Sorry, Deficit Hawks: The Debt Crisis Is Over Before It Began
The debate is over, and the deficit hawks lost. After years of warnings about trillion dollar deficits as far as the eye could see, it turns out they just couldn't see far enough: the budget is moving quickly -- too quickly -- towards balance even without a "grand" bargain.
In other words, we are not Greece. The debt doesn't need to be "fixed." And dancing to Gangnam Style (or the Harlem Shake) will not change this.
This isn't how it was supposed to be. There was supposed to be a fiscal crisis. That's what budget-cutting superfriends Erskine Bowles and Alan Simpson said would happen in around two years time ... over two years ago. Salvation from our fiscal sins would only come if we repented and cut social insurance programs like professional deficit scold Pete Peterson has been saying we urgently need to, well, for decades now. Of course, revenues also needed to go up to make this a "bargain" both sides could support -- and that's where things fell apart. Republican anti-tax absolutism made any kind of actual deal impossible.
But deficit hawks dreamed a dream of a grand bargain, and don't want to admit it was just that -- a dream. Just look at the Washington Post editorial board's recent call for a renewed focus on the deficit. Now, replacing the sequester with a backloaded mix of spending cuts and tax hikes would be good policy, but the deficit itself is solved for now. As you can see in the chart below from the Center on Budget and Policy Priorities (CBPP), we only need $900 billion more of savings to stabilize the debt over the next decade -- and that's assuming the sequester and its $1.1 trillion of additional cuts stop after this year.
Our $600 billion of new savings mean the debt is already stabilized. Wait, what $600 billion of new savings? Well, that's how much less the Congressional Budget Office figures we will spend on Social Security, Medicare, and Medicaid over the next decade compared to what it figured back in February. And that's how the $1.5 trillion of additional savings the CBPP said we needed half a year ago turned into $900 billion now.
In other words, we can definitely afford to wait. Now, it's true that even if we keep the sequester, the debt will start rising at the end of the decade as more Boomers hit their golden years. We're going to need some combination of tax increases, benefit cuts, or, when it comes to Medicare, price controls, to get the debt back on a downward trajectory. But we don't really know how we'll need to do to do so. Indeed, the big fiscal story of the past few years has been the slowdown in healthcare inflation -- and the big fiscal mystery is whether it will continue. If it does, Sarah Kliff of the Washington Post reports it could save us $2 trillion the next ten years. That's about as much as the Budget Control Act and the sequester saved together.
Sometimes kicking the can is the responsible thing to do.
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