Gene Epstein warns readers of his latest “Economic Beat” column in Barron’s that those who misinterpret the latest 10-year projections from the Congressional Budget Office are in for a “rude awakening.”
Bad news for debt-deniers: Despite media coverage to the contrary, the updated 10-year projections of the Congressional Budget Office, released on Tuesday, confirm that the long-term debt crisis faced by the federal government is as much a threat as ever. If the CBO updates are interpreted by Washington as an excuse to postpone painful budget cuts, it means only that the cuts will be all the more painful later.
The CBO’s updated projections fully reflect the recent windfalls that will reduce the red ink. And yet, according to the agency’s most plausible projection—its so-called “alternative fiscal scenario”—debt as a share of nominal gross domestic product will soar from 75% this year to 83% by 2023, “the largest share since 1948,” as the agency points out.
President Barack Obama has unveiled a plan to reduce the debt/GDP ratio to 72.3% by that year; the Democratic-dominated Senate has targeted the ratio by 2023 at 70.4%; and the Republican-dominated House would reduce it to 54.8%. Even assuming the president’s higher target holds sway, if 83% is a plausible risk, the latest CBO report should be setting off alarm bells in Washington and in the media, not inducing complacency.
