Did They Fix The Deficit When We Weren’t Looking?

Paul Krugman’s newest blog entry titled, “The Mostly Solved Deficit Problem,” is a fascinating read that challenges everything we hear about deficit and debt projections. I’m just going to re-post it in its entirety and let you decide for yourself:

The Center on Budget and Policy Priorities has a graph:


The vertical axis measures the projected ratio of federal debt to GDP. The blue line at the top represents the projected path of that ratio as of early 2011 — that is, before recent agreements on spending cuts and tax increases. This projection showed a rising path for debt as far as the eye could see.

And just about all budget discussion in Washington and the news media is laid out as if that were still the case. But a lot has happened since then. The orange line shows the effects of those spending cuts and tax hikes: As long as the economy recovers, which is an assumption built into all these projections, the debt ratio will more or less stabilize soon.

CBPP goes on to advocate another $1.4 trillion in revenue and/or spending cuts, which would bring the debt ratio at the end of the decade back down to around its current level. But the larger message here is surely that for the next decade, the debt outlook actually doesn’t look all that bad.

True, there are projected problems further down the road, mainly because of the continuing effects of an aging population. But it still comes as something of a shock to realize that at this point reasonable projections do not, repeat do not, show anything resembling the runaway deficit crisis that is a staple of almost everything you hear, including supposedly objective news reporting.

So you heard it here first: while you weren’t looking, and the deficit scolds were doing their scolding, the deficit problem (such as it was) was being mostly solved. Can we now start talking about unemployment?

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5 Responses to Did They Fix The Deficit When We Weren’t Looking?

  1. FLPatriot says:

    I’m a little confused by the graph. At the end of 2011 the GDP of the United States was $15 trillion (estimated) and out national debt was $15 trillion (estimated). Wikipedia states that Debt to GDP was 102% in 2011.

    The graph above starts with the percentage at 72% for 2012 and that would mean we either increase our GDP by a rate we have never seen or decrease out national debt by roughly $4.2 trillion in one year (and that is not going to happen).

    We are actually looking at a Debt or GDP at the end of 2012 of closer to 115%.

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