Monday, October 7, 2013

CBO’s Projections of Spending Did Not Rise as Suggested by Niall Ferguson

Niall Ferguson writes in the Wall Street Journal:
An entitlement-driven disaster looms for America ... True, the federal deficit has fallen to about 4% of GDP this year from its 10% peak in 2009. The bad news is that, even as discretionary expenditure has been slashed, spending on entitlements has continued to rise—and will rise inexorably in the coming years, driving the deficit back up above 6% by 2038. A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%.
The reader is likely left with the impression that this change in the projected debt path was driven by an increase in expected future spending. Brad DeLong:
A year ago, the CBO was required by law to calculate its extended baseline by assuming that all of the tax cuts originally put in place in 2001 and 2003 would expire at the end of 2012, and never be reinstated.
In other words, much of the blame for the worsening projection had to do with the decision to make the Bush tax cuts permanent. But could it be the case that some of the blame is due to a rise in the expected path of Federal spending? If anyone actually bothered to read the CBO report that Mr. Ferguson referenced, the answer would clearly be no. Figure A.2 of The 2013 Long-term Budget Outlook is entitled “Comparison of CBO’s 2012 and 2013 Budget Projections Under the Extended Baseline”. Check the graphs out for yourself or simply read what the CBO says:
Federal revenues under the extended baseline are now expected to be substantially lower in coming decades than CBO projected in 2012 (see the top panel of Figure A-2). By 2023, revenues are projected to be 2.8 percent of GDP lower than projected in the 2012 analysis: 18.5 percent of GDP rather than 21.3 percent ... Noninterest spending under the extended baseline is now expected to be lower in coming decades than CBO projected in 2012 (see the middle panel of Figure A-2). Specifically, noninterest spending in 2038 is projected to be 1.4 percent of GDP lower than in the 2012 analysis.
In other words, the document that Mr. Ferguson references says precisely the opposite about spending from what he is trying to claim in his Wall Street Journal oped. Did he really read the entire thing? If so – he could not have missed this central point.


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Soccer Dad said...

do u realize that although NF may be wrong, your post is totally not on point
please respond to the point NF makes in thequoted extract, about the % of debt held in public hands as % of gdp
by quoting NF, and then showing some unrelated numbers, you don't look very good.