Tuesday, June 28, 2011

The Deficit Is Worse Than We Think

In a WSJ op-ed, Lawrence Lindsey, a former Federal Reserve governor and assistant to President George W. Bush for economic policy, gives three reasons why The Deficit Is Worse Than We Think

  • Interest expense
  • Anemic growth
  • Health care costs
At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020. Normal interest rates would raise debt-service costs by $4.9 trillion over 10 years, dwarfing the savings from any currently contemplated budget deal. [...] The Fed will increasingly have to factor in the effects of any rate hike on the fiscal position of the Treasury.

A political economy

A recent piece in the Economist ( A new anthology of essays reconsiders Thomas Piketty’s “Capital” , May 20, 2107) ends with these words: &q...