By Joseph Minarik
The public reaction to the revised baseline budget outlook of the Congressional Budget Office (CBO) has leaned overwhelmingly in one direction: The deficit and debt problem is in indefinite remission, maybe even cured. Action on the problem is on hold, if not off the table for good.
Jared Bernstein, former economic adviser to Vice President Joe Biden, was quoted in the first-day reaction story in the Washington Post as saying, “Certainly, if facts drove the day, this update would be a fire hose for the hair-on-fire austerity crowd [regarding] the near-term deficit… The patient is checking out of the hospital while [Republican leaders] are still preparing for major surgery.”
Jared, who is a good guy with deeply held principles (and a very quick wit), would surely say that my opening quotation for this post is way over the top. But in all honesty, considering the potential consequences of a runaway public debt, I would say that the closing words of The Plague are pretty much in scale. In fact, I would like to edit Jared’s metaphor: The patient, a cardiac case with a known arterial blockage, has had his palpitations calmed by medication. He is out of immediate danger, and has been reclassified from “critical” to “serious.” His physicians now have the luxury of time. They can choose a more deliberate approach than seemed essential a few hours ago. They can even postpone the next step somewhat. But the blockage is still there, and its consequences are still potentially terminal. Sooner or later – but not too late – it must be addressed.
To get closer to my specific point, and moving my medical analogy back to The Plague, the plague bacillus is not the annual budget deficit, but rather the accumulated public debt. It is still far too large; the CBO release has changed that fact hardly at all. The debt has retreated into the cellars and the bookcases, hidden by today’s very low interest rates. But interest rates will rise, and when they do, the debt will once again emerge into the streets. And because we have used this complacent interlude of low interest rates to pile up debt hand over fist, when interest rates do rise, the debt will emerge more virulent than ever.
So that is the big picture, but back to the present: What did CBO say, and why have people reacted so strongly (yet so blithely)?
Minarik serves as senior vice President and director of research at the Committee for Economic Development. He served as a member of the Bipartisan Policy Center’s Domenici-Rivlin Debt Reduction Task Force.