Yes, it is Monday, and once again Robert J. Samuelson of the Washington Post is whining about "We can't keep ignoring our dangerous deficits," which he sees as half of future increases being due to rising spending on Social Security and Medicare." The inimitable Dean Baker at Beat the Press has done an excellent job of beating his silly arguments to a lumpy and barely visible pulp. However, I shall add a few more points that he did not mention, just to pile on to how ridiculous RJS and the broader campaign of WaPo on this subject is and has been.
So, what is Samuelson's excuse for putting out yet another one of these hysterical and misleading columns? Ah, it is a new report out last week from the Congressional Budget Office, (CBO), which I think both Dean and I have plenty of respect for. This new report does indeed project somewhat higher future deficits (and debt) than their last report. As of 2015, the cumulative new debt is projected to be $8.5 trillion rather than $7 trillion. This would move the debt as a percentage of GDP to 84% from 75% in 2015. He then declares that "Many economists think the rising debt is unsustainable," although somehow he fails to mention a single one by name, and offhand I fail to find this all that scary.
What is the source of this somewhat elevated projection of debt levels? It looks like most of the known debatable assumptions about increases in costs of Social Security and Medicare and interest rates on the debt have not been changed from the last report. What does seem to have been changed is the projected GDP growth rate, lowered from 3% annually to about 2%, or something like that. Needless to say, lower future GDP growth rates do imply higher future debt levels, assuming everything else in the taxing and spending remains unchanged.
Well, I do not know what is going to happen to future growth, and it may be 2% or even lower. But maybe it will not be. There has been a major barrage of publicity about "secular stagnation" recently, whether of the supply side-technological pessimism variety of Robert Gordon and Tyler Cowen or of the demand side of Larry Summers. Gordon's views have especially received a lot of attention recently with the publication of his latest book on this, which seems to have been reviewed by just about everybody and his brother.
OK, so I was on an EPS panel with Gordon about four years ago at the ASSA meetings where he was already laying out all the arguments in this book. Much of this amounts to noting that we are not going to have as dramatic changes as getting indoor plumbing in the future. OK. And, yeath, the computer productivity increases do seem to have been lower since 2005 than during the decade prior, ouch. And, yeah, he and Cowen, who also focuses on computers as our only main possible improvement in productivity and growth, may well prove right.
But they could easily both be wrong. The obvious sector that could do it would be energy. We are seeeing dramatic declines in the cost of alternative energy sources such as solar and wind, not to mention that we might yet get some kind of revolutionary breakthrough on the fusion front. In any case, none of these people seem to taking into account what the implications would be if we saw say a cut in half over the next decade of basic energy costs. Even without some major inventions of final new goods that match indoor plumbing or being able to text each other, such a cut in costs would massively increase the projections for productivity and growth gains over the next decade.
Let me be clear that I am not dinging the CBO on this. They are a famously cautious outfit, and I do not blame them for taking account of the recent pessimistic noises coming from so many sources. They should be taken seriously. At the same time we should be aware that there is a real upside chance here, and even if the more pessimistic outcome comes to pass, an 84% of debt/GDP ratio simply is not all that much worse than a 75% one, and as Dean notes, we are paying less than half in interest on the national debt per GDP than we were back in 1990. So, yet again, Samuelson and WaPo are simply being hysterical as they try to scare people into cutting Social Security and Medicare.
Addendum, 3:10 PM: Oh just to add to Samuelson's egregiousness is when he ties this to the presidential race. He declares that none of the candidates are addressing this, but he focuses on the two leading Dems for not wanting to cut these entitlements or even wanting to add to them, oh evil candidates they. Only one Republican gets briefly mentioned, Trump, whose proposed tax cuts really are humongous and would indeed lead to far greater deficits than either of the Dem candidates' proposals. The rest of the GOP candidates are not mentioned, even though all of them are proposing massive tax cuts that will inevitably lead to hugely increased deficits if enacted, even with the spending cuts some of them are proposing. But none of this is worth mentioning by our RJS.