Debt Disaster Dead-Enders

Paul Krugman, NYT
July 22, 2014 4:33 pm

I got some correspondence from people telling me to read Rob Portman’s op-ed in the WSJ, intended to refute the growing evidence that the budget deficit has been grossly overrated as an issue. And it is an interesting piece — it’s a very good illustration both of the desperate desire to see a debt crisis, and what happens when someone (Portman, or more likely the staffer who wrote it) tries to be a Very Serious Person without actually understanding the numbers or having followed any of the analysis.

One thing you need to know is that none of Portman’s numbers refer to the CBO‘s baseline scenario; instead they refer to a much more pessimistic alternate scenario. That’s something he should have shared with readers.

And what you should know about that alternate scenario is that well over half of the projected spending rise he complains about has nothing to do with entitlements; it’s about rising interest payments, because the alternate scenario both assumes that spending will be higher and revenue lower than in the baseline, and that nothing will be done to remedy this situation, so that debt grows without limit. Oh, and those interest payments greatly overstate the real burden of debt in a growing economy with inflation.

(More here.)