Balanced Budget Fight Is Philosophical and Fiscal - NYTimes.com - 0 views
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balanced budget fiscal economics economy debt debate
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While economists generally agree that narrowing the government’s deficit and limiting the size of the debt are necessary in the long run, most argue that balancing the budget would not restore the nation’s still-weak economy to health in the near term. Indeed, rushing to do so with unemployment still elevated and the economy growing at only a sluggish pace could even set back the effort to reduce the deficit.
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Mr. Ryan, whose previous budget proposals did not bring spending below revenue for decades, vowed this time to do so by 2023, in part to satisfy the demands of the more conservative members of the Republican Caucus.
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“This is an invitation. Show us how to balance the budget,” Mr. Ryan said. “If you don’t like the way we’re proposing to balance our budget, how do you propose to balance the budget?”
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Jay Carney, the White House press secretary, said Tuesday. “It is important to bring our deficits down and to reduce our deficit-to-G.D.P. But they are part of — those goals are part of the broader purpose here, which is to grow the economy and strengthen the middle class.”
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Economists offered more nuanced views. Closing the budget gap over the longer term could be vital to sustaining economic health, some stressed, by ensuring that the government did not crowd out private investment and by helping to keep interest rates low. But that does not make it an immediate necessity.
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“The people who say the debt is irrelevant — that’s going too far,” said Mr. Rogoff, who along with Carmen Reinhart of Harvard produced a study of the interplay between debt and growth. “It’s a very rarefied air that we’re in already. And it could be a problem. You can’t turn your debt around in a year, and you cannot reduce debt quickly and easily.”
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Other goals — including stabilizing debt as a proportion of economic output, rationalizing the tax code and tackling the long-term fiscal challenge posed by entitlement programs — might prove more important in the coming years, several experts said.
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As sensible as a balanced budget might sound — much like a balanced checkbook for a family — countries are generally able to run modest deficits for years on end while still keeping debt stable as a share of economic output. One year’s deficit is effectively paid off by later economic growth,
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The Senate Democratic proposal does not balance the budget, but it does reduce deficits to below 3 percent of economic output — a level that would stabilize the debt, economists said. During the 10-year budget window, the debt would start to shrink as a proportion of the economy.
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A broader question, economists said, is the long-term effect the country’s debt load might impose on the economy. In the past few years, a number of broad-based studies have suggested that having government debt equivalent to or greater than about 85 or 90 percent of economic output might eventually cut into growth. Currently, public debt in the United States is about 76 percent of the size of the economy. Including debts the government owes itself, like in the Social Security Trust Fund, the total load is in fact bigger than a whole year’s economic output.
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you suffer some short-run pain, and you don’t want to inflict that when the unemployment rate is already high, the economy is still recovering from the legacy of the Great Recession, and the Federal Reserve has used up most of what’s in its quiver.”
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Now, how and whether to get back to a balanced budget seems to be a new fight between Democrats and Republicans. “It will generate a debate over the appropriate goal of long-term fiscal policy,” wrote William A. Galston of the Brookings Institution in an analysis of Mr. Ryan’s budget plan. “Is it to eliminate the deficit and the debt, to ensure that the debt does not rise as a share of G.D.P., or something in between?”