Eli,
The CBO's predictions of the impact on the economy for certain tax increases and spending decreases is an interesting document. I won't get into an argument whether their analysis is right or wrong, we've already made our wager on that. It is revealing, I think, that the CBO admits there is a long-term risk in choosing short-term stimulus.
I call this the St. Augustine argument, "Grant me chastity and continence, but not yet." A variant on this is the AARP argument. "Give us our welfare, make the young pay for it."
It constantly surprises me the young in this country seem to be going along with this, even supporting it. Either they don't realize how they are being saddled with the bill for the selfishness of today's and tomorrow's seniors, or realize it and believe this is a fair policy. In my more cynical moments I encourage the young to vote Democrat since I am one that will benefit from the St. Augustine's of the AARP.
From the CBO report:
Although reducing the fiscal tightening scheduled to occur next year would boost output and employment in the short run, doing so without imposing a comparable amount of additional tightening in future years would reduce the nation’s output and income in the longer run relative to what would occur if the scheduled tightening remained in place. If all of the policies considered in this analysis were extended for a prolonged period beyond the two years assumed here, federal debt held by the public— which is currently more than 70 percent of GDP, its highest mark since 1950—would continue to rise much faster than GDP. Such a path for federal debt could not be sustained indefinitely, so policy changes would be required at some point.
Over the longer term, the nation’s potential to produce goods and services is the key determinant of output and income. That potential depends on the size and quality of the labor force, the stock of productive capital (such as factories, vehicles, and computers), and the efficiency with which labor and capital are used. Lasting changes in those factors can have an enduring influence on the economy’s ability to produce goods and services.
Federal budget policies affect potential output mainly by affecting the amount of public saving (the combined surpluses or deficits run by the federal government and state and local governments) and the incentives for people and businesses to work, save, and invest. Different methods of achieving any given increase in public saving could have different effects on those incentives. For example, increases in marginal tax rates on labor would tend to reduce the amount of labor supplied to the economy, whereas increases in revenues of a similar magnitude from broadening the tax base would probably have a smaller negative impact or even a positive impact on the supply of labor. Similarly, cutting government benefit payments would generally strengthen people’s incentive to work and save, but the actual impact would depend on the nature of the cuts.
CBO has not estimated the longer-term economic effects of the fiscal policies analyzed in this report, but the agency has estimated the effect on output that would occur in 2022 under the alternative fiscal scenario, which incorporates the assumption that several of the policies are maintained indefinitely. CBO estimates that in 2022, on net, the policies included in the alternative fiscal scenario would reduce real GDP by 0.4 percent and real gross national product (GNP) by 1.7 percent. That projected effect primarily reflects two opposing forces: People’s incentives to work and save would be greater with that scenario’s lower tax rates, but the larger budget deficits and rapidly growing federal debt would hamper national saving and investment and thus reduce output and income.
In years beyond 2022, rising deficits under the alternative fiscal scenario would lead to larger negative effects on GDP and GNP and to larger increases in interest rates relative to the rates that would prevail under current law. Ultimately, the policies assumed in the alternative fiscal scenario would lead to unsustainable federal debt, from both an economic and a budgetary perspective.
Bill
No comments:
Post a Comment