The correct, non-alarmist framework within which to discuss our fiscal challenges

October 19th, 2016 at 3:31 pm

I couldn’t agree more with David Leonhardt’s anti-alarmist framework regarding the “debt and entitlements” question that’s likely to come up in tonight’s final (woo-hoo!!) presidential debate. David’s rap is much like my own in this recent testimony. It’s particularly germane in this political context because alarmism is often a tactic by those whose true motivation is to undermine and cut social insurance.

–Our debt forecasts have fallen dramatically. There’s still a real, long-term mismatch between tax receipts and spending obligations, but it is much diminished. See Figure 1 here from recent work by budget wiz Richard Kogan.

–Why is it diminished? David appropriately highlights the decline in the pace at which health care costs have grown, a huge source of fiscal oxygen and an important signal of where we have to build on the progress we’ve made. But, as shown in Kogan’s figure 2, declining debt service costs—a function of lower than expected interest rates—is an equally important source of the reduced debt burden.

–Yes, the remaining mismatch is significant, but to call it an “entitlement crisis” merely shows where you put your thumb on the scale. I think of it as a revenue shortfall. Moreover, growing debt simply implies a gap between spending on everything government does and its tax receipts. Thus, one could just as easily label this a “defense crisis,” or a crisis of the unwillingness of Congress to close a bunch of wasteful tax loopholes of the type Trump taps.

–Some in the alarmist crowd like to argue a false equivalency between Trump and Clinton in this space, proclaiming that neither are willing to tackle this long term imbalance. But his plan loses $6 trillion in revenue while hers raises $1.4 trillion. She uses that to pay for her programs, so she’s deficit/debt neutral relative to the baseline. To attack them equivalently on this front is to fail to distinguish between digging the hole much deeper and not doing so.

–So am I (and Leonhardt) absolving presidential candidates from explaining to us how they’re going to deal with this imbalance? I certainly don’t think we could have that discussion rationally in this campaign. Ultimately, the solution involves some combination of higher revenues and spending reductions, but for many years now, congressional Republicans have allowed only the latter. Simply put, we cannot close the budget gap without more revenues. Republican fiscal plans go in exactly the other direction, and I’m not just talking Trump here. Speaker Paul Ryan’s plan is actually quite similar in its damaging budgetary impacts. I give Clinton credit for raising revenues in her plan, though we will ultimately need to get below her $250,000 cutoff.

End of the day, at some point we have to admit that we can’t have $X worth of government forever while raising a fraction of X in revenues. I’m not sure when that conversation should start but I guarantee you it won’t be tonight.



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3 comments in reply to "The correct, non-alarmist framework within which to discuss our fiscal challenges"

  1. Smith says:

    Due to low inflation, the economy running under capacity, unemployment, under employment, low workforce participation, increasing the deficit would be a feature if targeted at creating jobs. By creating jobs I mean creating jobs, for example, some expansion of understaffed government agencies (which in the case of the IRS pay for themselves), or research grants that create jobs. I don’t mean corporate welfare like tax breaks and wage subsidies.

  2. Nonhacker says:

    There’s probably about 100 or fewer people in the world that like to hack in big scales. They’re messed up in the mind. They’re smart in one way, and they love the power it brings. Generally, I believe there might be 20 of these guys within the NSA, another 10 in Russia, another 10 in China and the rest all over the place. These are really, really strange people!

    I have always seen it as our fault for not protecting against this. In other words, don’t blame weirdos, lock them out. Just getting involved in this stuff makes you weird. Protect against it!

    We don’t know if the Russians hacked the DNC! We don’t know that! I would bet you 1000000 somethings that I could do the same thing if I tried. It isn’t that hard. There’s just not that meny people that care what the DNC has to say! We don’t care much! John Podesta? Most people don’t even know the name.

    It could well be Anonymous causing this, or it could be some joker working out of his grandparent’s attic (as opposed to his parent’s basement).

    The government has no plans to deal with this crap, that is the tragedy. I feel like I’m watching a bunch of 6-year olds!

    We just turned this over to the UN, as I understand it. It is no longer under US control. Are you sure the UN is all on the US’ side?

    It is like a bunch of 6-year olds.

    We can do better. Obama’s administration is failing right now. I’m disappointed.

  3. john says:

    What’s the contribution to aggregate wealth of $100 in the hands of the 1% versus $100 in the hands of someone who will spend it? I may be wrong but it seems the multiplier for the spent money compared to the saved money is easily larger.

    Which is to say, investing in the poor (the less than 80th percentile) has a greater ROI than not taxing those who can pay.

    This is the equivalent situation to the “debt and entitlements” situation except that debt does not appear anywhere. And it shouldn’t, as it’s only financing. Spending on positive NPV projects in the aggregate will never ever hurt us. However not doing so will.