We Don't Have a Deficit Problem - Unless Congress Creates One

by: Brad DeLong

Ezra Klein reproduces a three-year old graph from the CBPP. It was from before the financial crisis--so that the level from which the debt-to-GDP ratio starts is some 25% higher than in the graph--burt a similar graph constructed today would otherwise look much the same (click to enlarge):

Ezra Klein - Four possible deals on the Bush tax cutsClick to enlarge

At the far right of the graph we can see our long-run deficit problem, out beyond 2040. That is caused by rising projected government health-care spending and only by rising projected government health care spending. That is fixed by health-care reform and only by health-care reform.

In the short run, the deficit is not a problem but an opportunity. We want deficit spending now with so much slack in our economy and so many people unemployed.

In the medium run... well, as the chart shows, we don't have a deficit problem unless congress creates one by extending the Bush-era tax shifts without PAYGO.

Thus our medium-run deficit is easily dealt with: Obama promises to veto any bill that hits his desk that does not conform to PAYGO--that does not leave the national debt at least unchanged after a decade; and then Obama keeps his promise.

He can do it. He has the power. All it takes is a stroke of the pen.