Brookings on Controlling the Deficit

The Brookings Institution released a paper today (ok it’s now after midnight – I guess it was yesterday) titled The Future is Now: A Balanced Plan to Stabilize Public Debt and Promote Economic Growth, by William Galston and Maya MacGuineas. The authors lay out both a set of principles and a fairly detailed plan for getting the budget deficit and government debt under control. Their plan aims to limit and stabilize government debt at the end of this decade at 60% of GDP, compared with current projections that have the debt at 90% in 2020 and increasing dramatically beyond that.

They argue first of all that controlling the deficit and debt is important in order to ensure the future health of the US economy, more important that many commentators acknowledge. They point to four specific problems that excessive debt can cause –

  1. it slows economic growth by competing with the private sector’s need for capital
  2. increasing interest payments compete with other spending priorities
  3. interest payments on debt held outside the US transfer wealth out of the country.
  4. excessive debt raises the risk of a future fiscal crisis

In order to address the threat of a spiralling deficit, they outline five principles that they believe should guide future budget reform –

  1. Promote shared sacrifice
  2. Encourage growth
  3. Protect this in need and increase progressivity
  4. Enhance the transparency of our spending priorities
  5. Acknowledge demographic and health care realities

Based on these principles, they lay out what seems to be a reasonably credible plan that involves cuts to defense, domestic discretionary, social security, health, tax expenditure (exemptions) and other spending and increases in revenue.

I’m not in a position to gauge the accuracy of the numbers they give, but what I think is striking is the fact that they (i) do actually attach numbers to the potential savings available in different areas of government spending, (ii) provide some degree of analysis to explain the assumptions that underlie those numbers and (iii) show how those savings in aggregate would lead to a budget deficit of less that 1% of GDP and debt stabilized at 60% of GDP by 2020.

This is in marked contrast to the hand-waving generalities contained in the Republicans’ “Pledge to America”, which promises to control spending, but makes no credible attempt to indicate exactly how potential savings might actually lead to a stable future fiscal position.

It’s encouraging to see a contribution to public debate like the one from Galston and MacGuineas. I was particularly interested to see this comment –

“We believe that the American people want their leaders to treat them like adults who are capable of accepting the truth. But this cannot happen until our leaders begin to act like adults who are interested in solving problems rather than scoring political points.”

On reading this, part of me wants to say “yes please!”, because there is surely a need for exactly this kind of leadership in the US. However I do have to take issue a little with the suggestion that “the American people want…”. I see politicians and commentators so often invoking their own particular claims about what “the American people” want or think and most of the time it is just self-serving nonsense.

The reality is that there is enormous diversity of attitude and opinion within the US and if we are to be realists (which is what Galston and MacGuineas are advocating after all), then I think we should acknowledge that this is true in this context as well. I would go further and suggest that many American people (and I certainly don’t mean that Americans are different in this respect from people elsewhere) actually aren’t “adults who are capable of accepting the truth”, and that that is precisely the reason that they have the politicians they do.

This entry was posted in Economics. Bookmark the permalink.

4 Responses to Brookings on Controlling the Deficit

  1. Ross Clark says:

    Hi Mark, having come across your website through Transportblog, I figured that I had to drop by sometime and say hello – the more so in that our paths have crossed in more than cyberspace!

    For a compare and contrast, if not a completely fair comparison, have a look at what New Zealand did with its Government debt. In the mideighties it was around fifty percent of GDP, but successive Governments were able to work away at it and get it down to around twenty percent of GDP – which gave us some real headroom when the crunch struck, although it has increased since.

    Also, have a look at what the UK government are doing – they really are tackling a number of sacred cows.

  2. Mark says:

    Thanks for dropping by Ross. I saw your name on transportblog and suspected it might be you.

    IIRC the NZ case was achieved via budget surpluses, yes? Of course the US is in a much tougher position. As far as I can tell, the Galston and MacGuineas plan actually leaves the budget in deficit, but controls it enough to rely on growth to keep total debt to GDP within a (relatively) manageable range.

    Agree regarding the UK. The Japanese situation is also worth watching, though for different reasons. Some analysis/speculation by Martin Feldstein here.

  3. Gillian says:

    Our paths have crossed in more than cyberspace too! A remark from a friend this week prompted me to put your name in Google and this site topped the list.

    Nice pohutukawa – your own photo, I presume.

    All well here – Adelaide is learning to drive (slowly – adverb qualifies both verbs); Alex bears a remarkable resemblance to our Kelpie X – absolutely no bother when fast asleep; I’m halfway through an MDiv at theological seminary.

    Pray for you from time to time.

  4. Mark says:

    Nice to hear from you Gillian and glad you found the site. The pohutukawa is a shot I took a couple of years ago at Te Arai north of Auckland.

Leave a Reply

Your email address will not be published. Required fields are marked *