Menzie Chinn vs. Richard Posner: Basic Math for the Math Challenged
"How About Meeting in the New Peets Coffee in the New Citris Building"

Next Week's Budget News Today!

James Horney of the excellent CBPP has an excellent advance piece warning that most of the stories next week that are going to hung on the hook of the midsession review will be wrong:

Five Keys to Understanding New 2009 Deficit Estimates — Center on Budget and Policy Priorities: Next week, the President’s Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) will update their economic and budget projections for fiscal year 2009, which ends on September 30, and the next ten fiscal years. Some analysts and pundits will try to use the new projections to support their arguments that the February stimulus package is (or is not) working, that Congress must (or must not) proceed with health care reform, and that any number of other policies should (or should not) be pursued. In fact, however, it will be extremely hard to draw any reasonable conclusions about such questions. Instead, the new estimates are likely to provide more evidence that we are in a highly uncertain economic and budgetary environment, in which the estimates can fluctuate significantly for a variety of reasons that have little to do with the desirability of undertaking new policy actions such as health care reform.

Meanwhile, in email assorted budget mavens are using the rubber hose on me for my statement that CAP has overperformed and CBPP has not (overperformed, that is)...

One quibble. Horney writes:

The [new] estimates should, however, reinforce the message that the current fiscal path is unsustainable over coming decades...

But immediately follows that with:

The policy path was unsustainable before the economic downturn; in fact, the downturn will add relatively little to the size of the long-term problem. Changes in current policies — such as to ensure adequate revenues and help slow the rapid growth of public and private health care costs — must be made to keep deficits from growing rapidly in coming decades...

The second of these passages is correct. The midsession review tells us nothing about the size of the long-term fiscal gap or the urgency of action to close it.

The U.S. government is on an unsustainable fiscal trajectory as far as Medicare and Medicaid are concerned. Whether it is on an unsustainable fiscal trajectory as far as the rest of the budget is concerned depends on (a) what is finally done about Medicare and Medicaid, and (b) whether the economic growth rate over the next three decades is closer to 3.5% per year or to 2.0% per year. And we will learn nothing about either of those issues from the numbers to be released next week.