Choose your own deficit
Sunday, June 27, 2010
When I was a kid, I loved the "Choose Your Own Adventure" books. They involved you in the story, letting you make choices that affected the outcome and, occasionally, revealed more than you might like to admit about how you'd act in tough situations.
It's been years since I thought of those books, and the reminder came from an odd place: the nonpartisan Committee for a Responsible Federal Budget. It's sexed up a Web site filled with white papers and charts with a game called "Stabilize the Debt," which allows you to make the sort of difficult choices necessary to bring the federal budget into balance, bringing some discipline and realism to a question too often marred by vague, high-polling platitudes.
If we're going to talk about debt and deficits -- and it seems that we are -- we may as well do it right. First, there's the difference between accumulated debt (how much our country owes) and deficits (how much we're spending compared with how much we're getting in tax revenue). People often use the terms interchangeably. They shouldn't.
Then, we need to be clear about the timetable we're talking about:
-- Short-term deficits driven by the Great Recession, which many economists think should actually go up in order to kick-start the economy;
-- Medium-term deficits over the next decade or so, which many economists think need to go down if we're to avoid higher interest rates and to reassure the markets;
-- Long-term deficits, which are driven by health-care costs and which most everyone agrees need to go down if the country is to avoid bankruptcy.
Finally, we need to be clear about what we're willing to do about the debt. If people are talking about managing deficits and not saying what spending they'll cut and which taxes they'll raise, they're not saying anything useful. To help us get specific, I asked Maya MacGuineas, who leads the Committee for a Responsible Federal Budget, to price out some of the policy options. We focused on the time period between 2012 (when new policies would go into effect) and 2022. The spreadsheet she sent was vast and intimidating, but here are some of its lessons.
All big numbers are not equal. We have a tendency to let millions, billions and trillions run together. All are unimaginably large numbers. But some are a lot larger than others. The mathematician John Allen Paulos likes to put them in terms of time: A million seconds is less than 12 days, a billion seconds is almost 32 years, and a trillion seconds is (wait for it) 32,000 years.
Be clear on the goal. Let's assume the Bush tax cuts expire for people making more than $250,000 and discretionary spending grows very slowly in the coming years. By 2022, that scenario puts debt at about $21.5 trillion. MacGuineas thinks the debt-to-GDP ratio should be no more than 60 percent: That means debt will need to come down to about $14.6 trillion, and we've got $6.9 trillion to cut between 2012 and 2022 to get us there.