FacebookTwitterGoogle+RedditEmail

The Debt-to-GDP Diversion

by DEAN BAKER

Morgan Stanley director Erskine Bowles and former senator Alan Simpson are still trotting around a plan for arbitrary deficit reduction targets that completely ignore the basic reality of the deficit. In their new version they tell us:

“To be credible for the long-term, we believe that the debt must be brought to below 70 percent of GDP by early in the next decade, and kept on a downward trajectory thereafter.”

Where did the 70 percent number come from, divine inspiration? It is clearly not grounded in reality. Japan has a debt-to-GDP ratio of more than 200 percent and can still borrow long term at just 1.0 percent interest.

Of course such debt targets are easily shown to be silly, since we can buy back debt issued at low interest rates at sharp discounts when the interest rates rise. If a lower debt-to-GDP ratio is important, that is the simplest way to meet it.

This would be a small matter if Bowles and Simpson were not proposing real pain to real people. Their cuts to Social Security and Medicare will be a major hit to tens of millions of seniors who even now have a median income of just $20,000 a year. The change to the Social Security cost-of-living adjustment alone, which amounts to a 3 percent cut over the lifetime of a typical beneficiary, would be a much larger hit to the income of the typical senior than President Barack Obama’s tax increases were to the high-income people affected by them.

The proposed cuts to Medicare seem like gratuitous pain. In their 2010 plan, Bowles and Simpson had called for $300 billion in cuts to Medicare spending over the decade. Since then, the Congressional Budget Office has already reduced its Medicare spending projections by more than $500 billion. This means that we already have seen more savings from Medicare than they originally targeted.

Bowles and Simpson also again ignored demands to tax Wall Street. Europe is moving ahead with plans to impose a financial speculation tax. The Joint Tax Committee has estimated that a modest tax on speculation here could raise $40 billion a year. But for some reason taxing Wall Street never appears in their plans.

However the most infuriating aspect of their plan is the implication that we have an out-of-control deficit. As every budget analyst knows, the deficit is high because the economy collapsed when the housing bubble burst. Serious people talk about getting the economy back on its feet and re-employing the millions of people who lost their jobs. Bowles and Simpson talk about debt-to-GDP ratios.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on Debate Club.

 

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

Weekend Edition
April 21, 2017
Friday - Sunday
Diana Johnstone
The Main Issue in the French Presidential Election: National Sovereignty
Paul Street
Donald Trump: Ruling Class President
Jeffrey St. Clair
Roaming Charges: Dude, Where’s My War?
Andrew Levine
If You Can’t Beat ‘Em, Join ‘Em
Paul Atwood
Why Does North Korea Want Nukes?
Robert Hunziker
Trump and Global Warming Destroy Rivers
Vijay Prashad
Turkey, After the Referendum
Binoy Kampmark
Trump, the DOJ and Julian Assange
CJ Hopkins
The President Formerly Known as Hitler
Steve Reyna
Replacing Lady Liberty: Trump and the American Way
Lucy Steigerwald
Stop Suggesting Mandatory National Service as a Fix for America’s Problems
Robert Fisk
It is Not Just Assad Who is “Responsible” for the Rise of ISIS
John Laforge
“Strike Two” Against Canadian Radioactive Waste Dumpsite Proposal
Norman Solomon
The Democratic Party’s Anti-Bernie Elites Have a Huge Stake in Blaming Russia
Andrew Stewart
Can We Finally Get Over Bernie Sanders?
Susan Babbitt
Don’t Raise Liberalism From the Dead (If It is Dead, Which It’s Not)
Uri Avnery
Palestine’s Nelson Mandela
Fred Nagel
It’s “Deep State” Time Again
John Feffer
The Hunger President
Stephen Cooper
Nothing is Fair About Alabama’s “Fair Justice Act”
Jack Swallow
Why Science Should Be Political
Chuck Collins
Congrats, Graduates! Here’s Your Diploma and Debt
Aidan O'Brien
While God Blesses America, Prometheus Protects Syria, Russia and North Korea 
Patrick Hiller
Get Real About Preventing War
David Rosen
Fiction, Fake News and Trump’s Sexual Politics
Evan Jones
Macron of France: Chauncey Gardiner for President!
David Macaray
Adventures in Labor Contract Language
Ron Jacobs
The Music Never Stopped
Kim Scipes
Black Subjugation in America
Sean Stinson
MOAB: More Obama and Bush
Miguel A. Cruz-Díaz
Minute Musings: On Why the United States Should Launch a Tomahawk Strike on Puerto Rico
Tom Clifford
The Return of “Mein Kampf” … in Japan
Todd Larsen
Concerned About Climate Change? Change Where You Bank!
Thomas Hon Wing Polin
Brexit: Britain’s Opening to China?
John Hutchison
Everything Old is New Again: a Brief Retrospectus on Korea and the Cold War
Michael Brenner
The Ghost in the Dream Machine
Yves Engler
The Military Occupation of Haiti
Christopher Brauchli
Guardians of Lies
James Preece
How Labour Can Win the Snap Elections
Cesar Chelala
Preventing Disabilities in the Elderly
Sam Gordon
From We Shall Overcome to Where Have all the Flowers Gone?
Charles Thomson
It’s Still Not Too Late to Deserve Your CBE, Chris Ofili
Louis Proyect
Documentaries That Punch
Charles R. Larson
Review: Vivek Shanbhag’s “Ghachar Ghochar”
David Yearsley
Raiding the Tomb of Lubitsch
FacebookTwitterGoogle+RedditEmail