A bipartisan gathering of deficit terrorists and deficit errorists is convening in D.C. today to discuss how best to continue trashing of American’s middle class, and the economy generally (h/t PrestoVivace). Livestream is available, although I strongly recommend a quick vaccination against the bat-shit-crazy before viewing.
From the Peter G. Peterson Foundation website: Nation’s Lawmakers, Policy Experts and Thought Leaders to Come Together in Washington on May 25 to Discuss Bipartisan Solutions to America’s Long-Term Debt and Deficits:
On Wednesday, May 25, 2011, senior Administration officials, policy experts and Democratic and Republican elected leaders will come together in Washington to discuss solutions to the nation’s fiscal challenges at the 2011 Fiscal Summit: Solutions for America’s Future, convened by the Peter G. Peterson Foundation. As the nation confronts critical choices about how to address our long-term debt and deficits, the Foundation’s second annual Summit will bring together hundreds of stakeholders from across the ideological spectrum to discuss proposals to be presented by leading policy organizations and explore concrete, bipartisan solutions.
Participants include keynote speaker President Bill Clinton; Members of the Congress working on fiscal issues including Senators Saxby Chambliss (R-GA), Kent Conrad (D-N.D.), Mike Crapo (R-ID), Dick Durbin (D-IL), and Mark Warner (D-VA) and Congressman Paul Ryan (R-WI); National Economic Council Director Gene Sperling; Governor Mitch Daniels, Co-Chair of the National Commission on Fiscal Responsibility and Reform Alan Simpson, and Foundation Chairman Pete Peterson and Vice Chairman Michael Peterson.
At last year’s Summit, participants agreed on the need to take action on the nation’s long-term debt and deficits. With increased consensus that our country’s fiscal situation is unsustainable, this year’s Summit will bring together stakeholders from across the political spectrum to discuss a range of concrete, comprehensive solutions.
The American Enterprise Institute, Bipartisan Policy Center, Center for American Progress, Economic Policy Institute, Heritage Foundation and Roosevelt Institute Campus Network will present and discuss their own proposed packages of solutions for achieving long-term fiscal sustainability at the Summit. These leading policy organizations, representing diverse perspectives, received grants from the Peter G. Peterson Foundation to develop comprehensive plans to address the nation’s projected long-term debt and deficits.
If any sane voices are to be heard, the only group I hold out any hope for is the Roosevelt Institute Campus Network. Will anyone do what is actually needed and challenge the underlying premise? All it would take is for some brave soul to ask the question, “Is The Federal Debt Unsustainable?” as James K. Galbraith did in his May 5, 2011 Policy Note at the Levy Economics Institute (pdf). Here are a few bits to assist in watching the Peterson freak show:
By general agreement, the federal budget is on an “unsustainable path.” Try typing the phrase into Google News. When I did it, 19 of the first 20 hits referred to the federal debt.
But what does this mean? The phrase is often stated, but rarely defined clearly. One is led to suspect that some who use the phrase are guided by vague fears, or even that they do not quite know what to be afraid of. After a brief discussion of the major worries, this note will attempt to clarify one, and only one, critical issue: the actual behavior of the public-debt-to-GDP ratio under differing economic assumptions through time.
Some people fear that there may come a moment when the government’s bond markets would close, forcing a default or “bankruptcy.” But this betrays nonunderstanding of both public finances and debt markets. The government controls the legal-tender currency in which its bonds are issued and can always pay its bills with cash. Apart (possibly) from the self-imposed politics of debt ceilings, a US government default on dollar bonds is impossible, and the word “bankruptcy”—which is a court proceeding to protect privatedebtors from their creditors—also does not apply.
Conclusion: It’s the Interest Rate, Stupid
The significant conclusion is that there is a devil in the interest rate assumption. If the real interest rate on the public debt is assumed to be greater than the real growth rate, unstable debt dynamics are likely. The offsetting primary surplus that is required for stability is an onerous burden for most countries, and to achieve it in the United States would be practically impossible, since the required cuts would undermine GDP growth and tax revenues. This is why the various budget plans now in circulation will not workout, if they are ever implemented.
However, where the real interest rate is below the growth rate or even slightly negative, the fiscal balance required for stability is a primary deficit, and the sustainable deficit gets larger as the debt “burden” grows. This is why big countries with big public debts can run big deficits and get away with it, as the United States has done almost without interruption since the 1930s.
Many decades hence, the entire kerfuffle over “unsustainable paths” for the debt-to-GDP ratio will be remembered as today we remember the grand old Duke of York:
The Grand old Duke of York,
He had ten thousand men.
He marched them up to the top of the hill
And he marched them down again.
UPDATE @ 9pm EDT: the summit live video link above is repeating the day’s events for all who don’t want to miss the bipartisan freak show.
NOTE: x-posted at fdl — selise