IAS 107 Intermediate Macroeconomics March 29, 2011 Inflation Lecture Cleaned-Up Transcript
Josh Marshall Is Shrill

Department of "Huh?!": Ken Rogoff Edition

Kenneth Rogoff writes:

History will rue US and Europe debt woes: Will 23rd-century historians look back on today’s fiscal follies with the same mixture of bemusement and disdain with which we now view the financial affairs of 18th-century French kings? Policymakers throughout the world are trying to find ways to stabilise government debts, now approaching record postwar levels. As US legislators fumble towards a budget deal, there is the laudable bipartisan Bowles-Simpson commission report. But too many remain sceptical of the need for prompt action at all. Throughout industrialised nations, debate continues over how fast to withdraw post-financial crisis stimulus. Too many want to follow the lead of the US, which has consistently increased its dependency on debt finance...

Look at the chart at the top of this post. The Congressional Budget Office says that if Congress finds pay-fors for its now-routine extensions of the Alternative Minimum Tax and that if the excise on high-cost health plans in Obama's Affordable Care Act goes into effect and if the changed procedures that allow the cuts to Medicare spending designed by the Independent Payment Authorization Board to go into effect, then the U.S.'s long-term fifty-years primary fiscal gap is only 0.8% of GDP.

And the Congressional Budget Office says that the Affordable Care Act--if it is not repealed, or amended, or castrated--has done more than two-thirds of the work that needed to be done when Obama took office to bring us to long-run fiscal sustainability.

Now it is certainly true that future congresses can undo the ACA and can bust the budget in many ways.

But where is Ken Rogoff coming from in claiming that the Obama administration has "consistently increased its dependency on debt finance"? Would he really rather that Obama had not rammed through the tax on high-cost health plans and the Medicare cuts of the IPAB?

If he would, then his position is totally incoherent. If he does think that fiscal balance is a good thing, could he at least give Obama some credit for these policies to rein in health costs and boost revenues?