Republicans and Democrats Both Miscalculated
By R. GLENN HUBBARD and TIM KANE, NYT
TWO years ago, Adm. Mike Mullen, at the time the chairman of the Joint Chiefs of Staff, said that debt was the “single biggest threat to our national security” — not some rogue nation, or terrorist group, but debt. What makes the threat of exploding debt especially dangerous is that it’s not like a faucet that can be easily turned down. Federal, state and city governments in the United States have lost their fiscal grip, and the saga of Detroit’s bankruptcy is just one example.
Astonishingly, when the Congressional Budget Office recently lowered its forecast of future deficits, many voices on the left claimed that the problem had been overblown by “austerity scaremongers” (that’s us). Even more astonishingly, some voices on the right have renewed calls to “starve the beast” now that deficits are supposedly under control.
Both responses are wrong, but for different reasons.
First, “the deficit is now under control” fallacy. The C.B.O. did indeed say that the average federal budget deficit would be $62 billion lower per year than was predicted before. That sounds good, but it lacks context. The C.B.O. still anticipates a 2015 deficit of $378 billion. And Uncle Sam is heading — and this is the best-case scenario — toward nearly a trillion dollars of red ink every year after 2023. In an effort to alert Congress to the danger, the C.B.O. also publishes a more realistic alternative fiscal scenario that anticipates how much will actually be spent by the Treasury in the coming decade. The realistic scenario predicts $1.76 trillion more in debt than the old baseline. For anyone willing to question authority, it gets worse. Both official scenarios naïvely assume a return to old norms of full employment, robust growth and moderate interest rates. How many unfulfilled summers of recovery will pass before policy makers will adjust that rosy outlook?
(More here.)
TWO years ago, Adm. Mike Mullen, at the time the chairman of the Joint Chiefs of Staff, said that debt was the “single biggest threat to our national security” — not some rogue nation, or terrorist group, but debt. What makes the threat of exploding debt especially dangerous is that it’s not like a faucet that can be easily turned down. Federal, state and city governments in the United States have lost their fiscal grip, and the saga of Detroit’s bankruptcy is just one example.
Astonishingly, when the Congressional Budget Office recently lowered its forecast of future deficits, many voices on the left claimed that the problem had been overblown by “austerity scaremongers” (that’s us). Even more astonishingly, some voices on the right have renewed calls to “starve the beast” now that deficits are supposedly under control.
Both responses are wrong, but for different reasons.
First, “the deficit is now under control” fallacy. The C.B.O. did indeed say that the average federal budget deficit would be $62 billion lower per year than was predicted before. That sounds good, but it lacks context. The C.B.O. still anticipates a 2015 deficit of $378 billion. And Uncle Sam is heading — and this is the best-case scenario — toward nearly a trillion dollars of red ink every year after 2023. In an effort to alert Congress to the danger, the C.B.O. also publishes a more realistic alternative fiscal scenario that anticipates how much will actually be spent by the Treasury in the coming decade. The realistic scenario predicts $1.76 trillion more in debt than the old baseline. For anyone willing to question authority, it gets worse. Both official scenarios naïvely assume a return to old norms of full employment, robust growth and moderate interest rates. How many unfulfilled summers of recovery will pass before policy makers will adjust that rosy outlook?
(More here.)
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