Claim: The Long-Term Outlook is "distinctly non-alarming". In his column, Krugman argues that the latest Congressional Budget Office CBO projections are "distinctly non-alarming" except to those engaging in scare tactics. In his recent testimony before the House Budget Committee, he warned that the debt projections could have "significant negative consequences," that further debt increases "could be especially harmful," and that the budget is on an "unsustainable current path. Krugman's claim that the projections are benign is based on the fact that in , debt as a share of GDP will only be as high as levels during World War II.
Arguing debt is sustainable because it is projected to reach a level never before seen except once during a national catastrophe doesn't make sense.
The debt buildup was sustained in part through financial repression and followed by a sustained period of economic recovery and partially due to demographics rapid growth. It was taken at a time when the United States was the only economic super-power and other economies were in shambles.
Finally, it was taken with a clear plan and strategy to pay the debt in the future. Whereas World War II was followed by years of near-balanced budgets, is currently projected to be followed by years of increasing deficits. By the end of the year projection period, debt would equal nearly percent of GDP. As CBO explains , this "could not be sustained indefinitely. If this were not concerning enough, Krugman forgets to mention that the situation could be far worse.
He focuses on CBO's current law baseline, which assumes that Congress does not pass any more doc fixes without gimmicky offsets like this spring's , allows expired tax breaks to remain expired or be paid for both the House and Senate have passed bills to revive them without offsets , and responsibly offsets all new legislation unlike the Veterans Affairs reform or immigration funding bills now being considered.
If Congress acts irresponsibly, as we hope they will not, the situation would be far worse. When the long-term outlook was released, Krugman argued that "CBO has just declared an end to the debt spiral.
Setting aside for a moment the fact the U. As Elmendorf explained and Krugman subsequently corrected , interest rates after the first decade will be higher than nominal growth, not lower. When asked about the staggering number, Nobel laureate Esther Duflo told CNBC, "That is not something that the general public should be worried about for the time being at all. If so, like in an example where a company or governmental agency takes out a loan to build a factory thus creating jobs, then there should be no reason for alarm.
Former Labor Secretary Robert Reich feels now is not the time to be worried about the national debt for exactly the reason Spriggs mentions.
Although Nobel laureate Paul Krugman was not impressed with the current choices of government spending, he was not concerned with the spending itself. He said "even though we've been running budget deficits that are kind of stupid, if you were going to run budget deficits, you should be using the money to build infrastructure to help education, to work on the future.
And instead, we've been using it to get big windfalls to corporations and rich people. New estimates of the federal budget outlook Alan J. Auerbach , William G. Gale Thursday, April 4, Financial markets imply that low rates will persist, but have been wrong at times in the past. We can borrow and consume more if interest rates stay low forever, but if we accumulate a lot of debt and then rates rise, we will face major problems.
Centrist and conservative politicians and pundits constantly seek a balanced federal budget. Former senator Orrin G. Balanced budgets may have symbolic value, but they are not necessary. Rules aimed at forcing balanced budgets make recessions deeper and longer by requiring spending cuts or tax increases during hard times, and they can be manipulated through accounting gimmicks. Almost every state has a balanced-budget rule, but many of them face future fiscal shortfalls focused on health-care and retirement spending , just as the federal government does.
An even more extreme goal is to pay off the entire debt. I think I could do it fairly quickly. As Alexander Hamilton explained, debt can be a blessing: It can facilitate trade, finance national defense, fight recessions, fund investments, and provide liquid and safe assets for investors. What we really need to do is put the debt on a stable and sustainable path. That will be hard enough. Those figures, however, seem implausible.
The CBO, the Federal Reserve and the Blue Chip forecasters all predict annual growth at 2 percent or below after this year, largely because of slowing labor force expansion.
Faster economic growth could help lower debt, but the CBO estimates that raising productivity growth rates by one-third — an enormous boost — would slow the increase in the debt-to-GDP ratio over 30 years by only one-third. But now the debt-to-GDP ratio is three times as large as it was in , and demographics are working against us: Baby boomers were entering the labor force and buying homes in the s and s, but they are retiring now, which will increase spending on Social Security and Medicare.
0コメント