I watched the program you are referencing. I had the impression that the people being interviewed didn't want to be left with this huge debt to pay for stuff Bush and Cheney wanted in the 8 years they were in office. It was a fairly superficial discussion without even mentioning Americans needing to become savers and what might motivate people to do that again. It's been expected whenever there has been a war before. People had to buy bonds or do without all sorts of things. Then there's the part about some $4 trillion that should be in Al Gore's social security lock box, but got filtched to pay for Bush's war and tax cuts for the rich. Moyers should have some other people on his program like you for example to talk about the $9 trillion deficit and how it is social security is not the culprit.

as Dean noted, Moyers has done this before. i wrote and wrote, and did get in touch with a lady producer. she told me i needed to read something about Social Security.

so i don't know. is Moyers part of the scam. or is stupidity so ground into the bone that you can't even get these people to spend ten minutes thinking carefully about something that is so important they give it air and press time every month for years and years.

Dean Baker isn't stupid, but his alarmism over health care is similar to Moyer's infatuation with the deficit.

Did we watch the same program? I came away with the impression that our finances are awry - often a Baker theme. When compared to the continuous din of war's fine, let's go shopping declarations that we can continue to run deficits forever are not helpful. Neither you nor anyone else know what can go on forever but it is clear that economists have in bulk gone along with this mantra that flies in the face of the experience of people who believe in paying for what you get.

If anyone can give me an argument as to why we cannot run a deficit equal to 1-2 percent of GDP (current $150 billion to $300 billion) until eternity, I'm happy to listen.

Not only can we run deficits forever, we should run deficits forever. I would have said that it is a simple economic principle that it is proper to borrow for those things that provide benefits in the future. People borrow to buy houses and to get education and they should. Economically speaking, is there any reason not to distinguish between capital expenditures and current operating expenses and then always borrow at appropriate terms for capital expenditures? Isn't it better to have educated healthy wealthy grandchildren paying off our debt than poor sick ignorant ones that are debt-free? This is Eco 102 isn't it?

Dean and David A. are right in pointing out that carrying a certain amount of debt is something that is taken for granted and apparently does no great harm in local public finance as bonds are floated to pay for schools, etc., and in private finance as people take out mortgages and carry credit-card debt, etc. But several more-or-less theoretical questions occur to me.

What if all the entities concerned, private households, local governments and the federal government, were ahead of the game, that is were able to finance things without going into debt? This is usually considered desirable for private finance. What are the actual economic advantages of being a debtor instead of a creditor, in private and public economic spheres? Aren't there differences when the debt is held by foreign rather than domestic investors? (By the way, if the government is going to default on its debt, why should it be on that part held by SS participants, rather than financiers, private pension funds, or Chinese and other foreign investors?)

Keynesian fiscal policy ideally has two parts - running deficits in bad times, and surpluses in good times. The surpluses are not just to balance the budget, but to apply restraint in good times so that booms do not turn into bubbles - recessions are often the result of the bursting of some kind of bubble. If public budgets are not required to be balanced, and expenditures conform to need rather than income, then government finance is counter-cyclic, without necessarily explicit Keynesian intervention. But running deficits in good times is obviously pro-cyclic.

What effect does running constant deficits have on the general tolerance for debt and evaluation of risk in private investment? These are things which have evidently gone awry in the current credit crisis.

These are some general considerations, which have little to do with what I take to be Dean's main point, which is that projected budgetary problems are mainly a matter of health-care expenditures, rather than social security and other non-medical entitlement programs or earmarks.

Note also that the Bush administration has consistently low-balled their estimates of future deficits because they don't realistically include war costs and refuse to raise taxes to cover them. So, the official projections indicate a problem, but the actual problem is greater now and will be in the future if war continues. Bittle and Johnson, the authors who were on Moyers' program, evidently claim that the war is not important, but if they are using the Bush administration's numbers they are wrong.

I too saw the program. Is it just that Public Agenda has a lot of the same funders that Moyers does?

for anyone who does not already know:

If the Social Security Trustees projections are accurate, the cost of paying for future benefits amounts to an increase in the payroll tax of a dollar per week per year while incomes are going up ten dollars per week per year.

since the money is not yet needed, the tax has not yet been raised. it is only by assuming that taxes will never be raised that the Petersons can turn this dollar a week into 4.7 Trillion dollar unfunded deficit.

while a much bigger problem, health care costs can be thought about the same way. If (and only if) we decide that the benefit of health care is worth the huge costs, we can pay for them with a reasonable percent of our incomes. the only question would be whether to pay through private insurance or through Medicare. Medicare will be cheaper.

In other words, look at the costs, decide if you want the product, then look at the best way to pay for it. That should not require running around screaming "we're all going to die!"

Especially when you realize they want to cut entitlments... money you get back... so there will be more money for them.

David A. wrote, Isn't it better to have educated healthy wealthy grandchildren paying off our debt than poor sick ignorant ones that are debt-free? This is Eco 102 isn't it?

That's a false dichomoty.

The best solution is to pay for local government through taxes on land, because local government activities drive up the value of land.

Under the current system, I fund local government with income and sales tax (perhaps mediated through bonds), but the people I pay rent to get the benefit when those projects cause land values to rise.

There was a recent small article in the Washington Post about the subway system here (I live in the DC area). They talked about the cost of the initial contruction of the system, and then they cited land studies showing that the increased value of land was greater than the entire cost of constructing the system to begin with.

Dean et al,
What about the total national debt being 60% of GDP? Could you put that in context?
I want to say there's some relation to GDP growth, debt growth, and interest rates on debt. right?

Vara

Can you get on Moyer's program Dean?

I posted on his blog, stating that unless he has you on his show, he has done the American people a serious injustice.

His interview was completely misleading. After watching it, one would think that SSI owed a large part of the $9 trillion debt, when in fact, a large part of the debt is owed _to_ SSI.

Dean, I hope you take some initiative of your own and try to get on his show. This shouldn't be happening.

so i don't know. is Moyers part of the scam. or is stupidity so ground into the bone that you can't even get these people to spend ten minutes thinking carefully about something that is so important they give it air and press time every month for years and years.

Great quote, coberly.

I think the root of the problem is that it deals with numbers and numerical analyis. These journalism people don't understand math. In fact, they don't even know how ignorant they are (which is ironic given the subject of the second interview).

In the future, I would recommend that anything relating to economics or numbers on their show should be vetted by Dean and Paul Krugman. If these two guys agree that the facts are good, then they almost certainly are.

ker also got unchallenged air time on Fresh Air Friday nightutilizing the $9T deficit with Bush's 75- year projection. The so-called public airwaves have basically been reduced to an at-home version of the VOA, with newsreaders repeating the pre-approved script every 20 minutes ad-nauseum. We are about to be screwed no matter who is installed in November. We are being set up for sacrifice & reform. It sucks!

Vorpal,

i had tried to go through some contact a while back to get on the Moyers show. I didn't have much success. I am afraid that he may just be a hopeless ideologue on this issue.

While watching the show last night, I kept wondering what Dean B would have to say about this--glad that you already posted!

I'm confused. I liked those two people and thought their little book is cute and just what I need...but then they kept talking and it didn't make sense. They never mentioned 2046, just 2017 (as I recall). That was alarming because I feel like I understand Dean's p.o.v and I expected them to at least address 2046 and give arguments to debunk assumptions, but they didn't mention it all.

They also kept talking about sacrifices that we ALL need to make, as if we are all equal in this. They never addressed the cap on contributions of earners over $90K. I first learned about the cap when GB launched his SS Destruction Plan a few years ago--I had just assumed everyone paid into SS and, to me, that is the solution to the problem.

I am also confused by this argument that "our grandchildren" will always have to pay for things. This was the big scandal with the S&L crisis--but we never ever hear about that anymore. If we are still paying for the S&L bailout, can we see a statement with those payments in the way that I can view the history of my car payments?

What years did we not run a deficit? Were they the years of Clinton's surplus? And what does that mean? Does a surplus mean that we ran in the black during those years but we still owed payments on the mortgage? Or did we own the house out-right those years--no national debt at all?

And that clock in NYC. It means nothing to me. I see the big numbers and so what. What would Dean's clock look like if he were to apply his philosophies to make the clock tally numbers in perspective?

mb

i don't think raising the cap would be a good idea:

right now Social Security is essentially an insurance and savings program for workers paid for by workers.

a worker earning his whole life at the current cap can expect to get all of his money back, in real value and adjusted for the rise in average wages.

what he doesn't get is the "opportunity cost"... what he might have gotten if he had invested in something else... or might have lost.

he also will not get as high a "return" on his social security as someone who earned not so much... but the difference can be justified as the "insurance" he paid just in case he turned out to be the guy who didn't make so much over his lifetime.

raise the cap and it gets hard to justify that high earners contributions to Social Security and SS begins to look more like welfare.

the the rich will kill another welfare program. and the workers really ought not to be asking for handouts.

what social security provides them is a nearly perfect way to save their own money for their own retirement. they are free to try to do better than SS with private investments, but they ought not to have to take the chance of ending up destitute if their investments don't work out.

there is no need to worry about your kids paying for your Social Security...
there is no operational difference between "pay as you go" and "putting the money in a box, earning interest, and taking it out when you need it."

they will get their money back in their turn when they retire.

I turned that segment off in dismay! When I saw the Heritage Foundation link to Bittle and Johnson on Moyer's web page, I shook my head. I'll write Bill a short letter suggesting that he offer an alternate perspective on the subject, like yours. (Although I don't know how influential it will be.)

I really appreciate what you do here Dean. Thank you,

Dean & all,

Re: "Over the long-term, the budget is projected to face serious problems but, as the Congressional Budget Office has pointed out, this is primarily due to the projected increase in health care costs."

I'd be interested in a refutation of (or concession to, or part of each) this analysis by those folks at Concord http://www.concordcoalition.org/facing-facts/2007/ff-1220-demographics.pdf (not more commentary on their supposedly evil, sinister, hidden motives, but their analysis) regarding that breakout between the impact of the aging population (including, eventually, the aging MEDICARE population) and the impact of "excess cost growth" of healthcare.

And by the way, while I only saw this Concord document for the first time tonight, I see that they confirm that I was correct (assuming THEY are correct) when I pointed out on this site that CBO was failing to break out the impact of projected changes in the age distribution OF MEDICARE RECIPIENTS and were therefore at least potentially misleading people when they claimed that demographics/aging was a relatively minor factor in projected Medicare cost growth. As it turns out, it's not among the larger factors, but the distinction was important to make, and Concord breaks it out as it should be and explains why. I made this point and raised this question on two separate threads, the second here beginning with this comment http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=01&year=2008&base_name=the_post_attack_on_social_secu#comment-6144154 only to have everyone either misunderstand me (despite the clarity of my point) or pretend to, and some to proceed to state/imply that I was confused, mistaken or worse. I guess wild, knee-jerk partisanship is a powerful force.

Re: "Actually Social Security is supported by a designated tax that is projected by the Congressional Budget Office to keep the program fully funded until 2046 with no changes whatsoever. The idea of not paying Social Security benefits is presumably a favorite of the advocates that Moyers put on his show. They could have said, with at least as much accuracy, that the government would not have the money to repay the bonds held by investors. If the country ever does face a genuine fiscal crisis, this is likely to be at least as popular a fix to its problems. Of course, the wealthy would prefer a default on Social Security to a default on government bonds."

Once again we have the implication that just because SS will be well-funded UNDER THE CURRENT TAX STRUCTURE, SS spending is not, therefore, a contributor -- much less a major contributor -- to our overall fiscal imbalance. This implication is obviously nonsensical. We have an OVERALL projected long-term fiscal imbalance. ANY and ALL spending contributes to it. Whether or not a dedicated tax as currently structured provides "solvency" is completely irrelevant to the degree to which the program contributes to the imbalance (the amount it contributes is the amount is costs, obviously) and obviously does not mean that reducing projected SS spending would not reduce the imbalance. And there is the additional misleading implication that if we reduced projected long-term SS spending, it would constitute default on SS bonds. No, it wouldn't, if we lowered the SS FICA rate accordingly to provide "solvency" -- and no more than that -- at the lower spending rate.

If anyone can give me an argument as to why we cannot run a deficit equal to 1-2 percent of GDP (current $150 billion to $300 billion) until eternity, I'm happy to listen.

Posted by: Dean Baker | February 16, 2008 8:27 AM

Because that is not what we are doing. What is happening is that we are adding 1-2% to the debt every year without paying down last year's 1-2%. This is of course not sustainable. Carrying the debt and covering up its effects by continued growth of the economy would only be sustainable if continuous and growth continues to outnumber debt. I think we are about to see how sustainable that is. That national debt is owned by rich people and the Chinese so it doesn't even go to stimulate or sustain consumerism.

Robert,

Our current debt to GDP ratio (including money owed to SS and other public sector funds) is approximately 67 percent. If we run an on-budget deficit equal to 2 percent of GDP forever, and our economy grows 5 percent in nominal terms (2.5 percent real and 2.5 percent due to inflation), then the debt to GDP ratio will be falling. What's the problem?

brooks

sadly, we know who you are, and know that answering you just invites an endless diatribe.

unfortunately not answering you leaves a possible impression that we can't answer you.

at least as far as Social Security is concerned you fundamental mistake is to regard it as part of government spending.

it is actually part of worker spending.. it is the amount of money they set aside from their paychecks every month to have enough to live on when they retire.

the only role the government plays is to move the money from the in box to the out box.

if you were going away on a trip and gave a thousand dollars to your brother, the judge, and asked him to hold it for you or give it to your kids if you didn't get back, would that money be regarded as your brother's money?

your mistake about medicare is similar, though not as easy to see: if it is going to cost me a hundred thousand in medical care when i am old and no longer have a job, i need to pay for that care in advance. i can do this through private insurance, or i can do it through taxes. it turns out that taxes is more efficient.

whether the overall costs of medical care are going to be higher because i am going to spend a longer time needing treatment... is an issue, though the answer is not obvious... but the important question for the country is not should we cut medicare to save money, but do we want the care, and what is the best way to pay for it and try to control costs.

what makes this a little more complicated than the social security situation is that everyone who pays into social security gets his money back. with medical care, most people can "guess" that they won't need the care they are paying for, and the poor don't have enough money to pay for their own "expected" costs.

this does mean that the "rich and healthy" will be paying for the "poor and sick."

aside from not knowing which category you are going to end up in, there is the moral question of whether those who are lucky can just ignore those who are not.

but thinking of it as "government money" is not the framework that will help us understand our choices.

Dean,

Re: "If anyone can give me an argument as to why we cannot run a deficit equal to 1-2 percent of GDP (current $150 billion to $300 billion) until eternity, I'm happy to listen."

1) It seems (based on quick & dirty analysis) that, above annual deficits of 1.2% of GDP, higher than historical GDP growth rates would be required to avoid a steadily increasing debt-to-GDP ratio, making the scenario increasingly undesirable and eventually unsustainable over the long term (several decades, or sooner) due to interest expense. I just did a quick & dirty analysis* assuming starting points of $14 trillion GDP and $5 trillion publicly-held federal debt. To maintain steady debt-to-GDP ratio, annual deficit of 2% of GDP requires 5.6% annual GDP growth, deficit of 1.5% requires 4.2% growth rate, and deficit of 1.0% requires 2.8% growth rate. (1.2% deficit requires 3.3% growth).

2) Even though 1.2% annual deficits are apparently eternally sustainable, that is a hypothetical, and by no means implies that we should be content with such deficits NOW, given our enormous unfunded entitlement liabilities and huge projected long-term fiscal imbalance.

* If anyone sees or suspects some error in my analytical approach, assumptions or conclusions, please let me know. I just started with those initial data points, applied hypothetical GDP growth rates, calculated each year's deficit and added it to the debt, and calculated debt-to-GDP.

coberly,

Once again you clearly demonstrate that you have absolutely no clue what I'm saying (and perhaps not what YOU are saying, either).

Re: "at least as far as Social Security is concerned you fundamental mistake is to regard it as part of government spending. it is actually part of worker spending.. it is the amount of money they set aside from their paychecks every month to have enough to live on when they retire. the only role the government plays is to move the money from the in box to the out box. if you were going away on a trip and gave a thousand dollars to your brother, the judge, and asked him to hold it for you or give it to your kids if you didn't get back, would that money be regarded as your brother's money?"

First, as you know (or so I would hope) SS is a paygo system, with current workers supporting current retirees plus funding part of all other government spending, not some savings account backed by real assets. But leaving that aside, what you are presenting here is essentially the argument that workers are paying in based on an expectation that they will receive a particular level of benefits when they retire. OK, so that's a reason not to cut those expected benefits based on money that's already been paid in. But this should NOT be confused and equated with defaulting on bonds if we lower the SS FICA rate to match cuts in future SS benifits/eligibility, and in turn, cuts in projected SS spending). And it certainly doesn't mean that future SS spending is not a major contributor to our fiscal imbalance (which would make no sense, since ANY spending contributes) nor does it mean that we couldn't reduce projected SS spending (while still spending the "trust fund" balance on SS) and thereby reduce our overall fiscal imbalance, nor that if we did so and reduced SS FICA accordingly that we'd be defaulting on any bonds. But you seem to think that your point somehow refutes -- or even addresses -- MY point. It doesn't, but apparently, despite my many efforts and clear explanations, you just don't get it. I'm not making a policy argument. I'm not saying we SHOULD cut future SS benefits or eligibility. I'm merely pointing out a fundamental conceptual error that people (e.g., you) are making (re-read my initial comment on this thread or show it to someone more analytically-inclined and ask him/her to explain it to you).

You then go on to make what seems to be a roughly similar mistake regarding my comments on Medicare projections. For some bizarre reason (I have to assume blind, knee-jerk partisanship combined with limited intellect), you take an analytical point that I make and convert it in you mind somehow to a policy argument, with related moral considerations, and proceed to spout some self-righteous stuff that has nothing to do with my point.

My advice: email my earlier comment to someone you know who is strong analytically and who is also NOT a knee-jerk partisan, and ask him/her to explain it to you.

coberly,

As follow-up to my comment above:

I wrote: "OK, so that's a reason not to cut those expected benefits based on money that's already been paid in."

In addition to my subsequent points in that comment, it's important to note that the above is "a" reason not to cut those expected benefits (not to break a promise, essentially), but it is one factor to be weighed against others, given the choices we face and the trade-offs involved (e.g., should Bill Gates get all of his expected SS benefits if -- just IF -- the trade-off is that the working poor have to pay a higher SS FICA rate than they otherwise would if some means testing were applied to him?). While I want to emphasize that I was NOT making a policy argument -- your confusion notwithstanding -- I do want to point that out to you and others. And again, I'm NOT talking about using the SS "trust fund" for anything other than SS, so there's no bond default involved.

Brooks,

you may want to check your calculator. If you have a debt to GDP ratio of 0.6 and we run an annual deficit equal to 2 percent of GDP, then we have increased the debt by 3.3 percent (2 percent equal 3.3 percent of 60 percent). This means that if nominal GDP grows by 3.3 percent or more, the debt to GDP ratio is falling.

Just to give some simple numbers to show this, say that our GDP is $10 trillion and our debt is $6 trillion. If we run a deficit equal to 2 percent of GDP ($200 billion) then our debt is now $6.2 trillion. To keep the debt to GDP ratio under 60 percent, nominal GDP would have to grow to at least $10.33 trillion. (If inflation is 2.5 percent, then this implies real GDP growth of just 0.83 percent.)

By the way, SS is not completely pay as you go. Under the law, the bonds held by the trust fund are assets for SS. It doesn't matter whether anyone likes the law or not, that is the reality.

Dean,

Re: "By the way, SS is not completely pay as you go. Under the law, the bonds held by the trust fund are assets for SS. It doesn't matter whether anyone likes the law or not, that is the reality."

ok, SS is not "completely" paygo (while it has a surplus), but as you know, if we eliminated SS FICA taxes, the bonds currently held by the trust fund wouldn't fund SS benefits (under current benefit levels & eligibility) for long, right? So isn't it ESSENTIALLY paygo? And isn't it misleading to imply that we couldn't reduce projected long-term spending via cuts in benefits and/or eligibility without defaulting on those bonds, as long as we reduced SS FICA taxation accordingly to fit the lower projected spending? And isn't it misleading (indeed, nonsensical) for anyone to imply that, simply because SS is projected to be "solvent" for a long time under the CURRENT SS FICA tax structure, that SS spending is not a major contributor to our OVERALL fiscal imbalance (just as ANY spending is) and that we couldn't reduce this overall fiscal imbalance by reducing projected SS spending, reducing SS FICA taxation, and raising other taxes accordingly (i.e., no net tax increase, but lower fiscal imbalance)? Please acknowledge these important points unless there is some reason you believe they are incorrect. I've tried many, many, times to correct your readers on this point on your site, and you've never told them that I'm correct nor pointed out any error in what I've said.

Re: "you may want to check your calculator. If you have a debt to GDP ratio of 0.6 and we run an annual deficit equal to 2 percent of GDP, then we have increased the debt by 3.3 percent (2 percent equal 3.3 percent of 60 percent). This means that if nominal GDP grows by 3.3 percent or more, the debt to GDP ratio is falling."

First, in your scenario, it seems that debt-to-GDP is essentially stable, not falling. But more importantly, what would make a growing debt level (as a % of GDP) unsustainable is the interest expense, right? So wouldn't the appropriate debt figure to use be PUBLICLY-HELD debt (which is currently about $5 trillion, or around 36% of GDP) rather than TOTAL debt (including intra-governmental debt, owed by one part of the federal government to another), which I assume you are using? As I said, I used the publicly-held debt of $5 trillion, and the calculations then follow. Also, my references to GDP growth rates were in real terms, although I did not make that explicit, and I think (not sure, but I think) inflation is factored out of all related calculations since inflation would just be, in effect, a common denominator. So, given the above, do you consider my analysis correct? See below. Format may get screwed up, so columns are, in order:
Year.
GDP (trillions).
GDP growth multiple (1.033 = 3.3% growth).
Publicly-held debt (trillions).
Publicly-held debt-to-GDP ratio (at beginning of year).

Year GDP growth GDP Publicly-held Debt Deficit Beginning debt-to-GDP
1 15000 5000 300 33.3%
2 1.033 15495 5300 310 34.2%
3 1.033 16006 5610 320 35.0%
4 1.033 16535 5930 331 35.9%
5 1.033 17080 6261 342 36.7%
6 1.033 17644 6602 353 37.4%
7 1.033 18226 6955 365 38.2%
8 1.033 18828 7320 377 38.9%
9 1.033 19449 7696 389 39.6%
10 1.033 20091 8085 402 40.2%
11 1.033 20754 8487 415 40.9%
12 1.033 21439 8902 429 41.5%
13 1.033 22146 9331 443 42.1%
14 1.033 22877 9774 458 42.7%
15 1.033 23632 10231 473 43.3%
16 1.033 24412 10704 488 43.8%
17 1.033 25217 11192 504 44.4%
18 1.033 26049 11697 521 44.9%
19 1.033 26909 12218 538 45.4%
20 1.033 27797 12756 556 45.9%
21 1.033 28714 13312 574 46.4%
22 1.033 29662 13886 593 46.8%
23 1.033 30641 14479 613 47.3%
24 1.033 31652 15092 633 47.7%
25 1.033 32696 15725 654 48.1%
26 1.033 33775 16379 676 48.5%
27 1.033 34890 17054 698 48.9%
28 1.033 36041 17752 721 49.3%
29 1.033 37231 18473 745 49.6%
30 1.033 38459 19218 769 50.0%
31 1.033 39728 19987 795 50.3%
32 1.033 41039 20781 821 50.6%
33 1.033 42394 21602 848 51.0%
34 1.033 43793 22450 876 51.3%
35 1.033 45238 23326 905 51.6%

Correction on description and order of columns above:

For year 1, it came out as:
Year.
GDP (billions).
Publicly-held debt (billions).
Deficit (billions).
Publicly-held debt-to-GDP ratio (at beginning of year).

For Year 2 onward, it's:
Year.
GDP growth rate.
GDP (billions).
Publicly-held debt (billions).
Deficit (billions).
Publicly-held debt-to-GDP ratio (at beginning of year).

And table above is the 2% deficit scenario (2% of GDP)

Look this is really very simple. The original piece was making an argument that we need to balance the budget. My point is that this just some bizarre fixation, there is absolutely no reason that we can't run deficits forever.

The arithmetic is very simple -- pick whatever ratio of debt to GDP you like, then pick whatever nominal growth rate you want, and then the multiply the former times the latter and you know how large a deficit (measured as a share of GDP) can be sustained without leading to a rise in the debt to GDP ratio.

So, if you like 0.4 as the debt to GDP ratio and 5 percent as the nominal rate of GDP growth, then we get 2.0 percent of GDP as the maximum annual deficit that is consistent with a stable debt to GDP ratio (0.4* 5 percent = 2.0 percent). If you want to make 0.6 the starting debt to GDP ratio and assume a 4 percent growth rate, then you get 2.4 percent of GDP as the maximum deficit consistent with a stable debt to GDP ratio (0.6* 4 percent = 2.4 percent).

Seems to me that a bunch of this discourse may come down to a could versus should disagreement. I have not the least doubt that your debt statistics are wonderful. You’re the professor, of course. There would seem to be three other problems though. First is the “I predicted nine out of the last two recessions” problem. Not you personally but in general. All the numbers you include are positive which is and has been wonderful but not necessary. Second is my general impression that with regard to the attitude that paying and paying is all right makes more paying even more all right. That is the good thing that I think Moyers does presenting these opinions. Thus one might pick some sustainable ratio of debt to GDP and find that it too grows (the ratio) infinitely just as the amount of the debt rather than staying at some level you think will be buried in other growth. Or, the growth numbers may slide down which seems to be happening now. Third is my hopelessly progressive attitude that we could be doing so much more with the 200 or 300 billion or whatever we are paying to service this debt. It is an odd thing about our attitudes toward business these days that somehow a business with debt is just as good as one without debt. If our economy is so strong and wonderful wouldn’t it be evidence of its being even stronger and more wonderful if we weren’t borrowing all this money? I don’t find crutches all that attractive even if they keep the hedge funds away. Some debt is probably inevitable but I’m probably not able to see $9 trillion as other than a threat.

Dean,

Any chance you'll acknowledge (and inform your readers) that I'm correct on the much more important points I've made re: SS (see my prior comment)? I'll list the points here. Given that many here don't get it, and it seems that you've implied otherwise, I would appreciate it if you would acknowledge that all of the below are correct, unless you have some reason to dispute any of them.
1) SS spending, just like ANY spending, contributes to our overall fiscal imbalance (since the imbalance is TOTAL revenues less TOTAL expenses, so any dollar spent contributes to the imbalance), and since SS is a very large budget item, it contributes very significantly to our overall fiscal imbalance.
2) The fact that we have a dedicated tax to fund SS, and that as that tax is currently structured it would cover projected expenses for a long time (or even infinitely, arguendo) is irrelevant to point #1. (We can structure SS FICA any way we wish, in terms of tax rate and applicable income, to provide this "solvency" at whatever spending level we choose, and we can do so without a net tax increase or decrease if we just adjust other tax rates accordingly. SS "Solvency" simply reflects how we've broken out our various tax rates to cover projected SS spending under a dedicated tax structure; it just reflects a breakout of our overall taxation.)
3) Whether or not we SHOULD, we COULD reduce our projected long-term overall fiscal imbalance, and do so without a net tax increase and without defaulting on any bonds, by reducing projected SS spending via reductions in benefits and/or eligibility, as long as we reduced SS FICA accordingly (so we have no long-term surplus of funds that must be spent on SS -- avoiding any defaulting on bonds) and we raise other (non-SS FICA)taxes to provide revenue neutrality (no net tax increase or net tax decrease).
4) Therefore, anyone who uses some projection of long-term or infinite SS "solvency" under the current SS FICA tax structure as an argument AGAINST cutting projected SS spending, OR anyone who uses a similar projection supposedly showing a LACK of SS "solvency" as an argument FOR cutting projected SS spending, is being nonsensical.
5) Anyone who states or implies that we can't substantially reduce projected long-term SS spending without defaulting on "trust fund" bonds (assuming the CURRENT bonds are indeed spent on SS), is simply and clearly incorrect (since we could just lower SS FICA taxation to match a lower spending level, avoiding an ongoing, long-term surplus).

brooks

like i said, endless diatribe.

life is short. i may not have expressed my thoughts clearly, or even thought clearly in the first place.

but engaging you on your own terms is the way to madness, not to understanding.

Brooks,

Under the law, SS is a separate program with its own dedicated stream of financing. There are an infinite number of hypothetical situations that we can discuss, but my discussion of the SS program always follows the way that its financing is specified in current law.

Dean,

Re: "The original piece was making an argument that we need to balance the budget. My point is that this just some bizarre fixation, there is absolutely no reason that we can't run deficits forever."

You didn't address my point above, which I'll restate here:
Even though [some level of] annual deficits are apparently eternally sustainable, that is a hypothetical, and by no means implies that we should be content with such deficits NOW, given our enormous unfunded entitlement liabilities and huge projected long-term fiscal imbalance. I usually hear (with much frustration) from the RIGHT (the gung-ho tax cutters) that our annual deficits are no cause for concern, since they are reasonable as a % of GDP from a historical (or global) perspective. They, as you, seem to be totally ignoring our fiscal OUTLOOK -- our huge unfunded liabilities and resulting huge projected long-term fiscal imbalance. Don't you think these projections and these unfunded liabilities are extremely important considerations when deciding if we should be worried about deficits TODAY?? Put differently, is it responsible or sensible to simply say that HYPOTHETICALLY if we keep annual deficits at X% of GDP we should be fine, so no problem IN REALITY running such deficits now and for the next several years, even though (1) the only way we could continue to do so over the next several decades is with very painful sacrifices that would become much, much more severe than would be necessary if we ran balanced budgets or even surpluses now, and (2) it is unrealistic (politically) to think, in the face of the entitlement spending surge, that deficits no larger than X% would be maintained?

One needn't be a "fear monger" to be concerned about continuing deficits in the context of our long-term fiscal outlook. Just realistic and responsible.

Dean,

Re: "Under the law, SS is a separate program with its own dedicated stream of financing. There are an infinite number of hypothetical situations that we can discuss, but my discussion of the SS program always follows the way that its financing is specified in current law."

With all due respect, that is either a misunderstanding and mischaracterization of my point, or a deliberate straw man argument.

My point is not dependent on the possibility of abandoning a dedicated tax (although that possibility would suffice to make my point). In fact, quite obviously my explanation presumed a continuation of a dedicated tax to fund SS. I was, and am, saying that we could REDUCE the SS FICA tax rate (or applicable income level) if we chose to reduce SS spending, and as long as we offset that tax reduction with increases in other taxes (to provide revenue-neutrality), total revenue projections would be unchanged, spending would be lower, the fiscal imbalance would then be lower, and there would be no default on bonds. OK -- now that that's cleared up, will you let your readers know that I'm correct?

By far the greatest problem facing the country's fiscal and economic future is a broken health care system. If we don't fix it, we will face very difficult times. If we do, the other problems are manageable.

Dean,

I'll just ask again if you'd be so kind as to reply to my actual points above (re: SS and re: deficits, respectively). I hope, in the case of your not acknowledging my correctness on the SS points, it's not due to a disinclination on your part to tell your readers something they don't want to hear despite it being true and important, simply because it destroys one of the most commonly used (however nonsensical) talking points. For whatever it's worth, as I've said repeatedly, BOTH sides are being nonsensical when using projections of SS "solvency", or supposed lack thereofe, as arguments AGAINST cutting SS or as arguments FOR cutting SS, respectively. I just wish both sides would drop this nonsense (this obvious conceptual error) so the issue could be debated logically and sensibly, based on economics and our values/morals/priorities (how much do we want to tax overall and from whom and for what, how much do we want to spend overall and on whom and for what, and what debt levels do we want), rather than on debates over irrelevant projections.

So I ask you again, with all due respect, to please let your readers know I'm correct re: my points on SS, or, if you see some error -- some REAL error in what I'm ACTUALLY saying -- please point it out.

As follow-up to my previous comment, just to emphasize that BOTH sides are making this same conceptual error, if someone says to me that we need to cut SS because his projections show a lack of "solvency" over some time horizon, my response would be:
That's nonsensical. Even assuming, just arguendo, that your numbers are correct, if we, as a society, decide (based on economics and our values) that we should maintain current SS benefit and eligibility levels, then we can provide any needed funds for "solvency" -- and do so without a net tax increase -- by simply raising SS FICA taxation and lowering other taxes accordingly (for revenue-neutrality) and BOOM! Instant "solvency", and with no net tax increase (or we could supplement SS funding from the dedicated tax with revenues from other taxes). Degree of SS "solvency" under SS FICA as CURRENTLY structured is simply IRRELEVANT.

I'm afraid that I don't understand what is at issue. Of course if you cut non-SS spending and/or raise non-SS taxes this will lead to a reduction in the deficit regardless of whether or not it is coupled with a balanced decrease in SS taxes and spending.

I'd like to assume you are trying to address my points in good faith, but frankly, it's getting harder, and it's seeming increasingly likely that you are just pretending not to understand so as to avoid acknowledging before your readers that what I'm saying is correct. I've expressed myself quite clearly, in fact repeatedly, in fact, in an enumerated list in one case. I find it hard to believe that you don't understand my point. Another possibility, of course, is that you are just glancing at my comments (and just guessing/presuming what I'm saying) rather than actually reading them. If you are indeed making a good-faith effort to understand and truly respond, please just respond to each of my points #1-5 above with a simply "True" for each, unless you think there is some reason why they are not true. Thanks.

Dean,

Above comment was addressed to you.

Brooks,

i answered your question

The housing and internet "bubbles" suggest that part of the U.S. economy may be illusionary. Is it possible that the debt is more significant then it appears? What happens if the dollar ceases to be the world's reserve currency and countries like China decide to stop lending us money?

As far as I can tell the U.S. imports products and raw materials from other coutries without exporting much. Why should other countries accept this situation?

Chalmers Johnson has described U.S. policy as the "military kenesianism" which led to the collapse of the U.S.S.R.. If the U.S. follows a similar path to the Soviet Union, will the national debt play a role? I realize the U.S.S.R. did not have a substantial debt.

Dean,

Re:"i answered your question"

I can't possibly believe you believe that. You said something that had essentially nothing to do with anything I said. But if you just don't want to say something unpalatable to your "side", however true, however obvious, however important, and instead insist on pretending you don't understand me and that you've answered me, I'll leave it at that.

Dean,

Actually, one more try, with the short (summary) version of one of my key points.

Upthread I stated:

"we could REDUCE the SS FICA tax rate (or applicable income level) if we chose to reduce SS spending, and as long as we offset that tax reduction with increases in other taxes (to provide revenue-neutrality -- i.e., no net tax increase or net tax decrease), total revenue projections would be unchanged, spending would be lower, the fiscal imbalance would then be lower, and there would be no default on bonds."

I ask you again regarding the above statement: True or false, and if false, why?

And if true (which it obviously is), isn't it nonsense to say that, because SS is projected to be "solvent" at CURRENT SS FICA tax rates (and applicable income), SS is therefore not contributing to our projected OVERAL fiscal imbalance?

And isn't it nonsense to say that reducing projected SS spending wouldn't reduce this fiscal imbalance?

And isn't it nonsense to say that we could not reduce future SS spending without defaulting on bonds?

Please, I've been very, very clear. I don't see any legitimate reason why you won't answer/address what I'm ACTUALLY asking/saying.

I'm a little confused. Can we continue to run a deficit forever if our GDP does not continue to grow? If GDP shrank, wouldn't debt become a larger percentage of that? Just trying to figure this out because being able to borrow money forever doesn't make intuitive sense to a lot of people (including me). I mean, if US power were to dwindle or something shrank our GDP, a lot of people, foreign banks, etc might come asking for it, right?

It is also inconceivable that our GDP would shrink for any sustained period of time. If it did, then we should be very worried about what is wrong with our economy, the debt would be very much a secondary concern.

wats,

Even though we could sustain small perpetual annual deficits (assuming more or less historic rates of economic growth), remember: that's just a hypothetical question. The REAL, responsible question is, would it be responsible to continuing running such deficits NOW, given our upcoming enormous entitlement expenses -- SEE upthread http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2008&base_name=bill_moyers_goes_off_the_deepe#comment-6155832

Dean didn't respond to that point, I guess because he wants for some reason for people to believe that those who are concerned about current deficits and our current fiscal course (which is to say, the vast majority of economists and other budget policy experts) are "fear mongers", and beyond that, "fear mongers" with hidden, evil motives.

Don't be misled into thinking we can be complacent about deficits TODAY, simply because hypothetically we could keep running these small deficits perpetually.

above comment was me.

Brooks,

Your argument about the contribution of social security to the overall government debt , an argument that Dean Baker grasps, even if you don't see it, is false to the extent that it relies on the assumption that abstractions (such as SSA) designated by the law are not binding social objects.

If you take away the assumption that such designations as are made by the law according to formal custom, there are many conceivable sets of circumstances in which your argument would not be true. There are also many conceivable sets of circumstances in which your argument would not be true.

Part of the danger, in my mind, of branding social security a budgetary challenge is that such branding decreases the status of such abstractions. If such abstractions were as meaningless as Brooks supposes, there would be no reason for any government entity to have issued a treasury bond in exchange for the funds (another abstraction) in the social security bucket. That money could simply have been moved with the stroke of a pen.

argh.

that should be:

...made by the law according to formal custom ARE REAL

Or something like that.

And one of the two clauses about "sets of circumstances" should be

"in which your argument WOULD be true."

argh.

mrtimbo,

That's such a bunch of nonsense. You make it sound as if ANY change to SS eligibility (e.g., raising retirement age a year or two, or means testing such that Bill Gates gets no SS check) or to SS benefits (e.g., again, means testing, or a change to the basis of indexing benefits), or lowering the SS FICA tax rate would be radical and revolutionary, and are therefore mere "abstractions" not worthy of consideration. Rather, according to you, we should consider SS EXACTLY AS CURRENTLY STRUCTURED on both the spending and taxation sides as absolute gospel, perfect, something we should accept a priori as a given and not even THINK about tinkering with for ANY reason. How silly is that? (answer: very, very silly)

Let me tell you something that's not a mere "abstraction". We are facing HUGE long-term fiscal imbalances. We will have to cut spending very, very severely, raise taxes very, very substantially, or some combination of the two. As we do so, we need to consider economics (e.g., trade-offs, such as what would happen to the economy if we raised taxes through the roof, and at what point does an incremental tax rate hike yield little incremental revenues) and our values/morals/priorities (who will benefit and who will be harmed under various policy scenarios -- e.g., should a parent earning $30k a year have to pay higher taxes so that Bill Gates can have that SS check), and make some difficult choices. Did you hear that: CHOICES. TRADE-OFFS. If you say Program X is sacrosanct without considering the trade-offs involved, you not being sensible and you're not being responsible or moral.

And as for the questions I asked on this thread that Dean didn't answer (on SS, and on deficit-spending), if he had legitimate answers he could have given them, but instead he ignored one (the point about deficit-spending) and apparently pretended to misunderstand the other (about SS) so as (apparently) to avoid saying something that his readers wouldn't want to hear (which is that what I've been saying is correct).

mrtimbo,

As follow-up to my reply above, let me clear up what may be part of your confusion. I never suggested or implied in any way that we should default on any bonds. Indeed, one of the key points I've been trying to make is that people are simply wrong when they say or imply that we cannot reduce future SS spending without defaulting on those bonds, and I've explained why many times, including more than once on this thread.

Perhaps you're under the false impression that the CURRENLTY EXISTING bonds fully cover projected SS spending for the next several decades or beyond, and that any reduction in spending would, therefore, constitute default on those bonds. That would be incorrect, and maybe that's the source of your confusion.

"It is also inconceivable that our GDP would shrink for any sustained period of time. If it did, then we should be very worried about what is wrong with our economy, the debt would be very much a secondary concern."

I mean, it is far-fetched to think of a growing country having a shrinking GDP for sure, but it does happen. I kind of doubt (or assume/hope) it will too. But I just wanted to throw it out there. Also, the other thing I don't get about this conversation is why being worried about running deficits or the national debt means automatically that someone is attacking social security. I would doubt very much that moyers wants to dismantle social security. I mean, he worked for Johnson. Can't we be both worried about a big debt AND for a working Social Security AND on top of that a national health care system? Put me in that camp, I think its possible. And, back to Dean's quote, even if its a secondary concern, wouldn't it still be a concern?

wats,

Re: "the other thing I don't get about this conversation is why being worried about running deficits or the national debt means automatically that someone is attacking social security."

Welcome to the world of knee-jerk hyperpartisanship. In this world, no statement from anyone can be taken at face value and judged and discussed on its merits. Instead, sinister hidden motives are presumed and the speaker attacked not for what he has said, but for this presumed agenda that has been attached to him.

In fairness, there is probably a lot of overlap between folks who are very concerned about our projected long-term fiscal imbalance and folks who are at least willing to consider some scaling back of projected SS spending via eligibility (e.g., increasing the retirement age a couple of years; or means testing so the wealthy don't get checks, or get a lesser amount) or benefit levels (e.g., indexing benefit levels on a different basis). But this overlap certainly does not justify branding those of us concerned about deficits as "fear mongers" or as NECESSARILY advocating cuts in SS, and certainly doesn't justify perpetuating some of the nonsensical myths that abound and reacting irrationally or disingenuously, as some clearly have, to attempts to disabuse people of those myths.

But again, welcome to the world of knee-jerk hyperpartisanship.

Dean Baker isn't stupid, but his alarmism over health care is similar to Moyer's infatuation with the deficit.