On Knowing What I and the CBO Know
10/07/2013
This is what Brad DeLong – seconded by Paul Krugman – calls an "improvement" in the finances of the federal government:
Well, I'd really like to see what a deterioration looks like.
The word "improvement" does appear in the report, it is true. But it refers to improvements in health and longevity -- which are of course a large part of the reason why, as I said in my piece, "spending on entitlements has continued to rise -- and will rise inexorably in the coming years".
DeLong is of course referring to the "improvement" in the CBO's projections relative to the projections they made last year -- or rather the improvement in one of them: the alternative fiscal scenario. This so crucial that the CBO doesn't actually refer to the 2012 AFS projection in the 2013 report, making all the comparisons with reference to the extended baseline, which is also the one referred to by Krugman in his "This Is Not A Crisis" post. And this year's projection for that scenario is worse than last year's. As I said.
Frankly, I think most sane people don't hugely care what the CBO's alternative fiscal scenario was last year. The question that matters is whether the CBO now thinks the fiscal position is going to improve or deteriorate in the future, relative to where we are today. And the answer, as I said, is that it is almost certainly going to deteriorate unless there is a significant increase in revenues or reduction in entitlement spending. That looks very likely, doesn't it?
Meanwhile, Econospeak joins Krugman in speculating that I cannot read or understand plain English. "If anyone actually bothered to read the CBO report", he writes, that person would see that the worsening projection (which he at least acknowledges) is due to "the decision to make the Bush tax cuts permanent" not "to a rise in the expected path of Federal spending".
I encourage everyone to read the report. But if you are too busy blogging, you can just take a look at the summary chart, figure 1:
There you will clearly see that entitlement spending is indeed the main reason for the projected increase in the federal debt, as I said in my piece. Spending on health care rises in lockstep with the debt, while revenues are basically flat. Net interest also rises, while spending on everything else (e.g. defense) falls. Notice, in my piece I did not offer an explanation for the deterioration of this year's projection relative to last year's projection, except to note that in this year's report the CBO attempts to quantify the negative feedback from high and rising debt to lower growth.
Which is more important then:
1. The fact that, as far as the CBO knows today, the fiscal position in 2038 will almost certainly be worse, and maybe much worse, than it is now?
OR
2. The fact that one of the CBO's projections is not quite as bad this year as it was last year, when it was abominable, as opposed to just terrible.
As an historian, I have no difficulty in telling you it's 1. And I can do it without resorting to the insults favored by some economists.
