Niall Ferguson, the egregious blowhard Harvard professor who gets everything wrong, strikes again via the Wall Street Journal with remarkable stupidity. Increasingly it appears Ferguson isn't simply in error, so much as a right-wing troll of the FOX & FRIENDS school of aggressive disinformation.
UC economist Brad DeLong takes Fergie apart:
Niall Ferguson: The Shutdown Is a Sideshow. Debt Is the Threat:
Only a fantasist can seriously believe "this is not a crisis." The
fiscal arithmetic of excessive federal borrowing is nasty even when
relatively optimistic assumptions are made about growth and interest
rates. Currently, net interest payments on the federal debt are around
8% of GDP…
DeLong responds: Um…. No. Not 8. Only 1/6 of 8.
Look at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/44521-LTBO2013.pdf. Currently, net interest payments on the federal debt are not 8% but only one-sixth that--1.3% of GDP:
The fantasy is the 8% number, and the belief that the debt is, right now, a crisis.
Moreover, 1.3% is the wrong number to look at. We want to adjust for
inflation at 2%/year, and that gets us to 1.3% - 2% x 80% = -0.3% of
GDP. We want our concept of budget balance to be not a stable real
value, but a constant debt-to-GDP ratio. Making that adjustment tells us
that right now the U.S. could run a primary deficit of 0.3% + 2.5% x
80% = 2.3% of GDP without seeing any increase in the debt-to-GDP ratio.
That's right: rather than the debt forcing us to cut spending on
programs below the level of taxes (i.e., run a primary surplus) in order
to keep the debt-to-GDP ratio from growing, right now the United States
can have spending on programs exceed taxes by 2.3% of GDP (i.e., run a
primary deficit) and still keep its debt-to-GDP ratio stable. In terms
of real resources, right now the debt is not a burden. It does not
reduce how much the U.S. can afford to spend on programs. It is a profit
center. It is providing a net addition to federal resources to the tune
of 2.3% of GDP.
That's how far the federal debt is today from being a burden on the economy.
