by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Is there any new ground to be broken in tearing Paul Krugman‘s arguments apart? Gene Epstein tries in his latest “Economic Beat” column for Barron’s.
Last week, I reported that the Congressional Budget Office’s recently released “2014 Long-Term Budget Outlook” warned “the fiscal ship of state is in danger of hitting an iceberg” (“New Warning on U.S.’s Gathering Debt Storm,” July 21). Readers asked me how New York Times columnist Paul Krugman could cite the same study and conclude that the agency’s projections are “distinctly non-alarming” (“The Fiscal Fizzle,” the New York Times, July 20).
The key difference is that Krugman reported only one of the estimates from the CBO for the possible trajectory of the debt-to-gross-domestic-product ratio between now and the late-2030s. He cited only the agency’s “extended baseline” scenario, which put the ratio above 100% by the late 2030s from the current 74%. He did not mention that the CBO study also presented its “extended alternative fiscal scenario,” which projected that by the late-2030s, the debt-to-GDP ratio would climb above 180%.
EVEN THE BASELINE SCENARIO, which assumes that “current laws governing taxes and spending will remain generally unchanged,” can hardly be characterized as “distinctly non-alarming.” It shows, for example, that if current laws aren’t changed, the debt-to-GDP ratio will continue to climb, from 106% in 2039, to 126% by 2050, to 147% by 2060. By neglecting to mention this, Krugman manages to dismiss the scary number by pointing out that by 2039, the debt would be “no higher, as a percentage of GDP, than the debt America had at the end of World War II.”
The CBO itself makes this comparison, but then points out that, unlike at the end of World War II, the debt would still be on an “upward path,” a “trajectory [that] ultimately would be unsustainable.”
But as mentioned, Krugman’s main omission in his column was to leave out the far scarier extended alternative fiscal scenario, which puts the debt-to-GDP ratio at more than 180% by 2039. The omission gives readers the impression that the baseline was the CBO’s only projected figure.
As I pointed out in my write-up, the extended alternative is more realistic than the baseline scenario. The CBO is obligated to release baseline projections, but the problem with assuming that current laws will remain unchanged is that it’s not the way the budget process works in the real world of Washington, where laws are altered routinely. …
… IN A FOLLOW-UP BLOG POST, Krugman responded to readers by acknowledging a Wall Street Journal op-ed that presents the extended-alternative scenario. He made a brief, dismissive reference to the numbers (pointing out, irrelevantly, that “well over half of the projected spending…has nothing to do with entitlements”), and ironically faulted the writer of the op-ed for omitting to mention that he is not reporting the baseline numbers.
But there is no coverup; the op-ed makes the distinction clear. It was Krugman who engaged in a glaring omission by reporting the CBO results while ignoring the extended-alternative projections.