What DC considers a despicable scare tactic: accurately describing a proposal to dismantle Medicare.
What DC does not consider a scare tactic: misleadingly hyping the costs of not bringing deficits down now now now.
Ezra Klein shows us a chart from a new report by Paul Posner on the deficit (pdf):
Posner then says,
These escalating gaps are partly a function of the growth of interest costs. As deficits and debt grow during years of no action, interest costs escalate in the budget, prompting even higher deficits and debt in a vicious cycle. In addition, higher deficits over longer periods of time gradually reduce economic growth and push up interest rates, again contributing to a vicious cycle where deficits and slow growth become mutually reinforcing.
Except if you look at the CBO report (pdf) on which this is based, that’s not at all what is going on. CBO says nothing at all about vicious cycles and all that; and interest costs are not, in fact, a major source of the numbers shown in the chart (especially given the fact that current rates remain very low in real terms).
So what actually is going on? Again, if you actually read the CBO report, what it’s doing is calculating what it would take to “close the fiscal gap” over the period from now until 2035. What they mean by this, as I understand it, is that they’re asking what would be required to ensure that debt as a share of GDP in 2035 is the same as it was in 2010. And to hit this target would require that revenues be more and/or spending be less by a certain amount over the next 25 years.*
Now, bear with me: suppose that the total budget savings required amount to $25 trillion. If we start now, that’s $1 trillion a year; if we wait until 2015, it’s $1.25 trillion a year; if we wait until 2025, it’s $2.5 trillion a year. So the required adjustment as a share of GDP over the remaining years will be higher if we wait. But there isn’t any increase in the total cost of adjustment. If you wait, you still have to pay the same cost, all that happens is that you have to squeeze the adjustment into a shorter period of time. In the example I’ve described, there is, in short, no “cost of delay” — yet this example would lead to a chart that looks just like the one Posner presents.
Oh, and by the way, the title Posner puts on the chart is not at all the title on the corresponding chart in the CBO report, which only says that it’s showing “Reductions in Primary Spending or Increases in Revenues in Various Years Needed to Close the 25-Year Fiscal Gap Under CBO’s Alternative Fiscal Scenario”. By claiming that the chart shows rising costs, and attributing that claim to CBO, Posner is badly misrepresenting other people’s work.
Now, you could argue that adjustment will be easier if we spread it out over time, and in general that’s usually true. But it’s not true if the time into which you spread the adjustment — namely, the present — is a period when the economy is depressed, and spending cuts or tax increases lead directly to lower GDP and higher unemployment.
So, guess what: a report that looks as if it’s presenting a compelling case for quick deficit reduction is actually deeply misleading. Who woulda thunk it?
*Strictly speaking, it matters when the revenue increases or spending cuts take place, because of interest on the debt. But I’m pretty sure that’s not a major factor in the results.