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What’s Driving Projected Debt?
Chad Stone, Off the Charts
As we’ve noted, my colleagues Kathy Ruffing and Jim Horney have updated CBPP’s analysis showing that the economic downturn, President Bush’s tax cuts, and the wars in Afghanistan and Iraq explain virtually the entire federal budget deficit over the next ten years. So, what about the public debt, which is basically the sum of annual budget deficits, minus annual surpluses, over the nation’s entire history?
The complementary chart, below, shows that the Bush-era tax cuts and the Iraq and Afghanistan wars — including their associated interest costs — account for almost half of the projected public debt in 2019 (measured as a share of the economy) if we continue current policies.
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Chad Stone is Chief Economist at the Center on Budget and Policy Priorities, where he specializes in the economic analysis of budget and policy issues.
(20 May 2011)
When Austerity Fails
Paul Krugman, New York Times
I often complain, with reason, about the state of economic discussion in the United States. And the irresponsibility of certain politicians — like those Republicans claiming that defaulting on U.S. debt would be no big deal — is scary
But at least in America members of the pain caucus, those who claim that raising interest rates and slashing government spending in the face of mass unemployment will somehow make things better instead of worse, get some pushback from the Federal Reserve and the Obama administration.
In Europe, by contrast, the pain caucus has been in control for more than a year, insisting that sound money and balanced budgets are the answer to all problems. Underlying this insistence have been economic fantasies, in particular belief in the confidence fairy — that is, belief that slashing spending will actually create jobs, because fiscal austerity will improve private-sector confidence.
Unfortunately, the confidence fairy keeps refusing to make an appearance
(22 May 2011)
Cameron’s ‘green growth’ policy looks naive today. It will look cynical in 2027
George Monbiot, Energy Bulletin
The promised 50% cut to greenhouse gases means little while rich countries continue to outsource pollution to poorer ones
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Not for the first time, the prime minister was happily promoting the irreconcilable. “By stepping up, showing leadership and competing with the world,” he announced last week, “the UK can prove that there need not be a tension between green and growth”.
It could have been worse. After the Treasury and the business department tried to scupper the UK’s long-term carbon targets, David Cameron stepped in to rescue them. The government has now promised to cut greenhouse gases by 50% by 2027, which means that, with a following wind, the UK could meet its legally binding target of 80% by 2050. For this we should be grateful. But the coalition has resolved the tension between green and growth in a less than convincing fashion: by dumping responsibility for the environmental impacts on someone else.
The carbon cut we have made so far, and the carbon cut we are likely to make by 2027, have been achieved by means of a simple device: allowing other countries, principally China, to run polluting industries on our behalf.
(23 May 2011)
Pricing Carbon to Reduce Emissions, Create Dividends
Judith D. Schwartz, Miller-McCune
Proponents of the “Wesleyan Statement” say that America should tax carbon to reduce emissions, then return the money to citizens as a direct payment or a tax reduction.
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Cap and trade is dead — long live the Green Dividend.
That was the consensus of a conference on pricing carbon held late last year at Wesleyan University that produced the “Wesleyan Statement,” a kind of working manifesto on carbon-pricing principles.
According to the resulting statement, an effective pricing strategy would be “upstream” (i.e. paid by the supplier), calibrated to reach emissions levels recommended by climate scientists, and steadily rising so that businesses and individuals can plan.
Speakers advocated a direct, transparent price on carbon as an economic incentive for reducing fossil fuel use, with revenues returned to U.S. taxpayers. Up for debate was whether this would be in the form of a direct payment (a “green check”) or tax reduction (“tax shift”).
Cap and trade, the cornerstone of the climate bill that squeaked through the House last summer only to die in the Senate, got a drubbing at the spirited event …
(18 May 2011)
A legacy fund could secure the future of New Foundland and Labrador. Why haven’t oil revenues been used to set one up already?
Hans Rollmann, The Independent (Canada)
… There seem to be two main arguments presented about what Newfoundland and Labrador should do with all this new-found prosperity. There are those who want to spend it on infrastructure, education, health care: things to improve our communities, build our skills and position us for the coming storm. Then there’s the business types, who want to use it to further their own ends: reduce corporate tax, pay off the debt. The outcome of their strategy is more nebulous: beyond filling their pockets, it’s not clear how paying off the debt positions us for the end of oil, other than making sure we’ll be able to borrow more debt quicker when the day comes.
But between these two arguments, is a third course that urgently needs to be discussed. That is the matter of building a legacy fund.
If action is not taken soon, it will come to be seen as one of the unspoken tragedies of Newfoundland and Labrador’s oil prosperity, that a legacy fund was not created as soon as the first barrels started flowing. More commonly known as sovereign wealth funds, these are investment funds set up by national or provincial/state governments, which are often used to invest revenue generated by natural resource development. The interest which accumulates is used either to stabilize the economy when it slips, or held against the day when the natural resource will be gone. It makes far greater sense to invest revenue, and then fund provincial spending through interest that will renew every year, than to spend the revenue itself until it, and the oil that generated it, is gone
There are at least 29 such oil-generated funds around the world, including Alberta’s (although Alberta stopped adding resource revenue to theirs in 1987). During its heyday, Alberta’s was so successful that it wound up lending money to other provinces.
(10 May 2011)
