Guess What? The Debt Everyone Is Freaking Out About Does Not Exist
File picture. Republicans have proposed a three-month increase to the US debt ceiling as they mulled breaking a protracted fiscal impasse, but warned any long-term deal would require Congress to pass a budget that cuts spending.
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Between the new-and-improved Simpson-Bowles plan, Joe Scarborough’s feud with Paul Krugman, the relentless drumbeat of the entire Republican Party, and the media blitzkrieg launched by the billionaire-driven “Fix the Debt” campaign, one might think no serious and responsible American can ignore the unassailable truth: America faces a debt crisis, which we must act on immediately and decisively.
Well, not quite. The actual truth is that the debt everyone’s freaking out about does not exist.
Some of the debt certainly exists, like the roughly $11.6 trillion owed to foreign and private creditors. But that isn’t the debt anyone’s worried about. If we stopped adding to it tomorrow, the debt as it stands would pose essentially zero threat to the country’s fiscal health, as the ongoing growth of the economy would send our debt-to-GDP ratio dropping like a rock.
So the debt that’s got everyone worried is the part we haven’t yet incurred. And that debt, by definition, does not exist. It’s not a certainty, it’s merely a projection by the Congressional Budget Office. And trying to model how the federal budget, not to mention the entire American economy, will behave years or even decades in the future is a devilishly treacherous business.
For instance: one of Rep. Paul Ryan’s (R-WI) favorite talking points in 2011 was that the computer simulations CBO uses to model the economy crash when they attempt to account for the debt load in 2037. Imagine trying to model the 2011 economy in 1985. Things you’d never see coming include (among other things) the Internet, fracking, massive advances in computing power, the renewable energy boom, three wars, a massive recession, and Harry Potter. And predictions can be hard even over shorter time frames. In 1995, CBO predicted the deficit in 2000 would be well over $200 billion. We ran a surplus of $236 billion.
So neither the impending Baby Boomer retirement nor growing health care costs make astronomical debt a certainty, despite the insistence of the conservative and centrist punditariat. With respect to the Boomers, economist Dean Baker ran the numbers and found that if productivity growth in the economy clocks in at one percent until 2035 (avery conservative estimate) the resulting gains will swamp the added retiree burden.
As for health care cost growth, it’s perhaps the best example available to explain why the debt doesn’t actually exist. The Congressional Budget Office (CBO) projects, based on current trends, that excess cost growth will become the lead driver of Medicare and Medicaid spending by 2037 — the primary cause of our long-term debt, and the thing that keeps budget hawks up at night. But if you look at CBO’s fine print ( page 60, if you’re interested) their complex formula for making this projection essentially boils down to looking at past trends in health care costs and assuming they’ll be similar going forward.
The catch? The entire purpose of health care reform, whether we keep Obamacare or get Ryan’s preferred replacement, is to change those trends by changing the structure of health care markets — how we buy, sell, and deliver care. That should slow health care cost growth, making it less expensive for the government to pay for health care through Medicare and Medicaid.
But CBO really doesn’t have the tools to model those kinds of structural changes. Its analyses are generally limited to hard spending cuts or revenue increases. CBO Director Doug Elmendorf told Ryan as much during a hearing, which Ryan took to mean his premium-support scheme for Medicare might work better than CBO estimated. But the point applies equally to Obamacare’s reforms, for example.