What are the main drivers of our debt?<\/b><\/p>\n
Social Security is
\nturning negative, having switched from providing a surplus to a
\ndeficit, and will continue to move negative. Medicare is the big
\nelephant in the room. Also Medicaid, much of which goes to old people
\nbecause it supports nursing homes. Medicare spending just grows and
\ngrows and there’s no real ability to restrain it. Then you’ve got
\ndefense spending, which has risen some in the post-911 period. It’s not
\nas big as a percent of GDP as in the Kennedy years or previous episodes
\nin the US, but it has grown. In the 1990s we got a peace dividend and
\nthat helped us balance the budget. Today I don’t think a lot of people
\nare saying we should cut back on defense. <\/p>\n
And then you’ve got
\ninterest on the debt. Given that most of our debt is pretty short term,
\nas interest rates rise, the interest is going to get larger. Then
\nyou’ve got the rest of government. I’m sure there’s a lot of waste in
\nthe rest of government, but there are also things that we need to do
\nthat we’re not doing, like infrastructure spending or converting to a
\nlower carbon economy and that’s going to be expensive. <\/p>\n
So
\nthere are ways to cut back on discretionary spending but it’s going to
\nbe very hard to reduce it over all. And this leaves us without the kind
\nof the money we want to invest in high speed rail, nuclear power, and
\nso on. The private sector is good here but we also need some government
\nmoney.<\/p>\n
There are still economists, mostly liberal economists, who would
\nargue that we don’t face any kind of debt crisis. Yes the debt is high,
\nbut we need it now and can afford it later. Are they wrong?<\/b><\/p>\n
I think they are wrong. I was just watching Joseph Stiglitz on Yahoo
\nFinance, and he made that argument. And the way you can make it is to
\nsay, long term interest rates are very low. The markets are not
\nsignaling they have any concerns. When there is a crisis overseas they
\nflee to US Treasuries, so we are still seen as a safe haven for
\ninvestors. We’ve got a big economy, a growing economy. They can make
\nthat case. <\/p>\n
I just don’t see an infinite appetite for treasuries, given how many
\nare being held. In principle we could keep borrowing at high rates but
\nit will have an impact on the dollar, and I think 10 year rates are
\ngoing to rise as the economy begins to recover. Now there’s not a big
\ncompetition for funds. There’s not a lot of investment demand. So
\ninterest rates are low. But demand will come back and interest rates
\nwill rise. But there is a limit to how much we can borrow and I think
\nTreasury is concerned about that.<\/p>\n
As
\nyou mentioned, financing the debt is easy today with zero-bound short
\nterm interest rates and a 10-year bond yield of 3.6%. Why are rates so
\nlow and what factors could make them go up?<\/b><\/p>\n
The main one is
\na recovery of the global economy and a recovery of the US economy. We
\ndon’t want to wallow in a deep recession forever. If we recover that’s
\ngreat for tax revenue. But on the other hand, it means that business
\ninvestment picks up and there’s no longer the same excess of savings
\nfloating around. it depends what’s happening in the global economy. If
\nwe recover and the rest of the world remains weak, we can continue to
\ntap foreign funds. But you can only do that with this sort of large
\nscale foreign borrowing.<\/p>\n
Do you think Americans “get” the debt crisis?<\/b><\/p>\n
The
\nthing that I find is that the level of the national debate seems to be
\nso bad. People aren’t finishing their sentences. There’s widespread
\nsupport about doing something about the deficit. When you ask
\nAmericans, “should we reduce the deficit?” they say yes. “Could it hurt
\nour children’s future?” Yes. “Should we cut Medicare?” No! “Social
\nSecurity?” No! “Defense?” No! They say cut foreign aid. So there’s a
\nlack of connection between what the money is used for and what people
\nare willing to pay for. <\/p>\n
I don’t think the political debate is
\ngoing to help us. Nobody wants to talk about tax revenue unless it’s
\nfor the top 250K. You need broader revenue increases unless you make
\ndrastic cut backs in spending. There are health reform delivery changes
\nbut it doesn’t change enough. Palin may say no death panels. That’s a
\ndefensible position, but she needs to finish that sentence. If you’re
\ngoing to spend half a million dollars to keep a 90-year old alive,
\nthat’s going to come back to tax payers. If you want to keep [benefits]
\nwhere they are, then we need to raise taxes. <\/p>\n
I’m a Democrat and I won’t endorse a Republican road map [like Rep. Paul Ryan’s<\/a>, {Editors note: That paragraph is a nice way of explaining what I was trying to say in this<\/a> blog piece last week}<\/i><\/p>\n So how do we do it? What would a rational budget reform plan do?<\/p>\n <\/b>There On the It When complicated issues like the debt suddenly become national news controversies, sometimes the tendency is to emphasize the drama of the story rather than explain the basics of the issue. What is the debt? Why is it growing? Should we be terribly concerned about it? And how would we fix it if we had to? […]<\/p>\n","protected":false},"author":1534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-346747","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/346747","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=346747"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/346747\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=346747"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=346747"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=346747"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nwhich turns Medicare into a tightly budgeted voucher program]. But it
\nputs a budget on health care. That’s something that many European
\ncountries do. I’d like the administration to say these proposals were
\nput on the table. Nobody going to vote to abolish Medicare. But at
\nleast somebody’s trying to get their hands around the issue. If you
\ndon’t want a voucher program, fine. But engage in that debate. <\/p>\n
\nare straightforward solutions on Social Security. I would say keep
\nadjusting the retirement age. For Medicare, I would think seriously
\nabout creating a budget. I think that would change the delivery system.
\nIf you reform Medicare, you could dramatically change the health care
\nsystem. Private health insurance pays for hospitals visits pivoting off
\nhow Medicare pays for hospital visits. I think we know more information
\nabout what works and doesn’t work, and there’s been some blowback on
\nthat since the doctors have no economic incentive to use the best
\napproach. So create a budget limitation. If people want
\nfee-for-service, then they should have to pay for it. <\/p>\n
\ntax side, I’m not a tax expert but I think that some kind of phased-in
\n— the economy is too weak now, but phased in — a dollar-a-gallon gas
\ntax in the next seven years and think about other uses of carbon. It
\nwill discourage use of carbon and help us move toward a more carbon
\nefficient economy. If somebody were willing to go for a VAT [value
\nadded tax], I think there are a couple advantages. One is that it’s a
\nconsumption tax, and most economic tax experts tell you that’s
\nconsumption taxes are better. If you earmarked it for particular things
\nlike sustained defense it might get some Republican support.<\/p>\n
\nhas to be a combination of revenue increases and spending controls. At
\nthis point revenue is coming in well under 20 percent of GDP, and even
\nif we do the best health care reform in the world, well need some way
\nto raise revenue.
\n
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