Last week the Congressional Budget Office issued its new long-term budget projections. They were little changed from prior projections, but Robert Samuelson still wants to use them as a warning of impending doom.
"Under favorable assumptions, the CBO projects deficits of $7.6 trillion from 2015 to 2024. Under less favorable (maybe more realistic) assumptions, the added debt would total $9.6 trillion. The big drivers are an aging population and rising health spending. ...
"The CBO pronounces present policies 'unsustainable,' but it does not know — no one does — when and how a breakdown might occur or what the consequences might be. It warns that large deficits will crowd out private investment, reducing future living standards. It speculates that excessive debt might someday so frighten investors that they would retreat from Treasury bonds and cause a financial crisis."
Okay, there is lots to have fun with here. First, we get the really big numbers, $7.6 trillion and $9.6 trillion. Are you scared?
Next to no one reading this column has any clue as to what these numbers mean, Samuelson has opted to present them without any context to make them understandable to readers. This must have been a conscious choice on Samuelson's part because CBO actually presents the numbers in context itself. Table 1-1 tells readers that the ratio of debt to GDP is projected to rise because of these deficits from 74 percent this year to 78 percent in 2024. Are you scared now?
If you are worried about the date when we see that "breakdown" or when frightened investors retreat from Treasury bonds and cause a financial crisis, you probably plan to live a very long life. The projections show the debt to GDP ratio rising to 106 percent in 2039. That's not as high as the debt to GDP ratio that we saw at the end of World War II and still far lower than the 134 percent debt to GDP ratio faced by Italy today and the 244 percent ratio in Japan. Due to the fearful investors, Italy now has to pay 2.81 percent interest on its long-term debt and Japan has to pay 0.55 percent.
The other aspect of Samuelson's piece that provides good Monday morning entertainment is that it is totally wrong about the origins of high debts and deficits. As recently as 2008 the debt to GDP was as low as 35 percent. It didn't rise to its current 74 percent because of the moral failings of our political process as Samuelson claims, or at least not the ones to which he points. (The failings have more to do with an over-sensitivity to the profits of the financial industry.) The debt to GDP ratio soared because we actually did have a financial crisis when the housing bubble collapsed and sank the economy. Samuelson seems to have missed this one even though the economy still has not recovered with millions unnecessarily unemployed or underemployed.
The other item worth noting about Samuelson's scare story and morality play is that he never mentions that the reason we face deficits is that our health care costs are hugely out of line with the rest of the world. If we paid the same amount per capita for our health care as people in other wealthy countries we would be looking at huge budget surpluses, not deficits. The reason that we pay more than everyone else is that we pay twice as much for our doctors, our drugs, our medical supplies and blow a fortune on an incredibly inefficient insurance system.
But Samuelson doesn't like to talk about this. It's more fun to complain about greedy seniors.