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Correcting Erskine Bowles

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Thursday, 30 August 2012 03:51

Morgan Stanley director Erskine Bowles got a couple of big things wrong in a "Room for Debate" comment in the NYT. First he refers to "our commission’s plan." His commission did not produce a plan. To produce a plan it would have needed 14 votes. The plan that he and his co-chair, Alan Simpson, developed only got the support of 11 members of the commission.

He also refers to the crisis that will result from not taking steps to reduce the deficit as "the most predictable economic crisis in history." Actually, the most predictable crisis in economic history was the downturn that we are now suffering from due to the collapse of the housing bubble. It was easy to see that the bubble would burst and lead to a large downturn, since there was no easy way to replace the $1.4 trillion in annual demand generated by the bubble.

There is no obvious crisis associated with the current budget path. It would be helpful if Bowles could spell out what he envisions, since a country that has its own currency faces no prospect of ever seeing a crisis like that facing Greece or Ireland, which don't have their own currency. It is also worth noting that the interest burden on the debt, net of payments from the Fed to the Treasury, is only around 1.0 percent. This is the lowest that it has been in the post-war era.

Comments (3)Add Comment
RE: Correcting Bowles
written by Jake312, August 30, 2012 6:46
I disagree, we can do worse than Greece. We can cut entitlements, force down wages, send jobs away etc etc and seek to increase the value of the dollar. What Greece or Ireland can't do is pursue a strong Euro, but the Romney/Ryan group wants a strong dollar thus making a Greece situation conceivable. And all this time I thought the scary mantra of "we can end up like Greece" had no merit. Boy was I a fool.....
It's All About Guts
written by Last Mover, August 30, 2012 7:40
Erskine Bowles had the guts to put forth a plan with tax increases as the co-chair of a commission on the debt crisis. Paul Ryan had the guts to vote against the plan because it included tax increases. David Brooks had the guts to report Ryan's big mistake as refusing to compromise with Bowles.

The least Dean Baker can do is have the guts to stop gutting those with guts.
"the most predictable economic crisis in history."
written by Paul, August 30, 2012 10:01
So where is his prediction? When exactly will this debt "time bomb" blow us all to smithereens? Next month? Next year? Next century? When?

Bowles the Great Prognosticator never tells us. I wonder why?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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