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Home Publications Blogs Beat the Press Is Phillip Swagel Looking at the Same Numbers as the Rest of Us?

Is Phillip Swagel Looking at the Same Numbers as the Rest of Us?

Thursday, 05 September 2013 05:08

That's what readers of the NYT's Economix blog must be asking. Swagel used his column today to complain:

"The improvement in the budget outlook for this year and the next several has empowered the fiscal 'ostrich caucus,' but does not change the reality of a 'severe long-run fiscal imbalance.' President Obama has spoken about the need to take on the long-term fiscal challenge. But this requires making difficult choices to address the funding gaps in Social Security and Medicare, and on this Mr. Obama has flinched, setting aside the recommendations of his own Bowles-Simpson fiscal commission and instead putting forward only modest entitlement reform proposals — enough for a talking point but by far not addressing the imbalances. Indeed, in his 2013 State of the Union address, Mr. Obama spoke merely of 'the need for modest reforms' in Medicare, when the decisions will be wrenching, not modest, since ultimately they will involve how to allocate health care resources for people in the final year of life when costs, ethics and human dignity crowd around the beeping hospital equipment."

The most recent projections from the Congressional Budget Office show that the debt to GDP ratio will actually be lower in 2023 than it is at present. The deficit projected for 2023 is just 3.5 percent of GDP, a deficit that implies only a modest increase in the debt to GDP ratio in that year. The need for "wrenching" decisions is not apparent in these projections.

It is worth noting that projections for future deficits have fallen sharply in the last few years, partly due to the budget cuts and tax increases that have been put in place, and partly due to a slower rate of projected health care cost growth, which is the main driver of long-term deficits. In fact, the projected debt for 2023 is now lower than the target set by Erskine Bowles and Alan Simpson, the co-chairs of President Obama's deficit commission. (Swagel mistakenly refers to recommendations from the Bowles-Simpson commission. The commission did not get the necessary majority to make recommendations. The recommendations were those of the co-chairs, not the commission.)

The other point that should be mentioned in any discussion of the deficit is that the cause of large deficits is the economic downturn that followed the collapse of the housing bubble. Prior to the bubble's collapse the deficits were modest and the debt to GDP ratio was falling. Deficits were projected to remain small well into the current decade.

The larger deficits of the last five years have supported the economy, boosting growth and creating jobs. Since the private sector is not creating demand, there is no alternative to demand generated by the public sector. Smaller deficits mean less growth and fewer jobs.

Unless the dollar falls in value against other currencies, thereby reducing the trade deficit, it will be necessary to run large budget deficits to sustain demand. That story is pretty much dictated by accounting identities, unless the goal is to spur a wave of demand driven by another bubble.

Comments (8)Add Comment
Social Security and Medicare fixes aren't difficult, except politically
written by Robert Salzberg, September 05, 2013 6:36
Eliminating the cap on income subject to Social Security taxes wouldn't be particularly painful for anyone and would fix the long term funding gap.

Universal health care would not only eliminate the funding problems of Medicare and Medicaid but also make our exports more competitive by lowering the costs of health care. (If done correctly.)

No pain, all gain.
written by kharris, September 05, 2013 7:12
Swagel is apparently bidding to become a highly paid hack PhD. His trick seems to be pretty standard - embed factoids in his assertions of fact that skew the readers impression in a certain direction. It is Obama who signed the sequestration deal, but no mention of Congress voting for it, so it must be all Obama's fault, blah, blah, blah.

This boy needs to submit to honesty before being allowed near a newspaper column.
those crazy birds
written by Squeezed turnip, September 05, 2013 8:01
Swagel is apparently a member of the "vulture caucus." These crazy birds think that by creating a giant underclass of poverty-stricken, unhealthy retirees these same retirees will finally learn how to fend for themselves in the marketplace, pay for CEOs' outrageous benefits packages, pay for the largesse of government sanctioned monopolistic practices in the healthcare industry (supporting patents and wage protectionism in that sacred sector), and not suck benefits from the government that might otherwise go to the vultures.

i want to see Ted Cruz foreswear his government benefits and his federal pension. Swagel and Cruz are the true kleptoparasites.
The usual omission
written by John Q, September 05, 2013 8:13
(Swagel mistakenly refers to recommendations from the Bowles-Simpson commission. The commission did not get the necessary majority to make recommendations. The recommendations were those of the co-chairs, not the commission.)

There was another report from a commission member-
http://schakowsky.house.gov/images/stories/1202_Schakowsky_Deficit_Reduction_Plan.pdf - which never gets mentioned by the press, even though it was a better plan.
Death by Dog Whistle: The American Ostrich is Dead in the Long Run and Short Run
written by Last Mover, September 05, 2013 8:38
"The improvement in the budget outlook for this year and the next several has empowered the fiscal “ostrich caucus,” but does not change the reality of a “severe long-run fiscal imbalance.”

When playing the game of conveniently switching the discussion between the long run and short run, between macro and micro, between fiscal spending and the employment level, between deficits and surpluses, between debt and full potential output of GNP ...

... professional con artists like Phillip Swagel can blow the dog whistle anytime they want to hustle the economic illiterate into a smoldering rage of blame against anyone and anything other than the true cause of the economic problem in question.

Wake up America. Get your ostrich heads out of the sand. You're dead in the short run because you refuse to fix the long run, and you're dead in the long run if you fix the short run.

Death by dog whistle is a terrible way to go. It's a slow death caused by repeated twisting of the neck in reaction to a dog whistle. It causes very high medical costs in the last few weeks of life that ultimately ends in bankruptcy for the surviving members, since none of these costs are covered by government or private insurers on grounds that dog whistles cannot possibly cause injury or death.
Why are cuts to Social Security and Medicare "thoughtful"
written by Jennifer, September 05, 2013 8:46
Another day, another column in a major paper concerned about our "fiscal" situation, which is the deficit instead of unemployment. So interesting these columns are generally against the sequester, favoring a
"more thoughtful and gradual approach to addressing the nation’s fiscal challenge."
The "more thoughtful and gradual approach" is always based on "reforms" i.e. cuts, to Social Security and/or Medicare.
Because permamently harming older people is preferable to random cuts of course.
written by skeptonomist, September 05, 2013 9:28
If there is a long-term budget problem (if you don't think debt/GDP can increase indefinitely), then there is a very simple solution from history - fortunately, it is not necessary to turn to economic theory, which is usually unreliable. Just go back to the the tax structure in effect when the debt/GDP ratio was last improving steadily without cuts or big bubbles, which was the early 60's. This was actually a boom time, so history - not economic theory - shows that those tax rates were not inhibiting the economy.
written by skeptonomist, September 05, 2013 9:36
The CBO projection for 2013 is of little value because it does not include the next recession. Since 1947 the average period of expansion has been less than five years and there has never been an expansion period longer than ten years since the NBER started keeping track. The main cause of crashes, financial overexpansion, has not been curtailed in any significant way. So the chances of getting to 2023 without another recession are very small, and then we can expect to go through the whole thing again.

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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.