Some Pollyannas, like my friend Larry Kudlow, think we can just grow our way out of the debt by cutting taxes. But this is not really possible given the magnitude of our problem. First, increasing real growth doesn't have as much effect on the debt as one might imagine. According to OMB, raising the rate of productivity, the basic component of real GDP growth, by 0.5% per year over the next 75 years only reduces the long-run fiscal gap by 17%.Moreover, raising productivity even that much would be hard; over the last five years the productivity growth rate has averaged 1.8% per year, so we would have to raise it by one-fourth just to reduce the projected debt by 17%.
He also explains why the debt can't be inflated away.
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