Noted for March 10, 2013
Liveblogging World War II: March 10, 1943

Paul Krugman: No, Our Deficit Is Not "Unsustainable"

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Paul Krugman:

Gone Deficit Gone: So says the CBO, although not directly…. [W]hen the economy slumps, revenues fall and some kinds of expenditure, like unemployment benefits, rise. You want to take out these “automatic stabilizers” when assessing the underlying state of the budget…. [W]e don’t have to balance the budget to have a sustainable fiscal position; all we need is to ensure that debt grows more slowly than GDP. So CBO… estimates that in fiscal 2013 these stabilizers will amount to $422 billion, accounting for just about half of a projected $845 billion deficit…. [T]here’s about $11.5 trillion in federal debt in the hands of the public…. [N]ominal GDP will in future grow by [more than] 4 percent per year, half from real growth and half from inflation. This means that the sustainable deficit is 4 percent of $11.5 trillion, or $460 billion. Hey, we’re there! And next year the adjusted deficit is projected to be much smaller

Yes, late this decade deficits will start to rise again thanks to rising health costs and an aging population, yada yada. But I have yet to hear a coherent argument about why the long-term problem of paying for the benefits we want — which will eventually have to be resolved through a combination of cost savings and revenue increases — should constrain our fiscal policy right now, in the midst of what remains a terrible economic slump. And I would say that the figure above is, in fact, a portrait of deeply irresponsible fiscal policy — because it is just crazy that in this deeply depressed economy we are now pursuing a fiscal policy that is tighter than the policy we followed at the height of the housing bubble.

So let’s try to stop doing that. And everyone repeat with me: there is no deficit problem.