America’s public-debt-to-GDP ratio is already higher than it has been since the 1950s. Writing in National Affairs, economist Donald Marron, who served as acting CBO director and a White House economic adviser under Pres. George W. Bush, says the most immediate objective of U.S. fiscal policy should be to stop that ratio from rising. He stresses that this would not require balancing the federal budget; indeed, it would be possible to run moderate deficits while simultaneously trimming the debt-to-GDP ratio, provided the economy was expanding at a fast enough pace.
Think of it this way: To maintain a constant debt-to-GDP ratio, we would have to maintain an identical deficit-to-growth ratio. For example, writes Marron, if we had a debt-to-GDP ratio of 60 percent and a deficit equal to 3 percent of GDP, then nominal GDP growth (that is, real growth plus inflation) would have to reach 5 percent in order to keep the ratio from increasing. The fact that such a humble aim — holding the debt-to-GDP ratio steady — seems so quixotic in the short run indicates the severity of America’s fiscal plight. Marron, who is now director of the Urban-Brookings Tax Policy Center, believes a practical, attainable medium-term goal should be to reduce the ratio to 60 percent by 2020. But over the long haul, he adds, even 60 percent would be unacceptably steep. From the mid–20th century through the early 2000s — until the Wall Street panic — the average ratio was roughly 40 percent.
Given the magnitude of our budget problems, it is unrealistic to think that tax hikes alone, or spending cuts alone, or economic growth alone, would be sufficient to fix them. Let’s say that real annual GDP growth averaged 3.8 percent over ten years. That hasn’t happened since the 1960s and 1970s, Marron reminds us, and it is very unlikely to happen in the decade ahead — but even with that level of growth, the federal government would still see only modest deficit reduction without serious fiscal reforms.
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8 comments:
And even more frightening, is the fact we no longer manufacture anything of conseqeuence. THe Brain Drain will be felt when NASA closes the doors on her shuttle program, the Navy can't build a ship, hell, we forgot how to make Nuclear Warheads... We are on the downhill side I fear with the way we are forcing our own decline... irresponsible at levels...
Where have you gone Joe DiMaggio?
I'm wondering how we will react when the tax eaters rise up and riot, demanding what is "rightfully" theirs. Greece is the canary in the coal mine and we ignore its fate at our peril.
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Got this joke in my email today: :-D
I called my stockbroker this morning and asked him what I should be buying.
He said, "Canned goods and ammunition."
Not to worry, there a countries that remember how to make them all to well, and they will share the knowlege with others.
The part about NASA is actually painful, isn't it? At times, it seemed like NASA could do anything. Now, it's more important to spend the money on inslaving the poor, by trapping them in welfare, and other handouts. Burn in Hell Democratic Leadership, Burn in Hell. You took the future away from us, and our posterity, just to aquire power, and status for yourselves.
Dang...need an button for "Don't like but agree with"
The above refers not to MTH but to what he is describing...as a historian (recovering) it scares the heck out of me
I think DB's stockbroker has a solid suggestion on the correct reaction.
add to this crisis in Korea
when it rains it pours
Do you think KJI's saber-rattling isn't with an eye toward the confusion and indecision in Washington? Particularly now that we have "clarified" our nuclear policy?
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