = 0.998

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## Receipts, x [\$, billions]

Figure 1: The US last enjoyed a budget surplus, for four consecutive years, under President Clinton. As the government receipts increased during the Clinton years, surpluses also increased, following a simple linear law as shown here. Deficits disappeared when receipts exceeded the cut-off level x0 = - c/h = \$1616.93 billion.
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A review of the historical budget trends shows that, during the Clinton years, the US government receipts increased year after year. Correspondingly, the budget deficits decreased and turned into a surplus for four consecutive years. Moreover, a perfectly linear relation is observed between the receipts, x, and the surplus (or deficit), y, see Figure 1. All of the available historical data, going back to 1901, may be found in the Fiscal Year 2013 Historical Tables accompanying the Budget of the US Government (click here, Section 1, Overview, directly to Table 1.1).
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## Surplus, y [\$, billions]

200 0 -200 -400 -600 -800 -1,000 -1,200 -1,400 -1,600 0 500 1000 1500 2000 2500 3000

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## Receipts, x [\$, billions]

Figure 2: Historical trends in the government receipts-surplus data, going back to 1901, obtained from Table 1.1, accompanying the Budget of the US Government for Fiscal year 2013. The equation of the best-fit line through the data points, y = 0.5845x 945.03, where x and y are in billions, was determined using classical linear regression analysis. The correlation coefficient r2 = 0.998 (for a perfect correlation, with all points falling exactly on the straight line, r2 = + 1.000). A more detailed discussion is being provided in a companion article (click here), Ref. [1]. A fuller review of
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the receipts-surplus (deficit) relations is also being planned and will be presented in the near future. The Clinton years, as seen in Figure 2, are indeed unique. Notice also that the government receipts have fallen recently along with the alarming increase in the deficits now exceeding a trillion dollars each year, since FY2009. The cut-off receipt x0 is similar to the fixed costs associated with the operation of a business and can be understood as follows. Consider the simple case of a company making and selling N units of some product. The total cost C associated with the operation is the sum of the fixed cost a and the variable cost bN where b is the unit variable cost. The revenues R generated from the sales of the N units equal pN where p is the unit price. Since Profits = Revenues Costs, it follows that P = R C = pN a bN = (p b)N a. Eliminating N, using N = R/p, we get the following simple relationship between profits P and the revenues R. P = [(p b)/p] R a or y = hx + c = h(x x0) Slope Intercept (1)

h = 1 (b/p) depends on unit variable cost b and unit price p c = - a depends on the fixed costs

Equation 1 implies a linear relation between revenues, lets call it x, and the profits, lets call it y. Profits will appear only if the revenues x exceed the minimum, or cut-off, level x0 = - c/h = ap/(p b) which depends on the complex interaction of the three constants a, b, and p in the breakeven analysis. Exactly the same considerations apply for the governments finances. Indeed, the equations 2 and 3 below are mathematically identical statement with receipts being just like revenues, surpluses (deficits) being just like profits (losses) and outlays being the same as costs of a company. Surplus = Receipts Outlays or S = R O Profits = Revenues Costs, or P = R C (2) (3)

These simple considerations also explain why the deficits turned into surpluses during the Clinton years. Perhaps, we can now apply these same principles to the designing a budget that will produce a surplus, year- after-year.
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It should be noted that the US enjoyed an uninterrupted period of budget surpluses from 1920 to 1930 but the remarkable linear relation observed during the Clinton years was NOT observed.

Recent articles on the Budget, US National Debt and Analysis of Corporate Profits-Revenues Data
1. The Clinton Budget Surpluses: Treating Government like a Business http://www.scribd.com/doc/105819500/The-Clinton-Budget-SurplusesTreating-Government-like-a-Business , Published September 13, 2012. 2. From Debt-free to \$16T: Lessons to be learned, Sep 11, 2012, scribd.com, http://www.scribd.com/doc/105651734/From-Debt-Free-to-16T-Lessons-to-belearned 3. The US National Debt Growth Rate: The Clinton-Bush-Obama Transitions, Sep 6, 2012. www.scribd.com < http://www.scribd.com/doc/105058946/The-US-National-Debt-Growth-RateThe-Clinton-Bush-Obama-Transition > 4. The Rate of Growth of the National Debt: The Obama versus Bush years, Sep 4, 2012. www.scribd.com < http://www.scribd.com/doc/104803209/TheRate-of-Growth-of-the-National-Debt-The-Obama-versus-the-Bush-years > 5. Is Taxing the Rich an Option for Budget Deficit Reduction?, Sep 2, 2012. www.scribd.com < http://www.scribd.com/doc/104661297/Is-Taxing-the-Richan-Option-for-Budget-Deficit-Reduction > 6. A Second Look at Microsoft after the Quarterly Loss, July 30, 2012, www.scribd.com < http://www.scribd.com/doc/101518117/A-Second-Look-atMicrosoft-After-the-Historic-Quarterly-Loss > 7. The Perfect Apple II, July 30, 2012, www.scribd.com < http://www.scribd.com/doc/101503988/The-Perfect-Apple-II > 8. Google Inc. A Lovable One-Trick Pony Another Single-product Company Analyzed using the New Methodology. http://www.scribd.com/doc/98825141/Google-A-Lovable-One-Trick-PonyAnother-Single-Product-Company-Analyzed-Using-the-New-Methodology, Published July 1, 2012.
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9. Kia Motor Company: A Disappearing Brand http://www.scribd.com/doc/99333764/Kia-Motor-Company-A-DisppearingBrand, Published July 6, 2012. 10.Why Cant General Motors be more like Microsoft?, Aug 22, 2012. www.scribd.com < http://www.scribd.com/doc/103607023/Why-Can-tGeneral-Motors-be-more-like-Microsoft-The-new-GM-may-just-be > 11.The new GM: A Brief Analysis of the Profits-Revenues data through 1Q2011, Aug 22, 2012, www.scrib.com < http://www.scribd.com/doc/103600274/The-New-GM-A-Brief-Analysis-of-theProfits-Revenues-Data-through-1Q2011 > 12.GM Before the Bankruptcy: Maximum point on the Profits-Revenue Graph, Aug 25, 2012, www.scribd.com < http://www.scribd.com/doc/103938349/GM-Before-the-Bankruptcy-MaximumPoint-on-Profits-Revenue-Graph>

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## About the author V. Laxmanan, Sc. D.

Email: vlaxmanan@hotmail.com The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the ground-based experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by
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Planck, referred to here as the generalized power-exponential law, might actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law, as we see here, and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton.

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