How Dangerous Is The Debt?

Bruce Bartlett claims that “our long-term deficit situation is not nearly as severe as even many budget experts believe”:

6a00d83451c45669e2017ee7fb3b6b970d-320wi[I]t is silly to obsess about near-term nominal budget deficits. What matters is the deficit as a share of GDP minus interest spending, which economists call the primary deficit. On that basis, we are much closer to fiscal sustainability than even most economists realize.

Relatively small adjustments to the growth path of federal revenues and Medicare would be sufficient to eliminate the primary deficit. Taking a meat ax to every federal program, as Republicans demand, is neither necessary nor desirable.

The always-worth-reading Martin Wolf at the FT comes to the same conclusion (the above graph is from Wolf and the FT). Stan Collender seconds him:

What Bruce shows — convincingly — is that, contrary to those that say federal “spending” is the long-term problem, the real problem is spending in just one area — interest payments on the national debt. Spending on virtually every other area of the budget is flat over the long term while interest starts to rise precipitously in 2020 and keeps rising over the next 60 years.

Collender think that “this situation argues persuasively for the government to convert its debt from short- to long-term so that the current low interest rates can be locked in for as long as possible.” I have to say that as the years have gone by since the 2008 crash, I find it hard to judge the British experiment in austerity-now over the American experiment of stimulus-now-austerity-long-term, without losing one more sliver of my fiscally conservative bona fides. Of course, the American version was not some act of genius: it’s the result of an overly-rosy administration assessment of things in January 2009, and the GOP take-over of the House in 2010. But that combination sure turned out better than what could now be a triple-dip recession in the UK.

Nonetheless, the long-term spending situation, especially on Medicare, requires urgent attention.

The slow-cost “easter eggs” in the ACA are not working very well – either RAND’s projection of huge potential savings of medical electronic records (so far) or paying-for-quality. At some point, IPAB is going to have to get real powers, or Medicare power-of-attorney conversations need to be recovered from Palinland, or the simple massive costs of medical devices and practices in America are going to have to be driven down by a single payer system. Or millions of seniors are going to have to go without comprehensive healthcare. I’m not an optimist on this, although I second Bruce’s point about excessive alarmism. I just don’t want Obama to be lax on Medicare spending. The future debt projections are a key part of his legacy, as The Economist reminded us here.