On July 29, the Federal Reserve Bank of Chicago released a study of the relationship between large budget deficits and inflation. It finds no relationship.
On July 28, Center on Budget and Policy Priorities economist Paul Van de Water criticized Erskine Bowles, co-chairman of the National Commission on Fiscal Responsibility and Reform, for suggesting that there ought to be a long-term limit on federal spending of 21 percent of GDP. Given the aging of society and rising health care costs, such a limitation would require Draconian cuts in spending, Van de Water says.
Also on July 28, the International Monetary Fund released a paper on the impact of public debts on growth. It finds that a 10 percentage point increase in the debt-to-GDP ratio is associated with a decline of 0.2 percent per year in the real per capita GDP growth rate. This results from lower productivity growth due to reduced investment and slower growth of the capital stock.
A July 26 paper by Economic Policy Institute economists John Irons and Josh Bivens critically examines the argument made by economists Carmen Reinhart and Ken Rogoff that economic growth falls when national debts reach 90 percent of GDP.
On June 30, Maya MacGuineas of the Committee for a Responsible Federal Budget gave testimony to the president’s fiscal commission in which she outlined specific tax increases and budget cuts that would stabilize the debt at 60 percent of GDP by 2018. These proposals would reduce the deficit in 2018 by $650 billion.
Also on June 30, the U.S. Public Interest Research Group released a study identifying $1 trillion in deficit reductions by 2015 through a combination of spending cuts and revenue increases.
In a June 28 analysis, the Center on Budget and Policy Priorities demonstrated that almost all of projected budget deficits between now and 2019 result from the wars in Iraq and Afghanistan, Bush-era tax cuts, financial bailouts, temporary stimulus measures, and the automatic effect of the economic downturn on spending and revenues. In other words, less of the medium-term deficit is structural than is commonly believed.
On June 18, the Congressional Research Service published a report on the history and current status of proposals to give the president line-item veto authority.
On June 8, the CRS published a report summarizing the Statutory Pay-As-You-Go Act of 2010, which generally requires that new spending or tax cuts be offset with spending cuts or tax increases.
On May 26, University of Maryland economist Carmen Reinhart testified before the fiscal commission on the history of financial crises. She believes that rising public debt depresses growth when it reaches 90 percent of GDP.
Also on May 26, Carlo Cottarelli of the IMF presented data to the fiscal commission on deteriorating fiscal conditions in other advanced economies. Key conclusions: health care spending must be restrained on both the supply side and demand side; public pensions need to be less generous by raising the retirement age and reducing benefits; and revenues need to be strengthened.
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Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He blogs daily and writes a weekly column at The Fiscal Times. Read his most recent column here. Bartlett has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006).