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Home Publications Blogs Beat the Press Yes, It's Another Monday and Robert Samuelson Is Yelling About the Deficit

Yes, It's Another Monday and Robert Samuelson Is Yelling About the Deficit

Monday, 21 July 2014 03:44

Last week the Congressional Budget Office issued its new long-term budget projections. They were little changed from prior projections, but Robert Samuelson still wants to use them as a warning of impending doom.

"Under favorable assumptions, the CBO projects deficits of $7.6 trillion from 2015 to 2024. Under less favorable (maybe more realistic) assumptions, the added debt would total $9.6 trillion. The big drivers are an aging population and rising health spending. ...

"The CBO pronounces present policies 'unsustainable,' but it does not know — no one does — when and how a breakdown might occur or what the consequences might be. It warns that large deficits will crowd out private investment, reducing future living standards. It speculates that excessive debt might someday so frighten investors that they would retreat from Treasury bonds and cause a financial crisis."

Okay, there is lots to have fun with here. First, we get the really big numbers, $7.6 trillion and $9.6 trillion. Are you scared?

Next to no one reading this column has any clue as to what these numbers mean, Samuelson has opted to present them without any context to make them understandable to readers. This must have been a conscious choice on Samuelson's part because CBO actually presents the numbers in context itself. Table 1-1 tells readers that the ratio of debt to GDP is projected to rise because of these deficits from 74 percent this year to 78 percent in 2024. Are you scared now?

If you are worried about the date when we see that "breakdown" or when frightened investors retreat from Treasury bonds and cause a financial crisis, you probably plan to live a very long life. The projections show the debt to GDP ratio rising to 106 percent in 2039. That's not as high as the debt to GDP ratio that we saw at the end of World War II and still far lower than the 134 percent debt to GDP ratio faced by Italy today and the 244 percent ratio in Japan. Due to the fearful investors, Italy now has to pay 2.81 percent interest on its long-term debt and Japan has to pay 0.55 percent.

The other aspect of Samuelson's piece that provides good Monday morning entertainment is that it is totally wrong about the origins of high debts and deficits. As recently as 2008 the debt to GDP was as low as 35 percent. It didn't rise to its current 74 percent because of the moral failings of our political process as Samuelson claims, or at least not the ones to which he points. (The failings have more to do with an over-sensitivity to the profits of the financial industry.) The debt to GDP ratio soared because we actually did have a financial crisis when the housing bubble collapsed and sank the economy. Samuelson seems to have missed this one even though the economy still has not recovered with millions unnecessarily unemployed or underemployed.

The other item worth noting about Samuelson's scare story and morality play is that he never mentions that the reason we face deficits is that our health care costs are hugely out of line with the rest of the world. If we paid the same amount per capita for our health care as people in other wealthy countries we would be looking at huge budget surpluses, not deficits. The reason that we pay more than everyone else is that we pay twice as much for our doctors, our drugs, our medical supplies and blow a fortune on an incredibly inefficient insurance system.

But Samuelson doesn't like to talk about this. It's more fun to complain about greedy seniors.

Comments (12)Add Comment
The real issue:
written by ron, July 21, 2014 6:20
Yes Dean, Samuelson is indeed a repugnant character. But when do you stop aiding and abetting him?

The federal deficit is like the score at a basketball game. How many points are available? - as many as it takes. A sovereign government with a fiat currency cannot run out of money. It creates the money in the first place. Congress could eliminate the deficit whenever it chooses to do so, since debt limits are a congressional invention.

By ignoring these points you further right wing objectives. Why not perform a real service and bring these facts to light?
Samuelson Discovers Macroeconomics is About Nothing But Pork and Self Control
written by Last Mover, July 21, 2014 6:23
It’s worth asking how we got into this hole and why we can’t dig out. Some answers are obvious. Politicians of both parties dislike cutting spending and raising taxes; so they don’t. It’s also true that until the 1960s there was a consensus to balance the budget in good times. Presidents Kennedy and Johnson shattered this consensus on the advice of Keynesian economists, who argued that strategic deficits could spur economic growth. The moral stigma of deficits diminished. Republicans soon embraced the new consensus. It made passing their tax cuts easier.

Imagine that. Samuelson says Republicans embraced Keynesianism. Then they failed to balance budgets in good times just like Democrats. Excuse me but how addled in the mind must Samuelson be not to qualify what Republicans have done in the opposite direction for the last six years, wrecking the economy beyond belief in the name of austerian economics to balance the budget in the worst time since the Great Depression of 1929?

Samuelson is talking about the Congressional Budget and Impoundment Control Act of 1974, passed to reign in out of control spending combined with out of control ability to pay for it. The point was the parts had to add up to the whole which wasn't happening because no one was in control and still aren't according to Samuelson.

It's a common old fashion lecture from the past on the virtures of being thrifty and wise with spending to succeed in life. So according to Samuelson today's middle class has nowhere to go but up in a very big way don't they, having cut spending to the bone to shed that huge overhang of debt so wrecklessly incurred in prior days of spending mania on housing with no way to pay for it - except with phony rising prices that blew up in their face. What character they have gained to succeed going forward.

But Samuelson is talking about government spending, not private sector spending, and astonishingly wringing his hands over the former crowding out the latter smack in the middle of the Great Recession full of idle resources. Because government can't control itself as one big barrel of pork that Americans exploit by voting in pols to rip off each other with out of control debt in the end ... because collectively they can never get around to pay for it or reduce the spending.

Indeed Robert Samuelson, it is worth asking how we got into this hole and why we can't dig out. Do take the time to look in the mirror on occasion, won't you? It's good for the soul as well the body to wipe the slate clean once in a while and start over,as in:

In the beginning there was government, not the private sector which cannot exist without government.

In the beginning there was demand, not supply which cannot exist without demand.

In the beginning there was pork and macroeconomics, but they did not cause nor necessarily depend on each other until the government was monetized and privatized out of existence by economic predators in the private sector whom you never write about as one of their sock puppets.
consequences of debt
written by Fred Clancey, July 21, 2014 8:30
"it does not know — no one does — when and how a breakdown might occur or what the consequences might be"

The consequence is inflation -- double digit like the late 'seventies. The consequence of inflation is that bond holders lose. Smart money will leave (non-indexed) bonds early leaving the uninformed to take the hit.
The angst of the losers leads to radical Populism.
Remember the German inflation of the twenties that decimated the middle class and put Hitler in power? Deiavu
long-run average annual interest rates
written by Peter K., July 21, 2014 8:40
How big is the news that according to Nick Bunker "In its 2013 long-term budget projections, CBO forecasted that the long-run average annual interest rate would be 3 percent. This year’s forecast has lowered that projection to 2.5 percent."

written by Larry Signor, July 21, 2014 8:47
When Samuelson slams the deficit he is really condemning inflation, full-employment, the social safety net and income equality. He supports critical spending such as Big Ag (ex-SNAP), military industrial expansion and tax cuts for the wealthy since these things grow his economy.
Fred Clancey's History Lesson
written by Paul Mathis, July 21, 2014 9:40
Remember the German inflation of the twenties that decimated the middle class and put Hitler in power?

No Fred, I don't remember that at all because "the German inflation of the twenties" ended in 1923 and Hitler did not rise to power until 1933. In 1923, Hitler was in jail for the Beer Hall Putsch.

Inflation did not cause the rise of the Third Reich. The Great Depression and massive unemployment did.

"Those who do not learn history are doomed to repeat it."
written by bananaguard, July 21, 2014 10:54
I realize Will and Buckley got away with it, too, but I'm always surprised when an opinion writer in a general interest publication can get away with writing the same story, over and over. Samuelson doesn't just have his facts and logic wrong. He has the same facts and the same logic wrong over and over and over and...

How is he not boring the crap out of his readers?
written by skeptonomist, July 21, 2014 11:04
There has been an overall trend of increasing debt/GDP since around 1980, the obvious explanation for which is tax cuts, if we accept that government does not control health-care costs and is going to provide the services in Medicare, Medicaid and Obamacare. Debt/GDP is not increasing rapidly at the moment, but it will in the next recession - another crash is inevitible, since there has been little financial reform. If you're worried about debt/deficits now or for the future, then you should be talking about increasing marginal tax rates, since it looks like we're going to continue with the "free-market" insurance/health-care system for the foreseeable future.
I'm not particularly worried about government debt, but I can predict that as things are going the whole thing will be repeated in the next recession and Keynesian stimulus wll be blocked because of debt fears. An ideal monetary/fiscal system would actually avoid having the government run up huge debts, however harmless they may be.
Again, The Logic
written by Jeffrey Stewart, July 21, 2014 11:42
"It [the CBO] warns that large deficits will crowd out private investment, reducing future living standards." -D. Baker

First, what is the theoretical framework for the conclusion that government budget deficits crowd out private investment? What is the economic logic behind that conclusion?

Second, this debt scare shibboleth appeared before in the propaganda pushing for Social Security benefit cuts. These obviously affect the working class and poor elderly who need it the most. It's most curious that pundits, policy makers and VSP are overly concerned about future generations while leaving the current working class to wither on the vine.

For whom will future living standards be reduced? I'm pretty sure it won't be those of the capitalist class,the wealthy, powerful and politically well connected. So we're left with the working class's living standards being sacrificed. If this is really the issue (and it isn't), then where's the push NOW to achieve full employment, raise wages, including the minimum wage and promote and fund government programs to increase living standards for the working class? It doesn't exist in any way, shape or form! Why isn't the current condition of the working class the subject of repeated editorials about creating decent livelihoods and improving their lives?

Additional budget cuts now will worsen an already desperate, precarious situation for TODAY'S US working class.

Let's call out this sophistry for what it is: class war rhetoric in the guise of fiscal responsibility justifying attacks on the working class's standard of living.

Last, one may miss these elementary points when one doesn't have a framework that understands society as being divided into two classes along the lines of private ownership and control and non-ownership and control of the means of production. That is, one may overlook these aspects when one doesn't have a class analysis.
written by skeptonomist, July 21, 2014 12:27
Samuelson reaches the conclusion that taxes should be raised but lies about the reason they are not raised: "These are precisely the basic questions that political leaders of both parties evade, because the answers would offend much of the public."

No, the answers offend the rich and powerful and Republicans have blocked the actions that the public wants. Polls show that the public strongly favors increasing taxes on the rich. The public also strongly favored a public option for insurance but that's not what we got. Contrary to Samuelson's claim that politicians are not candid about the need for tax increases Obama has repeatedly called for higher taxes, but Republicans absolutely refuse to raise taxes on the rich - though they did OK restoring the Social Security rate.
private sector net savings
written by joe, July 21, 2014 3:51
Reframe it. Private sector net savings will increase by 7.6 to 9.6 trillion dollars. That sounds like a good thing to me.

Samuelson hasn't the foggiest idea where money comes from or how sectoral balances work.

Debt-to-gdp ratio is basically irrelevant. A smaller economy is a high propensity to save would need a high ratio, and a large economy is a high propensity to spend would have a smaller one.

The point remains, without US govt deficits, it is not possible for the non-govt to net save in USD. I bet you could get a 9 year old to understand that.
written by joe, July 21, 2014 3:58
oops, I meant "A smaller economy *with* a high propensity to save would need a high ratio, and a large economy *with* a high propensity to spend would have a smaller one.

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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.