Your Weekend Reading

Sun, 22 May 2011 17:31:49 +0000

I have been trying to find the right analogy for what the federal government is doing to the nation's finances.  I am torn between "the Treasury getting beaten at a game of Monopoly" and "fiscal policy as a game of Angry Birds."  If you would like to take a break from either one and read a sober assessment of our current macroeconomic outlook, with some surprising optimism about the construction sector, spend a little time with Brad DeLong here.  Here are the two paragraph that resonated most with me:

It is a fact that if congress simply goes home--doesn’t do anything for the next 10 years except keep the federal government on autopilot, or if it does do things if it pays for whatever increases in spending it enacts by raising taxes and pays for whatever tax cuts it enacts by cutting spending--that we do not have a long run deficit problem. If congress goes home for ten years our program spending is matched to our tax revenues, which means a declining debt burden because the growth rate of the economy is larger than the interest rate on our debt.

Our belief that we have a long-run deficit problem is based upon the belief that congress will pass laws that increase spending and that cut taxes--that it will repeal the Independent Payment Authorization Board's authority to try to make Medicare more efficient, that it will repeal the Affordable Care Act's tax on high-cost health plans. Given that the fear is based on a belief that some future congress will bust the budget, it is hard to see how we can address this fear through any possible piece of legislation today--for no congress can bind its successors.

Read the whole thing.