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Home Publications Blogs Beat the Press Lessons on Global Warming and the Debt for Thomas Friedman

Lessons on Global Warming and the Debt for Thomas Friedman

Wednesday, 09 January 2013 21:15

Thomas Friedman apparently believes that global warming and the government debt are problems of the same nature, with a looming crisis getting worse every day it is neglected. This is wrong for two obvious reasons.

First, Thomas Friedman apparently doesn't follow the news closely, but the budget deficit is getting more attention than anything else in the world. In fact, Congress and President Obama have already taken substantial steps to reduce the debt, in contrast to the incredibly limited action on global warming.

This raises the second point, Friedman apparently missed the economic collapse that gave us the large deficits of recent years. The country in fact had very modest deficits until the collapse of the housing bubble sank the economy. This sent tax collections plummeting and spending on items like unemployment insurance soaring. We also deliberately increased the deficit with the stimulus to support the economy since sufficient demand was not being generated by the private sector.

The deficit reduction that President Obama and Congress agreed to in 2011 is already slowing the economy and adding to unemployment. Those who want more deficit reduction now may not realize it, but they in fact want to throw people out of work and make our children's parents unemployed.

It is difficult to understand why this would be good policy or how it connects to reducing greenhouse gas emissions to save the planet. We don't save the economy by having a generation of children raised in families with parents who can't find decent jobs.

The long-term deficit problem is due to three things: health care, health care and health care. We currently spend more than twice as much per person on health care as other wealthy countries. This is projected to grow to three or four times as much in the decades ahead. If these growth projections prove accurate then health care costs will devastate the economy. If our health care costs were comparable to those in other countries we would be looking at long-term budget surpluses, not deficits. This is why serious people talk about controlling health care costs, not the projected budget deficits.

But Friedman is not the sort of person to let the evidence stand in the way of a good story. That is why he tries to tell us budget deficits are like global warming.



If we believe that the debt to GDP ratio can impose some magical curse on the economy, and ignore the fact that Japan's debt to GDP ratio is well more than twice the size of ours and does not appear to suffer from the curse, it is worth noting that there is an easy route to reducing the ratio. If interest rates rise, the price of long-term bonds will fall. This will allow us to quickly eliminate huge amounts of debt by buying back these long-term bonds at steep discounts. (See the discussion here.) This would be a pointless exercise since it doesn't change the interest burden at all, but it should make influential people who worship the debt to GDP ratios, like Friedman, very happy.

Comments (6)Add Comment
these are not rhetorical questions people!!!!! ;o)
written by watermelonpunch, January 09, 2013 11:39
RE addendum about Japan's debt to gdp

I was watching the Nightly Business Report on tv, and they had Stuart Schweitzer of JP Morgan on talking about global economy...

He was all excited about "non japan asia" but when asked specifically about Japan... He said there was a "positive impetus" there from a change in monetary policy with new leadership... meaning the stimulus that's planned.
His only concerned seemed to be that Japan will "need to keep at it" (keep at the deficit spending!), but that the Japanese stock is doing better, "and understandably so" because of the "policy impetus".

So what I don't get is how this man can sit there and warn about U.S. currency devaluation and cast a pall over a zero sum game (I mean isn't it always a zero sum game?)... and he's all worried about "coming inflation" (though admitted maybe it won't come to pass).

Yet to say what he did about Japan, when they've got a higher debt to GDP ratio, their currency value is dropping, and they want it that way... and they plan on doing deficit spending and expanding government spending big time.

And this man is saying that's why their stocks are up...

Yet everybody talks about our deficit spending in the U.S. is going to cause this dangerously horrid fear where the markets are just going to lose confidence & our economy is sunk.

And that's the only thing I've ever heard said about what's the danger of the debt to gdp ratio...

And clearly even this Schweitzer in the Japan situation sees that as NOT the case. But why? What's so different about OUR country & OUR economy compared to Japan? They had a housing bubble like we did... they have adult children living with parents longer, just like we do now.

I'm no expert.. but what exactly is the big difference?

When I see people make comments about this, they always say sarcastically & derisively, "Oh yeah, because we're the same as Japan and there's no difference at all." Like "OMG you stupid fool we're not Japanese".

But then they never detail exactly what they think makes Japan so different.

And why would it be? Because then that guy said about the currency devaluation competition being a zero sum game for everybody... Well wait - if we're "not like Japan" then why would it be a problem?

It seems so confusing to me... People keep saying we're in a global economy. But then they say we're not like these other countries.

It almost seems to me like.... they're claiming that the laws of physics are different here than in Japan.
Now I realize that's not a correct metaphor because with economies... it could be that they're saying that Japan has different financial rules or economic policies?
But if that's the case... then seems to me what they're really saying is, "We'd rather slash government spending and kill off half the U.S. population, rather than adjust our economic policies to something that will work to save our entire nation."

And when I say "kill off", I mean that literally, because that's what happens when people don't have jobs that can pay enough to live and also don't get help from the government.

That, and the people who aren't quite dead yet start rioting... I can only guess that's why these same people want a strong military... to use at home. EEP

And if this is NOT the case... Why can't they give the details of why they worry about the things they do?
written by Chris Engel, January 10, 2013 1:18
The new face of economic systems in a world of declining population and plateauing productivity may just be ZIRP with high, manageable debt levels, where the population is highly educated and understands the role of debt in our system.

I think there's some misunderstanding over the Reinhart/Rogoff paper on setting an arbitrary warning level of 90%. We have clear examples where sovereigns without foreign denominated debt have a lot of freedom to take on debt as long as the majority of market participants are in it for the right reason.

Who am i kidding? FIX THE DeBT! SpeNDiNG is The PROBLEM!

Also your bond buyback idea is great, almost an idea out of someone from Wall Street I'd suspect, if I didn't know better.
Global Warming
written by bakho, January 10, 2013 5:17
Doubling the fuel efficiency of the fleet in10 years should have a huge impact on CO2 reduction. We need to do much more and it will mean changing our infrastructure and transportation system, plus new sources of non-emitting energy.
Friedman and NYT Editors Hit New Low
written by Robert Salzberg, January 10, 2013 5:53

" According to a September 2012 study by the Congressional Research Service, a small carbon tax of $20 per ton — escalating by 5.6 percent annually — could cut the projected 10-year deficit by roughly 50 percent (from $2.3 trillion down to $1.1 trillion)."

From the CRS report:

" For example, this estimated revenue source would reduce the 10-year budget deficit by 50%, using the 2012 baseline projection of the Congressional Budget Office (CBO). However, under CBO’s alternative fiscal scenario, the same carbon tax would reduce the 10-year budget deficit by about 12%."


So the CRS did not really say that a small carbon tax could cut the deficit in half. The CRS said that the deficit would be cut in half under the 2012 baseline projection which is now impossible since most of the Bush tax cuts have been extended permanently along with other tax extenders that have increased the 10 year projected deficit by $3.9 trillion.

Even wonky NYT readers may not have picked up the $2.3 trillion number used by Friedman for the projected 10-year deficit but how did that get past the editors?

I expect WaPo or FOX to distort reports but for the 'paper of record' to reference a line out of context that is now obsolete marks a new low for the Fourth Estate.
Friedman's Predictions Ring True: Global Warming Makes the Earth Flatter
written by Last Mover, January 10, 2013 6:13
While Tom Friedman ignores the economic collapse that actually created large deficits, he never ignores something like the coming collapse of the Antartica ice sheet, recently discovered to be melting twice as fast as reported before new findings.

Contrary to what appears as contradiction between Friedman's portrayal of the link between economics and science, Friedman actually sees the bigger picture missed by Dean Baker.

Specifically, Antartica contains 61% of the world's fresh water, so the rise in ocean levels as it melts will be dramatic and make the earth flatter as Friedman predicted long ago.

That the result is from global warming rather than global competition is beside the point and in fact validates Friedman's claim that indeed, the two move together in unison as duel disasters feeding on each other.

Out of control deficits are just as dangerous as out of control warm melting regardless of the source. As Milton Friedman would say of Tom Friedman in agreement, the proof is in the pudding of correlation between flatness, competition and warming - not the explanation.
global warming and deficits
written by Peter Mizla, January 11, 2013 4:27
We have had 45 years of decreasing tax revenues, and a shift of power, money and influence to the top dew percent. Those crying about deficits feel this kind of unstable income inequality should continue- while at the same time this group denies global warming.

Right now, the climate is basically beyond redemption. The warming seen thus far, and that in the pipeline will bring us to almost 2 degrees C above the Pre Industrial level- which will be enough to send this nation and globe into a social and economic abyss for decades. If we go beyond 2017 with no agreements to begin reducing emissions rapidly, then we go beyond 2 degrees and 450ppm C02- which will be catastrophic. Its all in the climate records, the paleo climates of earths past. Go over the last 500,000 years- 5 ice ages and 5 interglacials- each ice age saw 180ppm C02-every mild interglacial near 280ppm. Going from 180 to 280ppm would take 12-15K years- we have gone from 280ppm in 1870 to nearly 400ppm now- and its rising rapidly. Anyone who thinks we can go back to the past of unlimited economic growth- based on consumerism is a fool. Its over- we have entered a new paradigm- and its only going to become much worse.

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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.