Tags: Mankiw | Obama | GDP | debt

Harvard Economist Mankiw: Obama Needs to Do More on Controlling Debt

Monday, 01 Apr 2013 12:43 PM

By Dan Weil

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President Barack Obama’s goal appears to be to stabilize the debt-to-gross domestic product (GDP) ratio around its current level of 77 percent, says Harvard economist Gregory Mankiw.

But that’s not enough, because an economic downturn or military conflict could easily push the ratio higher, he writes in The New York Times.

For example the current 77 percent ratio soared from 36 percent in 2007, thanks to the financial crisis and the economic downturn that accompanied it.

Editor's Note:
 
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

“My goal is not to chase a balanced budget just for the sake of balance,” Obama told George Stephanopoulos of ABC News, according to The Times. Instead, his goal is a “fiscally sustainable path,” says Jay Carney, White House press secretary.

“Achieving [Obama’s apparent] goal is much easier than balancing the budget,” Mankiw, an economic adviser to President George W. Bush, writes.

“Because GDP grows, the government debt can continue to grow as well, just not too fast.” Budget deficits have to be smaller than those of the past few years, though they can still be big, he says.

“Yet this goal, hard to reach as it might be in the current political environment, is still too modest,” Mankiw states.

“The problem is that budget projections are based on forecasts, and such forecasts exclude the extreme events that have historically driven up government debt. Military and economic catastrophes are, by their nature, unpredictable.”

David Stockman, an economic adviser to President Ronald Reagan, writes even more ominously of the debt problem in The New York Times.

“Since our constitutional stasis rules out any prospect of a ‘grand bargain,’ the nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches,” he says.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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