Paul Krugman: The Dwindling Deficit
Posted in the Minneapolis Forum
#1 Jan 19, 2013
Its hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument about why we should believe this; its supposed to be part of what everyone knows.
This is, however, a case in which what everyone knows just aint so. The budget deficit isnt our biggest problem, by a long shot. Furthermore, its a problem that is already, to a large degree, solved. The medium-term budget outlook isnt great, but its not terrible either and the long-term outlook gets much more attention than it should.
Its true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy and youre actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, thats already happening.(And similar things are happening at the state and local levels for example, California appears to be back in budget surplus.)
Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much.
Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isnt great but isnt terrible: It projects that the ratio of debt to G.D.P., the standard measure of Americas debt position, will be only modestly higher in 2022 than it is now.
The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesnt look at all alarming.
More at http://www.nytimes.com/2013/01/18/opinion/kru...
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