THERE’S A NEW school of thought about the deficit, which exceeded $1 trillion for the fourth straight year in fiscal 2012: Don’t worry, be happy. We’ve made a lot of progress, says an array of liberal pundits, and there isn’t all that much work left to do. “The U.S. confronts huge challenges, at home and abroad,” writes Martin Wolf of the Financial Times. “Its fiscal position is not one of them.”
Mr. Wolf and others cite a Jan. 9 paper by the left-leaning Center for Budget and Policy Priorities (CBPP) that notes that Congress has enacted spending cuts and tax increases worth $2.3 trillion over 10 years since the end of 2010 — when the Simpson-Bowles commission’s ill-fated 10-year, $5.5 trillion plan came out. Also, the problem shrank: The Congressional Budget Office has revised its 10-year deficit forecasts down by $1.5 trillion since Simpson-Bowles.
Ergo, just $1.4 trillion more in savings would bring 10-year debt-reduction to $3.7 trillion and stabilize public debt at 73 percent of gross domestic product from 2018 through 2022. And we’re about to get most or all of that additional saving in the coming weeks — from the scheduled “sequester” of defense and discretionary programs or, preferably, equivalent alternative policies. Problem solved!
If only. A debt-to-GDP ratio “stabilized” at 73 percent would be a paltry achievement — a level of indebtedness 32 percentage points larger than the post-1950 average. A five-year plateau at that ratio would depart markedly from historical patterns, according to which U.S. debt surges during wars and/or recessions, then recedes in equal or near-equal measure amid renewed growth and fiscal consolidation.
The CBPP analysis assumes steady economic growth and no war. If that’s even slightly off, debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth. “Those who argue against a further focus on prospective deficits” based on rosy scenarios “counsel irresponsibly,” President Obama’s former Treasury secretary, Lawrence H. Summers, wrote in The Post on Inauguration Day — and we agree.
Anyway, it’s not like Congress and the White House are close to agreeing on an alternative to the sequester. Many deficit doves would also decry the sequester’s cuts to domestic programs; few, however, have said exactly what tax hikes and spending cuts they would prefer. A memo circulated by the Senate Budget Committee’s Democratic majority alludes to closing tax loopholes but specifies nothing bigger or politically riskier than breaks for corporate jets and oil companies.
The big money is in entitlements, the source of our structural debt problem, which Democrats seem increasingly to treat as untouchable. The CBPP paper concedes that stabilizing debt at 73 percent of GDP by 2018 “would not be enough to address the longer-term budget problem.” Never mind, deficit doves coo, the problem is health spending generally — not a sustainable redesign of Medicare and Medicaid. And health spending is already easing, albeit for unknown reasons.
Given the economy’s fragility, we should not slam on the fiscal brakes, but even the short-term goal should be a downward trajectory for debt-to-GDP — not a high plateau. Regarding structural debt, our leaders can hardly be accused of rushing into things. They should be more ambitious, not less. The longer they wait, the more painful the process will be.