Galbraith Prods the Long-Term Deficit Narrative

Senior Scholar James Galbraith’s recent article in The New Republic (“Stop Panicking About Our Long-Term Deficit Problem. We Don’t Have One”) has sparked some reactions from Paul Krugman and Arnold Kling (JG responds briefly to the latter in comments).

Galbraith, jumping off from his Levy Institute policy note, argues that there is a certain marked evasiveness in attempts to describe the dangers of the long-term deficit:

Exactly what that threat is remains elusive. Foggy rhetoric about “burdens” that will “fall on our children and grandchildren” sets the tone of discussion. The concept of “sustainability” is often invoked, rarely defined, never criticized; things are deemed unsustainable by political consensus, backed by a chorus of repetition from the IMF, headline-seeking academics, think-tankers, and, of course, the ratings agencies.

He takes issue in particular (in passing in TNR and in detail in the policy note) with the Congressional Budget Office’s estimates of the trajectory of long-term debt; estimates that depend upon assuming rising interest rates.  Galbraith argues that this assumption is hard to square with CBO’s concurrent assumptions of moderate growth and low unemployment and inflation.  At a bare minimum, his point here is:  whatever story you might tell about the long-term deficit and debt, CBO’s particular version (which has inspired a great deal of the public commentary about future budget peril) appears to contain some internal tension.

At least in the case of Krugman, it should be noted that this disagreement about the long-term deficit is occurring against the background of broad agreement about the negligibility of short-term deficits—and, one might add, agreement over the immediate need to make those short-term deficits bigger.

(This continues an earlier debate between Krugman and Galbraith).