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Thursday, March 31, 2011

The "Primary" Budget...

March 31st, 2011
Again, the last voices of reason in economics seem to be at the the CBPP. Robert Greenstein wrote last week:
"The nation is on an unsustainable fiscal course, and policymakers need to make major changes in policy. As a number of bipartisan panels have recommended over the past year, policymakers should aim to stabilize the debt as a share of the economy (the Gross Domestic Product) so the debt does not rise relentlessly as a share of the economy. That would put the nation on what economists define as a sustainable budget path.
To achieve this goal, policymakers should aim to balance the primarybudget — the budget other than interest payments on the debt. As these panels have explained, stabilizing the debt — and avoiding the specter of a debt explosion in future decades — is the key, not balancing the totalbudget (i.e., the budget including interest payments). As a rough rule of thumb, if the budget excluding interest payments is in balance, then the debt will not grow faster than the economy. That means running total budget deficits of no more than about 3 percent of GDP. [1] In short, balancing the total budget isn't necessary to put us on a sustainable course and reassure financial markets. Stabilizing the debt is."
Please read the entire piece. Our future actually does depend upon it.

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