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January 25, 2012

The Dangerous Notion That Debt Doesn't Matter

Steven Rattner:

WITH little fanfare, a dangerous notion has taken hold in progressive policy circles: that the amount of money borrowed by the federal government from Americans to finance its mammoth deficits doesn't matter.

Debt doesn't matter? Really? That's the most irresponsible fiscal notion since the tax-cutting mania brought on by the advent of supply-side economics. And it's particularly problematic right now, as Congress resumes debating whether to extend the payroll-tax reduction or enact other stimulative measures.

Here's the theory, in its most extreme configuration: To the extent that the government sells its debt to Americans (as opposed to foreigners), those obligations will disappear as aging folks who buy those Treasuries die off.

Larry Summers Executive Summary of Economic Policy Work, December 2008 (PDF):
Closing the gap between what the campaign proposed and the estimates of the campaign offsets would require scaling back proposals by about $100 billion annually or adding newoffsets totaling the same. Even this, however, would leave an average deficit over the next decade that would be worse than any post-World War II decade. This would be entirely unsustainable and could cause serious economic problems in the both the short run and the long run.
via Ryan Lizza.

Posted by Jim Zellmer at January 25, 2012 2:08 AM
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