A further response to Ben Domenech

I’ve been having this back-and-forth with Ben Domenech about reform conservatism and policy priorities. In particular, I don’t think much of balanced budget amendments or balanced budget fiscal targets. The ones I’ve seen have implausibly low spending assumptions.

But let me point out some math here: Run a federal budget deficit that is less than the growth in nominal GDP, and you will shrink the national debt as a share of the economy. From 1949 through 1974, the US slashed its publicly held debt as a share of GDP from 94% to 31%. During those years it balanced its budget just six times. Yet debt/output dropped dramatically thanks to low budget deficits and high nominal GDP growth of around 7%.

And as I have noted before, the original Paul Ryan “Roadmap for America’s Future”  proposed cutting debt/GDP by 30 percentage points over twenty years — all without ever balancing the budget or running a surplus. (And, by the way, Ryan used the slow-growth CBO economic forecast.) So obviously the strategy going forward should to maximize growth and minimize budget deficits. I think returning to the post-WWII, pre-Great Recession debt/GDP average of 37% is a reasonable, multi-decade target.

Now here is Brother Domenech today in his must-read, must-subscribe Transom newsletter:

As for the fiscal math: If you take the White House’s average annual gross debt growth assumptions for 2013-2018 (only 5.16% growth per year) and extrapolate that out until 2030, we would need GDP growth to average about 7.5% per year to get back down to the 2008 debt-to-GDP ratio of 70% by 2030. That is simply absurd. And that also anticipates ludicrously low White House debt growth assumptions for 2013-2018. Between 2000 and 2012, gross federal debt rose at an average annual rate of 8.5%. If those conditions repeat, we’d need annual GDP growth of 9.8% each year to get down to 2008 levels of debt-to-GDP. In the out years (2019-2030), the average annual GDP growth rate would need to exceed 12%. Just to stay below 100% debt-to-GDP throughout that period would require 5.3% average annual GDP growth under the rosy assumptions and 7.6% under the 2000-2012 assumptions. That’s quite a fiscal math test.


1. Domenech prefers to use gross debt rather than publicly held. Now 70% of GDP sounds high, but that’s not much high

2. I am not arguing that we don’t need to do anything about spending, only that we should be realistic. As I point out in a National Review column today, keeping spending only a couple of percentage points above its historical average will be hard work. Keeping budget deficits low, much less running surpluses, will also likely require revenue above historical levels. I think balanced budget amendments and superlow rate tax reform (or flat taxes) of the sort GOPers have been proposing make the math impossible.


One thought on “A further response to Ben Domenech

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>