Friday, October 11, 2013

In which Brad Delong shows that Michelle Nunn is clueless on the deficits...

The 1% has the Democratic Party US Senate race on lockdown. Michelle Nunn is fighting for our great great grandkids while the house is on fire.  Brad Delong has a good break down of why she is clueless...well sort of,  insert Harvard's  Niall Ferguson as Democratic US Senate candidate Michelle Nunn's stand in this morning.

he CBO's 2013 Long-Term Budget Outlook states that, looking into the long-run future of 2013-2038, it projects three things:
  1. The present value of the current debt plus all spending on entitlements plus appropriations growing at the pace authorized by current law is 21.5% of GDP over that period.
  2. The present value of revenues plus the debt that can be allowed as of 2038 in order to avoid any deterioration in the debt-to-GDP ratio is 20.7% of GDP.
  3. The difference between them--the difference between projected outlays and projected revenues--is the "fiscal gap": 0.8% of GDP.
NOT BIG: That 0.8% of GDP in the 2013 LTBO is a small number: it tells us that--under the laws currently in force--the U.S. government's spending and taxes are nearly in balance over the next twenty-five years. And as long as we do not have unexpectedly-bad economic news and as long as the Congress and the President follow PAYGO--pays for tax cuts with spending cuts, and pays for spending increases with tax increases--we will stay in rough balance.
Now the CBO goes on to say that it does not expect Congress and the President to maintain that balance. A year ago, after all, current law required the expiration of all of the 2001 tax-rate cuts. It expects Congress and the President to do things to widen the deficit in the future. That is why it presents its Alternative Fiscal Scenario, in which it assumes that (a) Congress and the President will never implement the reduction in Medicare payments to doctors that Newt Gingrich put into the budget in the late 1990s and that has been postponed since; (b) Congress and the President will undo the sequestration cuts, and (c ) Congress and the President will continue to extend indefinitely "certain expiring tax provisions" that are currently classified as temporary. We do face serious long-run deficit problems. But they are not because of anything in current law--they are because of what the CBO fears future Congresses and Presidents will do to unbalance America's fiscal future.
Niall Ferguson is simply wrong when he writes "the question is not if the United States will default but when and on which of its rapidly spiraling liabilities". And Niall Ferguson is simply wrong when he claims that that is what the CBO 2013 LTBO says: the CBO 2013 LTBO says that America's fiscal gap over the next 25 years under current law is small, but there is reason to fear that legislative changes will unbalance the budget.
(7) True, the federal deficit has fallen to about 4% of GDP this year from its 10% peak in 2009. The bad news is that, even as discretionary expenditure has been slashed, spending on entitlements has continued to rise—and will rise inexorably in the coming years, driving the deficit back up above 6% by 2038.
WHISKEY-TANGO-FOXTROT?!: Here I have a hard time figuring out what the argument is supposed to be. Ferguson forecasts a budget deficit averaging 5% of GDP over the next 25 years. That means that a national debt about the size of annual GDP would grow in nominal terms by 5% every year. But U.S. nominal GDP grows at an average pace of 5% per year as well. Ferguson is thus forecasting a roughly-constant debt-to-GDP ratio--one that will take a generation to rise from its current 75% of GDP to 100% of GDP. How is that a crisis? It isn't. And virtually nobody on Wall Street sees it as a crisis: the term structure of interest rates tells us that interest rates are expected to stay very low for at least a generation to come.

We have two options in Georgia Draft a name that can win.

Or get busy organizing aginst the 1%.

I'm going to go load trucks now....

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