April 17, 2012
I enjoy teaching, I used to do it for a living. So I am happy to take on the job of teaching David Brooks about the budget so that he does not consistently embarrass himself in his NYT columns.
Today he is trying to give us a balanced assessment of President Obama’s case for his budget. He just puts the facts on the table. Brooks tells us, “I’m not going to pass my own comprehensive judgment on this here.”
The problem is that the facts are not quite as Brooks lays them out. To start with, Brooks seems more interested in scaring people than informing them. He tells readers:
“I’ve based that argument on certain facts. President Obama’s 2013 budget will add roughly $6 trillion to the nation’s debt over the next 10 years. By 2022, Americans will be spending $915 billion on interest payments on the debt alone, a number far larger than that year’s entire defense budget.”
That sounds really really bad. After all, $915 billion is a really big number, can we afford that? The way that you look to answer that question is by comparing the spending to the projected size of the economy. GDP is projected to be $24.7 trillion in 2022. The projected interest spending in that year is then 3.7 percent of GDP. That is somewhat higher than 3.3 percent of GDP we hit in 1991, but not hugely so.
Furthermore, if the Federal Reserve Board continued to hold the $3 trillion in assets it has purchased to boost the economy, much of this interest would be refunded to the Treasury. Currently, the Fed is refunding about $80 billion a year to the Treasury, or a bit more than 0.5 percent of GDP. Its interest earnings would be projected to rise when interest rates go higher. (The Fed could raise reserve requirements to offset the potential inflationary impact of the additional reserves in the banking system.)
[ CORRECTION: Brooks is right here. He said “that” year, not “last” year.] Comparing projected interest payments in 2022 to last year’s defense spending is a joke. Serious people do not compare nominal sums that are more than a decade apart. This is because serious people have heard of inflation. Hey, we’re spending 8 times as much on the military today as we did at the height of World War II. This is true using nominal dollars, but obviously an absurd comparison.]
Brooks then contrasts Obama’s budget with the budget proposed by House Budget Committee Chairman Paul Ryan and approved by the House.
“If you look further out, the situation is worse. According to the Committee for a Responsible Federal Budget, by 2050, Representative Paul Ryan’s budget would cut total public debt to 10 percent of G.D.P. Current law would put debt at 42 percent of G.D.P. Under the Obama budget, debt would skyrocket to 124 percent of G.D.P.”
The problem with this analysis is that it neglects to mention that the Ryan plan would literally shut down most of what we think of as the federal government. According to the Congressional Budget Office’s analysis of the Ryan budget, spending on the military, domestic discretionary spending, and all non-health mandatory spending would fall to 3.75 percent of GDP by 2050.
The military budget is currently more than 4.0 percent of GDP, it has not been less than 3.0 percent of GDP since the start of the Cold War more than 60 years ago. This means that if Ryan wants to keep military spending near its historic levels (he has not suggested otherwise), then he essentially wants to eliminate all federal spending on roads and bridges, education, federal courts and prisons, he wants to shut down the State Department, the FBI, the border police, end all support for research and development. This logically follows from taking Ryan’s numbers at face value.
Obama does not call for shutting down the federal government. Ryan does. So, if we shut down the federal government we will spend less money, what a great idea.
Okay, they are two major problems in Brooks’s story here other than contrasting President Obama’s budget with Representative Ryan’s call for anarchy. First, we don’t make budgets for the next 40 years. President Obama could not decide spending and tax policy in 2040 or 2050 even if he wanted to. We have something called “elections.” The congresses and presidents elected over the next four decades will be deciding policy over this period.
So Brooks is looking at entirely nonsense numbers. No one is deciding today budget policy for the next four decades however delusional they might be to think they have such power. All they are really doing is writing numbers down on spreadsheets. (This is still a good practice, it keeps them off the streets.)
The other supreme silliness in Brooks’s story is that he neglects to mentions the basic fact that his budget horror story is all driven by projections of exploding health care costs. If the United States had per person health care costs were comparable to any other wealthy country, then we would be looking at long-term budget surpluses, not deficits.
This is why serious people focus on the need to fix the health care system, not the budget deficit. If we fix our private health care system, then there is no long-range budget problem. If we don’t, then the economy will be wrecked even if we eliminate the public sector health care programs altogether.
So that is David Brooks’s budget lesson for today. We’ll see if he has learned anything.
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