In the Huffington Post on Sunday, Robert Kuttner parrots critics of long-term deficit reduction in arguing that efforts to deal comprehensively with the long-term national debt are overshadowing and imperiling efforts to support the short term economic recovery. He writes, “Nearly everyone, right, center and left, is arguing about the economic recovery in terms of what the debt-to-GDP ratio should be in 2023.”
Actually, as our partner the Committee for a Responsible Federal Budget (CRFB) pointed out, the goal is less about hitting a specific numerical target and more about ensuring that the debt is on a clear downward path over the long term. The CRFB paper Kuttner refers to in his article says that while $2.2 trillion in deficit reduction over the next decade would likely put the debt-to-GDP ratio at below 70 percent and on a downward path, “there is no magic number.” The key is to have a smart, comprehensive plan. As the paper states:
“In theory, it would [be] possible for a plan to put the debt on a clear downward path with a final debt number somewhat above 70 percent – for example if there were substantial upfront stimulus spending. It would also be possible for a plan to reach 70 percent of GDP in 2022 but be on an upward path – for example if those savings were achieved by doubling the size of ‘sequestration.’”
The choice presented by debt deniers between short-term stimulus and long-term deficit reduction is a false one. CRFB and others have pointed out that many economists favor doing both and a smart plan can achieve both goals. There is widespread agreement that the majority of deficit reduction should take place when the economy is in a stronger position. The goal should be to put in place a plan now that is phased in over time. Enacting a plan now would allow changes to take place gradually and could also provide economic benefits in the near term by convincing markets that the U.S. has its long-term debt under control.
Reducing the deficit and supporting the economy can be complementary if done right. This can be accomplished if all sides work together instead of demagoguing the issue.
National Debt and You
All About the Debt