Here are three facts about how the 10-year budget outlook has changed in the past year: 1) the fiscal cliff deal raised $600 billion in new revenue; 2) the sequester, if left in place, cut spending by $1.2 trillion; 3) the CBO revised its projection for federal healthcare spending down by $600 billion.
Harvard historian Niall Ferguson has a counterfactual take. Here's how he described how our debt trajectory changed the past year:
A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.
This isn't a difference of opinion. It's incorrect. But it's incorrect for reasons that will escape casual readers.
As Brad DeLong points out, Ferguson is playing games with the baseline. He's trying to make you think that the debt is growing faster than we thought. But debt is slower than we thought. It's only growing faster than a special fantasy projection that the CBO calculated last year when nobody knew what was going to happen with the Bush tax cuts.
Last year the CBO calculated two long-term budget outlooks to deal with uncertainty about taxes. The first scenario assumed that all the Bush tax cuts would expire. Pure fantasy. The second scenario assumed that none of the Bush tax cuts would expire. Less fantastical. Ultimately, we extended most of the Bush tax cuts. Ferguson is trying to count this as a $3.9 trillion loss compared to a political fantasy where taxes went up by $4.5 trillion.
But here's the thing: Everybody knew the fantasy baseline was a meaningless fantasy from the beginning. Even Niall Ferguson.
At least he seemed to know that in 2009, 2010, 2011, and 2012. Back then, the alternative fiscal scenario was the only thing he talked about, because it was, in his words, "the more likely of the two." Here's but one example, from 2011:
According to the Congressional Budget Office’s alternative fiscal scenario—which it sees as politically more likely than its baseline scenario—the federal debt could hit 344 percent of GDP by 2050. Interest payments would absorb nearly all federal tax revenues.
Ferguson was right to talk about the alternative fiscal scenario the past few years, and he would have been right to continue to talk about it today as the point of comparison. But he doesn't. And that leaves him with a rather obvious problem: How can he explain our supposedly darkening debt outlook when we just raised taxes and cut spending? Hmm. How about saying the CBO says it's all about high debt causing low growth!
The only problem is that's not what the CBO says at all. Stay with me here.
In its all-the-Bush-tax-cuts-expire baseline last year, the CBO projected debt would be 52 percent of GDP by 2038; and in its fiscal cliff baseline this year, it projects debt will be 100 percent of GDP by then. But Ferguson can't admit the baseline games he's playing are the reason for this 50 percentage point of GDP difference. So instead he says that "more realistic growth assumptions" play a "crucial role" in this "devastating reassessment." They do not. In fact, they play no role. The CBO quite explicitly says that its fiscal cliff baseline with debt at 100 percent of GDP in 2038 does not include any negative growth effects from high debt. When it did include those effects, its fiscal cliff baseline rose to 108 percent of GDP in 2038. In other words, what Ferguson says played a "crucial role" in increasing debt by 50 percentage points of GDP really only increased debt by 8 percentage points of GDP.
It's no wonder that he's already all but conceded that no, the debt isn't worse now than it was last year.
This continues a rather disturbing trend for Ferguson. He seems to believe he can twist facts to mean whatever he wants them to. Last year, you may recall, he jaw-droppingly doctored a CBO quote to change its meaning entirely. The year before that, he argued economists had it all wrong, and that "yes, folks, double-digit inflation is back" -- with his "proof" coming from a well-known conspiracy website. It'd be as if I told Ferguson his history was wrong, because it ignored the collected works of Dan Brown.
And then there's Ferguson's bizarre jihad against Paul Krugman, along with his many "acolytes" (though we prefer to call ourselves Krugman's Killer Apps), for not being perfectly clairvoyant. I'm not sure why Ferguson thinks anybody should think less of Krugman for being bearish on the euro, which was entirely appropriate before Draghi's "whatever it takes" moment, and still might be. Least of all Ferguson, who himself has been ... pretty bearish on the euro. Unless that's the point? That agreeing with Ferguson shows that Krugman makes mistakes? It's not clear.
Ferguson fancies himself a victim of liberal intolerance—a conservative crucified on a cross of tweets. And, worse, by his lessers. Who are these unwashed masses of university professors and writers who dare question him? He's written books, and I have not.
Arguing from authority is always a bad sign, because it means you can't argue from the merits. Maybe Ferguson should try not making arguments that seem tendentious at best, and oblivious at worst. But now we're getting into counterfactuals.
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