Slammed for time this week, but briefly, the WaPo has an informative piece up re the President’s budget this AM with lots of useful graphics. But once again, the hand wringing over the path of the deficit is terribly misguided.
The figure shows the path of both this year and last year’s budget projections. As you can see, it takes a little longer for the deficit to stabilize at the end of the figure.
Source: Washington Post
This is in trillions, but the main point is that the President’s budget reaches “primary balance,” meaning receipts pay for current services, but not for interest. This corresponds to a deficit of around 3% of GDP, and at that point, you achieve the holy grail of fiscal rectitude: a stable, as in not rising, debt to GDP ratio. The President’s new budget gets there in 2017. (For the record, in later years, the projection is for debt to GDP to start rising again, largely due to pressures from rising health care costs—there is no path to fiscal liberation that does not go through health care.)
But my larger point—besides the fact that this is purely a speculative exercise since neither this nor his last budget came anywhere close to being enacted—is that the slight delay in reaching primary balance is neither important or economically meaningful. It will not change anything for the worse, in terms of markets, bond yields, incomes, or jobs. To the contrary, the reason it takes a little longer to get there is because the President’s budget wisely includes much needed temporary jobs measures.
They say justice delayed is justice denied. It’s not the same with primary balance in the budget. If we try to get there too quickly, we’ll screw up what is finally starting to look a little bit like a self-sustaining recovery.