Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

AI Summary. The Congressional Budget Office projects slightly smaller deficits and debt over the next decade, with the projected primary deficit—non-interest spending minus revenue—as a share of GDP falling substantially, largely because of discretionary spending limits in the debt limit deal. Cutting the primary deficit by about 1.5% of GDP would stabilize debt near 125% of GDP.

Jason Furman @jasonfurman
Date Posted:

Noting the US fiscal outlook is on “an unsustainable course” @jasonfurman argues that cutting the primary deficit by 1.5% of GDP would stabilize the debt at ~125% of GDP, and “should be doable.”

How much deficit reduction would stabilize the debt?

Core argument: Furman notes that cutting the primary deficit by ~1.5% of GDP would stabilize U.S. debt at ~125% of GDP, an adjustment similar in size to those of 1990 or 1993 or what Social Security solvency requires.

The latest CBO outlook is projecting a slightly smaller deficit and debt over the next ten years. This despite the fact that the actual 2023 deficit was well above what CBO had forecast. The most fiscally favorable change is that the forecast for the primary deficit as a share of GDP (that is non-interest spending minus revenue) has fallen dramatically relative to recent forecasts. The biggest improvement is due to the discretionary limits in the debt limit deal. The budget is still on an unsustainable course. But the adjustment needed for sustainability is not especially daunting. In particular cutting the primary deficit by ~1.5% of GDP would stabilize the debt at ~125% of GDP. This is similar to the adjustment from 1990 or 1993 or what is needed for Social Security solvency. To be clear, getting Congress not to extend tax cuts (or worse, extending everything except the limit on the State & Local Tax deduction) could be hard. Another 1.5% of GDP on top of that is hard given the current political climate. Forecast could worsen. But should be doable.

Takeaways by Macro Roundup® AI

  1. Furman notes that cutting the primary deficit by ~1.5% of GDP would stabilize U.S. debt at ~125% of GDP, an adjustment similar in size to those of 1990 or 1993 or what Social Security solvency requires.
  2. CBO's outlook projects a slightly smaller deficit and debt over the next ten years, even though the actual 2023 deficit came in well above CBO's earlier forecast.
  3. The projected primary deficit as a share of GDP has fallen sharply relative to recent CBO forecasts, with the biggest improvement attributed to the discretionary limits in the debt limit deal, though Furman argues the budget remains on an unsustainable course.

Related Articles:

  • The Budget and Economic Outlook: 2024 to 2034 — The Congressional Budget Office projects the federal budget deficit will grow from $1.6tn to $2.6tn over a decade, rising from 5.6% to 6.1% of gross domestic product. That end-point is well above the 3.7% average of the past 50 years, as outlays are projected to rise faster than revenues over most of the period.
  • When Does Federal Debt Reach Unsustainable Levels? — The authors estimate that U.S. debt held by the public cannot exceed roughly 200% of GDP even under favorable market conditions, and that under current policy the ratio reaches 175–200% within about 20 years. After that point, they argue, no tax increases or spending cuts could avert default or inflationary debt monetization.
  • If Markets Are Right About Long Real Rates, Public Debt Ratios Will Increase For Some Time. We Must Make Sure That They Do Not Explode — Stabilizing public debt ratios would require cutting primary deficits to zero, which the author argues no government can do quickly without risking recession and boosting support for populist parties. With a US primary deficit around 4% and a dysfunctional budget process, the debt ratio is likely to keep rising for some time.
Showing 103 database articles primarily about Fiscal Deficits