CBO Warns of Ballooning U.S. Debt

exGOPer

exGOPer

A new CBO reports says the national debt “is on track to nearly double as a share of the economy over the next 30 years,” NBC News reports.

“Federal debt is currently equivalent to 78 percent of the country’s annual Gross Domestic Product, with the report estimating it will rise to 100 percent of GDP by 2030 and 152 percent by 2048. The share of debt would surpass records set in the World War II era.”
 
Who. Cares.
You hero, Paul Krugman sure as hell doesn't. Why is debt a problem now, when it wasn't during Obabma's term?

Why taxes are overrated as economic policy
Ezra Klein
Let’s begin with taxes. I was talking to Glenn Hubbard, the Columbia economist who was George W. Bush’s chief economist, and he made a point about taxes and tax bills that I thought was interesting. He said the way to assess a tax bill is to ask: If this is the answer, what was the question? So if the tax bill that passed the Senate is the answer, what was the question?

Paul Krugman
In practice, this looks a whole lot like, “Goddammit, we've got to pass something, otherwise we've been in control of the government for a year and we haven't accomplished anything whatsoever.” It’s like the old Yes, Minister joke, “We must do something. This is something. Therefore, we must do this.”

Ezra Klein
How would you design a maximally pro-growth tax reform bill?

Paul Krugman
My general principle is that taxes, as an issue, are just way, way overrated in economic policy. There’s very little evidence from economic history that they matter much at all, at least in the ranges we are talking about.

Believe it or not, Paul Ryan’s original proposal was a sensible proposal, which had backing from Democratic-leaning economists as well. If it were actually on the table, I probably would be saying, “Yeah, I'm in favor of this as long as it's deficit-neutral,” but the actual proposal looks nothing like that.

Ezra Klein
Republicans are adding a trillion or more onto the debt over the next decade, and probably more after that, to pass this bill. This is after Republicans spent all of the Obama years saying that debt is the biggest problem facing the country.

Democrats are calling them hypocrites for that. But Matt Yglesias had an interesting piece the other day arguing that Republicans are right: Debt and deficits don’t matter that much, the bond markets are not freaking out over this tax bill, and Democrats should rethink their position here. So do debt and deficits matter, and if so, when?

Paul Krugman
The United States is in a range where we really should not be worrying about debt. Britain spent most of the 20th century with debt levels well above what we have now, and never seemed to have any problem with that. Japan has debt of 200 percent of GDP, and people keep betting against Japanese government bonds, saying that there's bound to be a crisis; people call that the widowmaker trade, because so many people have lost so much money betting that the markets are going to reject Japanese debt.

It turns out that advanced countries, politically stable countries, have a tremendous amount of leeway on debt. We are nowhere close to anything that looks like a red line. If there's something we ought to be doing, we shouldn’t let the deficit impact deter us from doing it.

Ezra Klein
Given that there are a lot of smart people who are a lot more worried about US debt than that, where do you think their theory goes wrong?

Paul Krugman
I don’t think there's a theory. We have an economy that’s growing. We have a little bit of inflation. The interest rates on our long-term debt are pretty low. If you actually do the simple models, and I'm a big believer in simple models, they say that the kinds of debt levels we now have are really nothing at all to be paying much attention to.

[The debt hawks] don’t have a theory; they have a feeling. It's a sense that somehow we must pay a price for these debts. I think a lot of the deficit and debt stuff just comes because it sounds serious.

Ezra Klein
My sense on the Democratic side of the debate is some of it is playing off a story about the Clinton years that goes like this: Interest rates were high, government borrowing was crowding out the private market, that made it hard for private players to invest and grow the economy; [then] Bill Clinton brought down the debt, that brought down interest rates, or allowed the Federal Reserve bring down interest rates, and that got us an economic boom.

Interest rates are low now, but my understanding is the theory is at some point the markets turn and they spike.

Paul Krugman
It's very hard to try and tell a coherent story about how this alleged debt crisis can even happen. I've been through this. I've given presentations at the IMF, where I say, “Look, I believe for a country that looks like the United States, a debt crisis is fundamentally not possible,” and people will say, “Well, I can't quite fault your logic here, but I don’t believe it.” It really is more about a gut feeling than it is about any kind of theory.
 
Arnie said:
Who. Cares.
You hero, Paul Krugman sure as hell doesn't. Why is debt a problem now, when it wasn't during Obabma's term?

Why taxes are overrated as economic policy
Ezra Klein
Let’s begin with taxes. I was talking to Glenn Hubbard, the Columbia economist who was George W. Bush’s chief economist, and he made a point about taxes and tax bills that I thought was interesting. He said the way to assess a tax bill is to ask: If this is the answer, what was the question? So if the tax bill that passed the Senate is the answer, what was the question?

Paul Krugman
In practice, this looks a whole lot like, “Goddammit, we've got to pass something, otherwise we've been in control of the government for a year and we haven't accomplished anything whatsoever.” It’s like the old Yes, Minister joke, “We must do something. This is something. Therefore, we must do this.”

Ezra Klein
How would you design a maximally pro-growth tax reform bill?

Paul Krugman
My general principle is that taxes, as an issue, are just way, way overrated in economic policy. There’s very little evidence from economic history that they matter much at all, at least in the ranges we are talking about.

Believe it or not, Paul Ryan’s original proposal was a sensible proposal, which had backing from Democratic-leaning economists as well. If it were actually on the table, I probably would be saying, “Yeah, I'm in favor of this as long as it's deficit-neutral,” but the actual proposal looks nothing like that.

Ezra Klein
Republicans are adding a trillion or more onto the debt over the next decade, and probably more after that, to pass this bill. This is after Republicans spent all of the Obama years saying that debt is the biggest problem facing the country.

Democrats are calling them hypocrites for that. But Matt Yglesias had an interesting piece the other day arguing that Republicans are right: Debt and deficits don’t matter that much, the bond markets are not freaking out over this tax bill, and Democrats should rethink their position here. So do debt and deficits matter, and if so, when?

Paul Krugman
The United States is in a range where we really should not be worrying about debt. Britain spent most of the 20th century with debt levels well above what we have now, and never seemed to have any problem with that. Japan has debt of 200 percent of GDP, and people keep betting against Japanese government bonds, saying that there's bound to be a crisis; people call that the widowmaker trade, because so many people have lost so much money betting that the markets are going to reject Japanese debt.

It turns out that advanced countries, politically stable countries, have a tremendous amount of leeway on debt. We are nowhere close to anything that looks like a red line. If there's something we ought to be doing, we shouldn’t let the deficit impact deter us from doing it.

Ezra Klein
Given that there are a lot of smart people who are a lot more worried about US debt than that, where do you think their theory goes wrong?

Paul Krugman
I don’t think there's a theory. We have an economy that’s growing. We have a little bit of inflation. The interest rates on our long-term debt are pretty low. If you actually do the simple models, and I'm a big believer in simple models, they say that the kinds of debt levels we now have are really nothing at all to be paying much attention to.

[The debt hawks] don’t have a theory; they have a feeling. It's a sense that somehow we must pay a price for these debts. I think a lot of the deficit and debt stuff just comes because it sounds serious.

Ezra Klein
My sense on the Democratic side of the debate is some of it is playing off a story about the Clinton years that goes like this: Interest rates were high, government borrowing was crowding out the private market, that made it hard for private players to invest and grow the economy; [then] Bill Clinton brought down the debt, that brought down interest rates, or allowed the Federal Reserve bring down interest rates, and that got us an economic boom.

Interest rates are low now, but my understanding is the theory is at some point the markets turn and they spike.

Paul Krugman
It's very hard to try and tell a coherent story about how this alleged debt crisis can even happen. I've been through this. I've given presentations at the IMF, where I say, “Look, I believe for a country that looks like the United States, a debt crisis is fundamentally not possible,” and people will say, “Well, I can't quite fault your logic here, but I don’t believe it.” It really is more about a gut feeling than it is about any kind of theory.
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Did you actually comprehend what he said, if you did, how did you come to your moronic conclusion?
 
Arnie said:
Why is debt a problem now, when it wasn't during Obama's term
More...
It was a problem during Obamas term but most of Obamas debt was from paying for George Bushs policies and Obama improved the situation by cutting the 1.2 trillion dollar deficit bush left in half to 600 billion(which trump has increased back to over a trillion )
 
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Tony Stark said:
It was a problem during Obamas term but most of Obamas debt was from paying for George Bushs policies and Obama improved the situation by cutting the 1.2 trillion dollar deficit bush left in half to 600 billion(which trump has increased it back to over a trillion )
More...

Republican voters get dumber and dumber every year. You really can’t help them by talking logically.
 
For anyone who doesn’t understand economics, we are in a nightmare scenario where our economy is hitting on all cylinders but we cannot pay down or even stabilize our debt.

Think about that. Trump’s fiscal policies has put us in a position where even a good economy creates record debt. What will happen when there is a downturn in the business cycle?
 
Arnie said:
Who. Cares.
You hero, Paul Krugman sure as hell doesn't. Why is debt a problem now, when it wasn't during Obabma's term?

Why taxes are overrated as economic policy
Ezra Klein
Let’s begin with taxes. I was talking to Glenn Hubbard, the Columbia economist who was George W. Bush’s chief economist, and he made a point about taxes and tax bills that I thought was interesting. He said the way to assess a tax bill is to ask: If this is the answer, what was the question? So if the tax bill that passed the Senate is the answer, what was the question?

Paul Krugman
In practice, this looks a whole lot like, “Goddammit, we've got to pass something, otherwise we've been in control of the government for a year and we haven't accomplished anything whatsoever.” It’s like the old Yes, Minister joke, “We must do something. This is something. Therefore, we must do this.”

Ezra Klein
How would you design a maximally pro-growth tax reform bill?

Paul Krugman
My general principle is that taxes, as an issue, are just way, way overrated in economic policy. There’s very little evidence from economic history that they matter much at all, at least in the ranges we are talking about.

Believe it or not, Paul Ryan’s original proposal was a sensible proposal, which had backing from Democratic-leaning economists as well. If it were actually on the table, I probably would be saying, “Yeah, I'm in favor of this as long as it's deficit-neutral,” but the actual proposal looks nothing like that.

Ezra Klein
Republicans are adding a trillion or more onto the debt over the next decade, and probably more after that, to pass this bill. This is after Republicans spent all of the Obama years saying that debt is the biggest problem facing the country.

Democrats are calling them hypocrites for that. But Matt Yglesias had an interesting piece the other day arguing that Republicans are right: Debt and deficits don’t matter that much, the bond markets are not freaking out over this tax bill, and Democrats should rethink their position here. So do debt and deficits matter, and if so, when?

Paul Krugman
The United States is in a range where we really should not be worrying about debt. Britain spent most of the 20th century with debt levels well above what we have now, and never seemed to have any problem with that. Japan has debt of 200 percent of GDP, and people keep betting against Japanese government bonds, saying that there's bound to be a crisis; people call that the widowmaker trade, because so many people have lost so much money betting that the markets are going to reject Japanese debt.

It turns out that advanced countries, politically stable countries, have a tremendous amount of leeway on debt. We are nowhere close to anything that looks like a red line. If there's something we ought to be doing, we shouldn’t let the deficit impact deter us from doing it.

Ezra Klein
Given that there are a lot of smart people who are a lot more worried about US debt than that, where do you think their theory goes wrong?

Paul Krugman
I don’t think there's a theory. We have an economy that’s growing. We have a little bit of inflation. The interest rates on our long-term debt are pretty low. If you actually do the simple models, and I'm a big believer in simple models, they say that the kinds of debt levels we now have are really nothing at all to be paying much attention to.

[The debt hawks] don’t have a theory; they have a feeling. It's a sense that somehow we must pay a price for these debts. I think a lot of the deficit and debt stuff just comes because it sounds serious.

Ezra Klein
My sense on the Democratic side of the debate is some of it is playing off a story about the Clinton years that goes like this: Interest rates were high, government borrowing was crowding out the private market, that made it hard for private players to invest and grow the economy; [then] Bill Clinton brought down the debt, that brought down interest rates, or allowed the Federal Reserve bring down interest rates, and that got us an economic boom.

Interest rates are low now, but my understanding is the theory is at some point the markets turn and they spike.

Paul Krugman
It's very hard to try and tell a coherent story about how this alleged debt crisis can even happen. I've been through this. I've given presentations at the IMF, where I say, “Look, I believe for a country that looks like the United States, a debt crisis is fundamentally not possible,” and people will say, “Well, I can't quite fault your logic here, but I don’t believe it.” It really is more about a gut feeling than it is about any kind of theory.
More...
The thinking of many economists begs to be updated to a post 1971 reality. There is theory behind Krugman's remarks, its called Modern Money Theory (MMT) and it is very well developed by now. Krugman himself has been a critic of MMT in the past; yet he seems to have come to many of the same conclusions that the MMT economists have. Some evidence of this shows up in this interview with Vox columnist Ezra Klein when Krugman says, "I believe for a country that looks like the United States, a debt crisis is fundamentally not possible." When Krugman says "there isn't a theory" he is not referring to MMT (Modern Money Theory). He's giving his opinion on whether there is a theory to back the concerns of the "debt hawks". Krugman says, "[The debt hawks] don’t have a theory; they have a feeling. It's a sense that somehow we must pay a price for these debts. I think a lot of the deficit and debt stuff just comes because it sounds serious."

In my personal opinion, Krugman could have done a much better job of explaining the origin of the debt hawks concerns. The origin lies in confusion between the way things worked when we were on a gold standard and the way they work post 1971, combined with an incorrect intermingling of principles behind personal and government finances. We hear it often. Our politicians say, "if I ran my household budget the way the government runs theirs, I'd be broke!" This is, of course, intended as a criticism of The Government. Were the politician, however, to reflect on reality, i.e., The Government is not bankrupt!, he might recognize the absurdity of his remark. He can not in fact run his household budget the way the government runs theirs. It's impossible! His silly remark is like that of a conclusion drawn from the preface, "If Pigs could fly."

Klein recounts the "crowding out" (it's in text books, it must be right) of private borrowing when the government borrows too much and pushes up interest rates. This according to MMT is nonsense as well.

In a post 1971 world, stability in the economy and stability of the currency depends, after considerations of human frailties and emotions, on the amount of money available for purchasing goods and services compared to production of those goods and services. The underlying assumption is of course that production is linked to demand. But what if demand continues, the money supply grows, but productivity plummets due to an extraneous factor?* In a post-1971 world, governments' have control over the amounts of money they inject into and remove from an economy. If for whatever reason they fail to properly manage the amount of money available relative to productivity, their economies may be headed for trouble.

When a bank loans money, the amount of money available for purchasing goods and services is expanded. The expansion is slowly reversed over the term of the loan. The long term trend however is for an ever expanding money supply. Banks don't wait for a prior loan to be paid off before making another. And the government targets a positive inflation rate. When banks make loans, the Central Bank assures that the bank's reserve requirements can be met. So, provided underwriting requirements can be satisfied, there is effectively no limit to how much a bank can loan other than that imposed by customer demand.

Unlike banks, which in general must borrow to make loans, The Government may spend an unlimited amount of money without borrowing so much as dime. Nevertheless, The Government appears to be regularly borrowing, and politicians believe the borrowing is to finance spending. In reality, however, government spending precedes government borrowing. The Government may spend freely without borrowing. The Government spends money it has neither received in revenue nor borrowed. Although it appears that The Government is issuing bonds in order to cover deficit spending, the real purpose of bond issuance in a post-1971 world must be something other than the need to borrow in order to spend.

Here I shall interject the opinion of the MMT economists that bonds are merely an interest paying substitute for money. In the U.S. , because of the particular method the Central Bank has chosen to regulate the Federal Funds rate, bonds are a particularly useful tool of the Central Bank.

Government deficits represent amounts of money spent by the government into the economy in excess of its revenues. The latter being the amounts of money The Government takes out of the economy in taxes and fees. When the deficit is in line with population growth and gains in productivity, there should be little inflation. When deficits grow beyond the rate of population and productivity growth, some combination of inflation, savings and investment occurs to absorb the additional dollars spent into the economy beyond that needed for immediate consumption. When it is desirable that the population should save and invest more, The Government can accommodate by increasing the deficit. However in recession, when both demand and revenues drop, The Government may intentionally spend well above revenues to head off deflation which is disastrous for a population with private debt. During recessions, because demand for money is down, deficits tend to appear as swollen bank reserves --hoarding-- rather than inflation. That results in falling interest rates. On the other hand, during times of full employment, i.e., during times of maximum productivity, and a large "wealth effect", large deficits have a greater tendency to show up as inflation. It would seem the bottom line is that the effect of deficits is determined in large part by demand-linked productivity.

Some economists have argued that public debt, which is linked to government borrowing, but not to government spending, does not impose a burden on future generations, as intuition would have it -- we are talking about public debt; not private. I can't go into the arguments here, but i think this view is correct.

What I have personally concluded from my own study, is that the consequences of government deficits and public debt in a world of fiat money are entirely different from those of private debt and deficits. Of course Governments can mismanage deficits and debt, but the concerns we have for private deficits and debt do not apply to government debt and deficits. MMT economists have concluded that it is not necessary to take from the wealthy, i.e., make them poorer, to provide opportunity to the poor and middle class. It is only necessary to see that the total money available to purchase goods and services does not get far out of line with productivity.** That is the balance that must be maintained if money is to have more or less a stable value.
______________
*In the recent past, I believed, incorrectly as it turns out, that Zimbabwe's hyperinflation was caused by printing money without tying it to debt. (Bond sales remove money from the economy and substitute bonds.) I now understand that Zimbabwe's hyperinflation was caused by a money supply out of sync with productivity. When Robert Mugabe rewarded his freedom fighters in Rhodesia with grants of nationalized land, productivity plummeted. I now believe this is the real cause of Zimbabwe's hyperinflation.

**Perhaps a too simple conclusion as it ignores any effect of changing the shape of the money distribution curve and adopts an entirely macro view. This is perhaps a fault of MMT. On the other hand MMT seems to have been influenced by distributional concerns more than classical macroeconomics, which is influenced hardly at all by this concern.
 
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