Wednesday, January 28, 2015

More Deficit Hysteria From The Washington Post

Yes, once the CBO changed its forecast of future GDP growth and also thus future federal tax revenues, thanks to their deciding that interest rates will be higher than they had previously forecast (the reason for this change is apparently that GDP has been doing better than expected with a lower unemployment rate resulting, thus presumably leading to the Fed pushing interest rates up higher than was previously expected, several econobloggers (including at least Paul Krugman, Dean Baker, and Angry Bear's Bruce Webb) forecast that various VSP journalist deficit hysterians would go off the cliff yet again in the near future. And, sure enough, the especially hysterical team of VSP deficit hysterians at the WaPo have come through right on time.

In this case, the first out the door is the third and least vocal of their main team, Ruth Marcus, who comments on this less frequently than their supposed economics expert, Robert J. Samuelson, and their ed page editor, Fred Hiatt.  She is even less well informed and educated about econ than RJS at least (there I go again, bringing up credentials), but her effort in today's Post was particularly pathetic.  Dean Baker has already pointed out several simply false statements she makes, as well as several conceptual issues where she simply has no idea what she is talking about.  But, gosh, she certainly is appropriately hysterical, which will please new WaPo owner, Jeff Bezos.   Let me simply add to this commentary by pointing out more atmospheric aspects of her commentary.

First of all, while it is true that Obama did not remind people of this during his SOTU address, which is the takeoff for her column, everybody who has been paying any attention at all has been fully aware that with no other changes in the budget, deficits will indeed start to rise again another couple of years as indeed that tide of retiring baby boomers begins to push spending on benefits for Social Security and Medicare upwards, as long forecast and expected.  So, this is not news.  What is news, or at least a matter of debate, is by how much, with this new forecast of higher interest rates and lower growth from the CBO changing their forecast.  So, how much has this changed?

Well, frankly, not all that much.  What has Ruth Marcus so upset?  Well, while the current debt/GDP ratio is 0.74, the new forecast for what this will be a decade from now in 2025 after this big surge of baby boomer retirements, that ratio will zoom surge explode to 0.79 (!!!!).  Yes, she describes this forecast as being the "ugly picture" (apparently for a figure on the front of the CBO report), yes, "ugly."  Ooooh.  She later notes that when the financial crisis started, the ratio was "(!)43 percent of GDP," not noticing that an increase over a decade from 0.74 to 0.79 does not remotely resemble or match the past increase from 0.43 to 0.74, when this former increase was prior to the coming surge of spending-boosting wave of baby boomer retirements.  Looks not so bad, actually.

For that matter, even as she describes this outcome as "ugly," it is still well below the 0.90 that Reinhart and Rogoff were advertising 4 years ago as being a "cliff"beyond which we would suffer much lower growth.  We now know that R&R were full of it with that claim, but this supposedly ugly outcome will not even be all that close that not really dangerous after all level.

Oh, and at another point in the column, she declares that "the future is not pretty."  Gosh, not only "ugly" but "not pretty."  Gack!  It may well be that the future  is indeed "not pretty," but somehow I doubt that there being 0.79 debt/GDP ratio in 2025 will constitute a major reason for  such a lack of prettiness in our future, much less ugliness.

Not only does Ruth Marcus not know much economics, but I think her sense of  aesthetics is pretty awful as well.

Barkley Rosser

4 comments:

Larry Signor said...

I know I should not do this, but Ms. Marcus' approach leaves me some latitude. Average household debt in 2013 was~ $225,000.00. Average household income was ~ $60,000.00. This implies a personal debt to income ratio of 3.75. This is silly, I know, but the average American household seems to be able to support a debt/GDP ratio that is 5X's what the government is running. This is the conversation one gets when timber cutters and MSM comment on economics. Unhelpful.

rosserjb@jmu.edu said...

Larry,

Household debt ratios are indeed high in the US. OTOH, they have come down fairly substantially since 2008, more so in the US than in most other high income countries.

Larry Signor said...

Prof., Some modestly stimulated wage growth would have made the household debt ratios even healthier. Another nick in Ms. Marcus' "argument". It is just about debt transfer, as our Greek compatriots are trying to tell the world.

rosserjb@jmu.edu said...

Larry,

I fully agree that better wage growth in the US would be a good thing. Ms. Marcus does not address this issue. Regarding the Greek input to all of this, see my latest post here.