Tuesday, May 4, 2010

Public Debt - the very basics

Why Our Current Budget Situation Is a Crisis;
In short, there is no precedent for reducing the ratio of debt to GDP by simply growing our way out of it. Instead, policy choices must be made in order to restore a primary surplus.

U.S Government Debt Since World War II;
My reading of this history is that one should not be optimistic that we can simply shrink the ratio of debt/GDP by growing the denominator. A lot of the reduction that took place between 1947 and 2000 was due to running primary surpluses. If we are going to do that again, we will have to do so in spite of the fact that military spending is a much smaller share of GDP (so that arithmetically there is less room to cut) and in spite of the way that Social Security and Medicare are going to be affected by demographics and health care spending trends.

1 comment:

juandos said...

Outstanding sir!

Another admirer of the fabulous Mr. Kling...