Today Paul Krugman offers a brief refresher course for the distracted on rapidly declining estimates of U.S. federal government deficits and debt:
The budget office predicts that this year’s federal deficit will be just 2.8 percent of G.D.P., down from 9.8 percent in 2009. It’s true that the fact that we’re still running a deficit means federal debt in dollar terms continues to grow — but the economy is growing too, so the budget office expects the crucial ratio of debt to G.D.P. to remain more or less flat for the next decade.
Things are expected to deteriorate after that, mainly because of the impact of an aging population on Medicare and Social Security. But there has been a dramatic slowdown in the growth of health care costs, which used to play a big role in frightening budget scenarios. As a result, despite aging, debt in 2039 — a quarter-century from now! — is projected to be no higher, as a percentage of G.D.P., than the debt America had at the end of World War II, or that Britain had for much of the 20th century. Oh, and the budget office now expects interest rates to remain fairly low, not much higher than the economy’s rate of growth. This in turn weakens, indeed almost eliminates, the risk of a debt spiral, in which the cost of servicing debt drives debt even higher.
So there’s really no reason for debt hysteria in the immediate future. But as you may have noticed, the atmosphere hasn’t much changed at all in the competitive Republican primaries this year, where if anything debt-o-mania has gotten worse. In the current GOP SEN runoff here in GA, for example, both Jack Kingston and David Perdue–who began the primary as the two “Establishment” candidates–have both attacked the very idea of debt limit increases not offset by massive budget cuts, while attacking each other for past heresies from the Gospel of Debt-Free Government.
In general, it often seems that what separates Republican Establishment types from Tea Party types on fiscal issues is that the former believe we’re in a debt crisis that requires a radically smaller government and an assault on the safety net while the latter believe God Almighty and the Founders eternally decreed a smaller government with no safety net, and a debt crisis represents the wrath incurred by defiance of those tenets of divine and natural law. It’s a distinction without much of a difference in the final analysis, but it will be interesting to see if objective reality has any impact on conservative debt rhetoric going forward.