Let’s take another look at the Congressional Budget Office’s “An Analysis of the President’s 2014 Budget”. On May 18, I pointed out that his budget projects a deficit of “only” 2% ten years from now in 2023, which amounts to a $542 billion deficit in that year, quite a large amount.
There is actually a clearer and rather frightening way to look at the continuing buildup of debt over the next ten years according to the President’s budget. On page 4 of the CBO report, year by year projections are given for each of the following: Debt Held by the Public (on which interest is paid), Gross Domestic Product, Net Interest on the Public Debt, and Net Interest as a Percentage of GDP. The actual amounts for 2012 are: $11.3 trillion in Public Debt, $15.5 trillion GDP, $220 billion Net Interest and 1.4% Net Interest/GDP. These figures all steadily increase during the next 10 years with projected values for 2023 being: $18.1 trillion in Public Debt, $25.9 trillion GDP, $782 billion Net Interest and 3.0% Net Interest/GDP.
Here’s what is so frightening. Right now we’re paying 1.4% of GDP as debt interest but GDP is itself growing at about 2%. So we at least have a small net growth of .6%. But the 1.4% interest for 2012 and 2013 is projected to keep growing steadily and reach 3% in 2023 and then to continue on growing indefinitely after that. This means that either our growth rate continues to steadily increase and hits at least 3% by 2023, and then still goes even higher after that or else our economy will begin to stagnate and go backwards.
We are currently on a perilous course, caused by the enormous accumulation of debt over the past few years, on which we will have to pay interest in perpetuity. It is an urgent matter to rapidly shrink deficit spending way down close to zero in the next few years. We need to find more effective ways to boost the economy than the excessive public stimulus which has put us into this dreadful current situation.
You are obviously quite agitated about the federal deficit– it caused you to attempt last year to unseat a sitting Congressman from your own party and it’s the whole point of this blog.
Over the past six months on this blog alone, you’ve used the terms and phrases “frightening,” “dire fiscal condition,” “urgent fiscal problem,” “time of crisis,” “critical occasion,” “sorely needed,” “urgent task,” “the future of our country depends on it,” “Living within one’s means is such basic and transparently obvious good sense,” “address our dire fiscal predicament before it gets even worse,” “the gravity of our current predicament,” “determine our country’s (and the whole world’s) fate for many years to come,” “it is simply too risky to let the debt go much higher,” “it is only prudent to begin reducing it as soon as possible.” “Absent an unforeseen national emergency this must be our first priority,” “The rapidly exploding national debt is a far too serious and urgent problem to ignore any longer,” “Our survival as a strong nation depends on it,” and “Such a large debt level now and for the indefinite future obviously has very serious negative consequences” (all direct quotes from this blog).
So your language is unambiguous– you feel that not reducing the deficit (and doing it soon) is risking an eminent disaster. In December you even stated it explicitly: “Our first priority must be to rapidly shrink the federal deficit down to zero. Otherwise we are inviting fiscal calamity which can hit at any time without warning.”
I would appreciate it if you would make a post that describes, precisely and in detail, exactly what this calamity/disaster would look like. For as many times as you’ve warned about calamity/disaster, you’re surprisingly vague about the exact nature of it. As far as I can tell, you have four generalities as to the nature of the calamity/disaster, none of which are detailed with enough specificity to judge their accuracy today or to be able to reflect back upon in the future to determine their subsequent correctness over time. They are:
1. Deficits are lowering growth: You often imply (but never exactly say) that our high deficit spending in both the near and long term is antithetical to growth. Is that what you believe? Is your view that the calamity/disaster (or at least a major part of it) we face if we don’t reduce the deficit “immediately” is lower growth? If so, could you explain that more fully? Say the debt ratio stayed at a 70-100% range over the next few (or many) years– what are you contending that would do to growth over what time periods? What if it was 30-50%, or 150-200% over those same periods? What sort of growth/debt combinations over the next year or two (or five or 10) would indicate that your prediction is right? What combinations would indicate you are wrong?
2. High deficits today mean fiscal problems if/when interest rates go up: You have said “As soon as interest rates return to more typical higher levels, interest payments will rise by hundreds of billions of dollars per year, crowding out much other spending.” Can you give an example of the type of crowding out you’re talking about? Specifically what types of things would be crowded out and why? What sort of interest rate/debt combinations over the next year or two (or five or 10) would indicate that your prediction is right? What combinations would indicate you are wrong?
3. High debt levels today lower our ability to deal with unexpected crises in the future: You have said “We can be sure that a new crisis will occur sooner or later leaving national leaders at that time in a precarious position, unless the debt level shrinks significantly in the meantime.” Can you give an example of this kind of crisis scenario and what bad things would happen if crisis occurred when the debt ratio was 100% vs., say, 10%?
4. Entitlement spending: Particularly Medicare/Medicaid. You have made many posts on the problems with the rate of increase in healthcare costs, and I don’t disagree that this is a problem. But specifically how does this relate to the deficit problem? Doesn’t outrageous growth in healthcare costs result in the same fiscal problem for the government regardless of the debt ratio today (or near future)? Are you saying that if we reduce the deficit today we will be able to afford those big increases in the future? Or the big increases today are the cause of the deficits today? If the latter, isn’t your biggest concern really healthcare cost and not the deficit in general?
If, as you state, eliminating the debt is “basic and transparently obvious good sense,” while on the other hand “large debt levels now and for the indefinite future obviously has very serious negative consequences,” it should be easy for you describe in simple, brief, and concrete terms exactly what these negative consequences are and what specific good things will come from deficit reduction today.
Not arguing, disagreeing, or trying to put words in your mouth. I’m sincerely asking for a clarification from you. I just would like to know for the record what you are predicting so that, should we not reduce the debt significantly over the near term, readers (and I) can better judge your arguments today as well as judge the accuracy of your predictions in the future. I’d like to see a full post from you just on this topic.
Even though I consider myself to be basically a political moderate and non-ideological in most respects, I am very definitely a deficit hawk. Also I would much rather shrink the deficit by cutting spending than raising taxes. This gives me a definite point of view which you have accurately described. I have certainly used on this website the expressions which you refer to.
What I am most uncertain about, with respect to fiscal and economic policy, is the proper role of the Federal Reserve. I have no strong feeling as to whether or not the quantitative easing policy which Ben Bernanke and the Fed are now following is likely to work to restore robust growth to the economy. In other words, when either the inflation rate hits 2.5% or the unemployment rate drops to 6.5%, and the Fed begins its exit policy by shrinking the money supply, i.e. selling rather than buying treasury bonds, etc., will the Fed be able to do this quickly and judiciously enough to avoid the rapid increase of inflation which so many people are worried about? If Mr. Bernanke, or his successor, are clever enough to pull this off, everything could turn out well.
So rampant inflation is our biggest worry down the road. And the longer we take to eliminate the deficit, the greater this danger becomes. So far, the Republican House is our strongest bulwark towards getting the federal budget under control. What makes it so hard to do this is the necessity of getting the cost of health care, including Medicare, under control. Can the House Republicans muster the strength to accomplish this? I don’t know because its seems so formidable.
This is the clearest way which I can answer your question at the present time.