CBO estimates that federal debt held by the public will equal 74 percent of GDP at the end of this year and 79 percent in 2024 s. 4 (the end of the current 10-year projection period). Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government’s debt).
Some possibilities:
1. The CBO are Koch-funded austerians.
2. Just like the reduction in hours worked that the CBO forecasts for Obamacare, eventually increasing the risk of a fiscal crisis is actually a good thing.
3. More government debt gives the Fed more debt to buy, which in turn makes the stock market happy.
#3 may be partly true, until it spectacularly isn’t. It could even work out if Sam were still in the positive npv coordination/public good solution business he gave up a century ago.
You weren’t convinced by the Krulong “debt’s okay ’cause we owe it to ourselves” meme?
Yeah, me neither.
4. Projecting the fiscal situation even 10 years from now, much less longer, is more-or-less impossible (see the projections from 10 years ago, when the CBO projected a significant surplus by 2014 in its 2003 release). Economic projection is the CBO’s raison d’être, though, so they have convinced themselves that such projections must be taken seriously and bloviate as such.
5. In the US a 79 vs a 74 percent debt to gdp ratio carries virtually no greater chance of fiscal crisis, but the CBO gets its cachet and relevance from debt fears so they play up the possible effects of debt.
You can’t 1. Cry “public choice” whenever a liberal argues for government action, then ignore the public choice pressures on goverment officials you agree with. Obviously anyone in charge of the CBO would magnify the importance of CBO fiscal projections, using whatever argument is convenient. 2. Argue that the government can’t manage projects well for reasons rooted in uncertainty and lack of competition, then treat figures rooted in the assumption that the government can predict the macroeconomy for a decade at face value.
Based on your world view, your reaction to CBO budget projections should be that they are little-more than self-interested noise. That happens to be a view fully supported by their historical inaccuracy.
What, specifically, are the public choice pressures on the CBO? They exist aplenty for congressional staffers, who can arbitrage their expertise in minutiae on K Street after a given number of years –enjoying thereby an incentive to create as much minutiae as possible –, or bureaucrats at any major federal agency who do basically the same thing for the same reasons and go on to work with federal contractors, public-interest law firms, and c. (often while collecting a federal pension). But where for the CBO? Projections like these, or the 2003 report you cite, will always please as many people as irritate them. As far as the CBO is concerned, the house always wins — so where is their incentive?
I agree, and I imagine Dr. Kling would too, that the projection understood as a prediction is not much this side of worthless (it could as easily be too optimistic as too pessimistic). However, as an understanding of the structural status of public debt, it’s valuable: the debt is large and absent unknown factors isn’t going anywhere soon — here are the parameters of that as we can best understand them. That leaves the reasonable policy question of what risk, if any, that amount of debt poses.
There is also the consideration that to the extent Elmendorf’s staff are the sorts of government employees who’d get the first haircut in a regime of real austerity (as opposed to SS recipients) I’m not sure what incentive Elmendorf would be under to dramatize the deficit problem.
I totally disagree that the CBO’s projections are useful for understanding the deficit, because I think “the future deficit absent major changes” isn’t a useful thing to think about, especially if “absent major changes” is a requirement you are imposing by fiat rather than an actual prediction. Policy and the economy haven’t avoided major changes over a ten year window for a very, very long time: cetera simply won’t be paria in this case. You respond to that by saying, “well that makes these projections useless as predictions, but they are still useful as tools to explain the current situation,” but I don’t see how a prediction that is useless is a prediction has much explanatory power.
So yeah, if you want a good look at the state of the budget now, look at the budget now. If you want to guess what the budget will be like ten years from now, to figure out the present value of future obligations, whatever, then engage in the fuzzy-headed and difficult process of predicting the future of 1. the economy, and 2. US policy. But simply projecting out current trends and pretending its useful is exactly the sort of useless sophistry that, in almost any other context, Kling rails against. Project how your policy will effect the healthcare market in 10 years and you are a fool. Project how every policy will effect every market (and vice versa) ten years from now and we’ll blog about it.
Meanwhile, the CBO’s incentives are to deny that that is true. They want to play up the importance of 1. projections in general, and 2. whatever projections they are making. If projections are important and if their projections show important things then they are men worth listening to, worth funding. All those assumptions together mean living in a world where meaningless projections showing the debt to gdp ratio at 79 percent are significantly more worrying than meaningless projections showing a debt to gdp ratio a few points lower. But we don’t need to live in that world, and shouldn’t volunteer to just because it supports our policy preferences.
To be clear, I’m not saying “don’t worry about debt in the future.” I’m just saying “don’t pay any attention to this report.” If you’re worried about the debt it’s because of decades long trends and your underlying economic models, not because of anything the CBO will or won’t say today or tomorrow. That’s because what the debt will be ten or twenty or thirty years from now, and what we should do about it now, are enormously hard questions. Answering them requires tying in guesswork, economics, history, political science, etc. It does not require, and is not helped by, ceteris paribus projections of current trends. If I seriously adjusted my priors every time the CBO spoke about the future I would have been predicting years of surplus in 1999, years of deficit in 1989, etc. Not very useful stuff, either for making predictions *or* for understanding the state of the current budget.
Or put it this way: imagine Kling gets to chose between a balanced budget amendment that requires congress to adopt a budget projected t,o be balanced 1. One year in the future, 2. Ten years in the future, or 3. One hundred years in the future. Which do you think Kling wold adopt? If the projections give the most full accounting of the “structural status of public debt,” shouldn’t we focus on them, and pick longer time frames?
The CBO predicts as well as Congress, by definition of its mandate. If We believes that Congress predicts badly, then We admit that We are better predicters than Congress. Therefore We will necessarily contnually raise the price of Congressional goods until Congress is sufficiently shrunk to make We’s accuracy and Congressionall accuracy match; to within the accuracy of the dollar. And my accuracy in observing these trends is not that good.
Even “we owe it to ourselves” isn’t as crazy as “public debt is a fiction”: http://tinyurl.com/pmq927h. It’s sad that those of us on the other side have to keep explaining that debt is a promise to make payments and credit risk is the risk that those payments won’t be made.
4. We owe it to ourselves.
Debt is wealth.
War is peace.
Debt freedom is debt slavery??