Growing Interest in the Debt Debate
Within the genus of deficit hawk, there is moderate species that finds the long-term deficit crisis distressing but believes the solution can involve a prudent combination of new taxes and spending constraints rather than the wholesale demolition of our entitlement program. David Brooks appears to classify as a member of this species.
The style of the column today is tongue-in-cheek ("You're sitting there in your West Hollywood bondage-themed strip club with party donors picking up the tab, and, of course....you'd like to solve the country's looming fiscal catastrophe.") but the substance seems serious. Here's the meat:
These days, voters want low taxes -- about 19 percent of G.D.P. And they want high spending -- over 25 percent of G.D.P. by 2020. As a result, federal debt, which stood at 41 percent of G.D.P. two years ago, is forecast to balloon to 90 percent of G.D.P. in 2020, according to the Congressional Budget Office. By that time, interest payments on the debt alone would be $900 billion a year.
Dean Baker rips into Brooks for fear-mongering. He writes:
Yes, that $900 billion is really really scary. I don't know anyone who has $900 billion. Serious people would point out that the projected interest burden is a bit more than 4.0 percent of GDP, about the same as it was in the early 90s.
If $900 billion of interests were 4.0 percent of GDP in 2020, that would make 2020 GDP equal to $22.5 trillion. That means 2010 GDP, around $15 trillion, would have to grow an average of 5.2 percent in the next 10 years.* That's a pretty rigorous growth rate, and interest payments would still be their highest in relation to GDP in 70 years.
Baker is correct that "if we paid the same amount per person for health care as people in any other country then the deficits would quickly vanish." Nobody disagrees with that. But the recent health care debate demonstrated that bending the cost curve even a little bit, much less swapping it entirely for Singaporean medical inflation rates, is an enormous political challenge. Brooks might be wrong about his commission strategy, or his moralistic flourishes. But isn't he right that we have to do something?
*Update: Important contribution from commenter Ernie. "CBO has nominal 2010 GDP at $14.6 trillion and 2020 GDP at $22.5 trillion. That would require an average annual nominal (emphasis on nominal) growth rate of about 4.4% which is not historically extraordinary: over the last 40 years, nominal annual GDP growth has fallen below 4.4% exactly 7 times. And it seems even more plausible when you consider that nominal growth tends to be brisk in the immediate aftermath of a recession."