-- Posted by Neil H. Buchanan
On Tuesday of this week, the Congressional Budget Office (CBO) issued its new report, "The 2013 Long-Term Budget Outlook." If I was correct in my blog post from last Friday -- "The Worst Economic Reporting in History: Has It Ever Been Thus?" -- the news articles describing the report should have been extremely bad; and they were. I did not expect to be proved right so quickly, and I would like to have been proved wrong.
How bad was it in The New York Times, which continues to be head and shoulders above a very unimpressive group of peers? Mixed, but still bad. The Times news article (not an op-ed) managed to be both sober-sounding and deeply misleading. In other words, business as usual.
But first, the good news. The article's headline, and arguably its main point, was that Congress's only "successes" in cutting spending over the last few years were in exactly the areas where it matters least to the long-term deficit and debt picture. Republicans' relentless cuts to domestic discretionary spending were, in other words, as gratuitously cruel as we always thought they were. That entire category of spending, which includes food stamps and nearly all of the other programs that are designed to help poor, near-poor, and working poor people, was never especially large. Moreover, it was not projected to rise much at all over time. If there was a long-term problem (a big if), it was not in this area of the budget. The reporter also earned partial credit for at least acknowledging that Social Security might only be a problem to "a lesser degree" than health care spending, which everyone should know has been the big question mark in long-term forecasts.
That was the good news. The bad news is that the Times reporter framed all of his analysis in the "Oh my God, the debt is out of control and will end up ruining us all!" narrative that I have mocked so often. Admittedly, the CBO report itself uses a decidedly grim tone, but there are plenty of government documents that take on a particular point of view that a responsible reporter would refuse to mimic. Being skeptical of the official story is a big part of what reporters do -- unless, of course, they are reporting on the federal budget.
Two specific examples will help to show what is wrong with even relatively high-level reporting on budgetary issues. Admittedly, the first example will seem minor, while the other might appear to be obscure. In fact, however, they show just why press coverage of the federal budget is so ridiculous.
At one point in the Times story, the reporter points out that in 2023, which is the final year of the official forecast that most analysts think might be at all accurate (and even then, we are talking about predicting spending and taxing ten years from now!), "the annual deficit would rise to an estimated 3.5 percent of the G.D.P.,
which is just beyond the level that many economists consider
sustainable in a growing economy. By 2038, it would be 6.5 percent." Even describing a projected deficit of 3.5% as not "sustainable" is bizarre, given that the 3% target to which the reporter refers is so casually unscientific.
Essentially, what budget analysts want is to be sure that the debt-to-GDP ratio is generally falling (or, at least, not rising) over the long term. If we assume that the Fed sticks to its 2% targeted annual inflation rate, and that the growth rate in real GDP will be in the 2-3% range, then nominal GDP will rise by 4-5% per year. A 3% deficit thus increases the numerator of the debt-to-GDP ratio less quickly than the denominator is rising. But the idea that 3.5% is "beyond the level that many economists consider sustainable," while accurate in the sense that 3% is the number that most budget experts toss off when asked, is comical. It suggests that the reporter is looking for ways to spin the story in a negative way. It is true that the reporter also notes the forecast of a 6.5% deficit in 2038, which is above almost anyone's guess of a sustainable deficit, but only IF the deficit were to stay that high for many years in a row. As I explain below, however, that 2038 estimate itself is hardly worth emphasizing (or even mentioning).
The bigger problem here is with the very notion of sustainability. The first paragraph of the NYT report refers darkly to "the unsustainable buildup of debt that is projected in the coming decades." Actually, the CBO is not projecting an unsustainable buildup of debt. What it says is that the debt projections for the next 25 years (2013-38) show the debt falling and then rising, reaching about one hundred percent of GDP in 2038, at which point "debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely." That is not what the Times reporter claims.
What is the difference between the reporter's claim that the CBO projected an unsustainable buildup of debt, and what the CBO actually said? All the CBO said is that it is not possible for the debt-to-GDP ratio to rise without limit. That is, CBO said that the trend, if it were to continue past 2038, could not possibly continue "indefinitely." That is true, obviously. However, CBO did not forecast that the debt would grow after 2038 without limit, nor that the long-run trend is unsustainable.
In fact, the report carefully says that the uncertainties associated with long-term forecasts are such that their 25-year forecasts have an extremely wide range of plausible estimates: "[F]ederal debt held by the public in 2038 could range from as low as 65
percent of GDP (still elevated by historical standards) to as high as
156 percent of GDP, compared with the 108 percent of GDP projected under
the extended baseline." That's quite a range. Indeed, although CBO does provide some estimates over spans longer than 25 years, the report goes out of its way to play down their usefulness.
So, whereas the CBO said that the longest-range forecast that it is comfortable talking about has debt-to-GDP rising mildly at the end of 25 years, and that it could not continue to rise without limit forever after, it did not describe its forecasts as saying that the U.S. is on an unsustainable debt path.
Paul Krugman has a very good short blog post explaining that "This Is Not A Crisis," in response to the CBO report, and he is right. Note first that there is nothing magical about the 100% level of the debt-to-GDP ratio. It is possible to go above that number, and there is nothing significant about going from 98% to 102%, for example. More to the point, however, the question is whether the CBO report is really the basis for a call to political arms. We have a ten-year period with debt-to-GDP going down mildly and back up mildly. We then have an iffy 15-year extended forecast that debt-to-GDP will rise further, above U.S. historical norms, but well within the range of experience for many advanced countries.
We have much bigger problems, if this is even a problem at all. But news reporters and commentators all read from the same deficits-are-the-end-of-the-world script, no matter the facts.