Friday, January 14, 2005

NYU Tax Policy Colloquium - Shaviro (me) on "The Approaching Fiscal Train Wreck"

Yesterday was our first Tax Policy Colloquium session, and I presented my book-in-progress chapter "The Approaching Fiscal Train Wreck," available here. This piece talks about how we should measure the long-term fiscal situation in terms of the true underlying issues, which chiefly are (a) the sustainability or fiscal meltdown problem and (b) the generational issue of favoring old versus young.
Since my co-convenor David Bradford and I feel free to comment on other people's papers, we think it is only fair to bring in other people to comment on our work. My commentator was Bill Gentry of the Williams College Economics Department, an excellent public finance economist who spent some years participating in our sessions when he was at Columbia.
Bill made one really important point about how to measure fiscal problems that revises how I think about the measurement issue, although it does not affect how I think about the current situation. (Bill agrees that it does not affect how we should think about the current situation.)
I have been mainly agreeing with economists such as Lawrence Kotlikoff, Kent Smetters, and Jagadeesh Gokhale that the fiscal gap offers the best snapshot measure of our failure to establish a sustainable budget policy. Kent and Jagadeesh have written and argued that, under the inter-temporal budget constraint (known more informally as the no-free-lunch principle), the only truly sustainable policy is one with a fiscal gap of zero, i.e., where you will pay for everything.
Bill notes, however, that inter-temporal budget constraints are binding in finite scenarios, whereas the infinite horizon scenario may be the right one for the US government to use (notwithstanding grotesque misuse of this idea by the Bush Administration in its "respond to 9/11 by bombing Mexico"-style arguments for its Social Security plan).
Suppose that the US currently had a debt to GDP ratio of .5, with public debt of $5 trillion and GDP of $10 trillion. Suppose that both public debt and GDP were scheduled to rise at 2% per year, keeping the debt to GDP ratio constant at .5 forever. This would lead to a very high fiscal gap as measured in present value terms from today (indeed, an infinite fiscal gap if the discount rate were 2% or less), but seemingly to no sustainability problem.
To have a problem, therefore, we need not just a fiscal gap but an exploding debt to GDP ratio over time. No need to revise what I and others have been saying about the "approaching fiscal train wreck," since indeed that is where we are headed; debt to GDP ratios are indeed slated under the forecasts to explode. But it does suggest that we need another tool as a measurement matter, in order to have the right set of budget policy terms and tools.

33 comments:

JoshSN said...

Would that leave our current budget situation, with 12-14% of federal outlays on interest payments, during the whole time horizon?

Daniel Shaviro said...

Under this scenario, there's no specification of what's interest as a percentage of the budget. Presumably, if a lot of interest relative to spending, though low relative to the economy, this might imply a relatively small budget. But small budget or large budget can both fit in this story with matching revenues.

Anonymous said...

You have a great website here, and I'm going to tell all my friends about it.

Anonymous said...

Http://www.debt-consolidation.com

Anonymous said...

Christmas is just around the corner. No time to go to the mall...then do your shopping online. We sell everything that the mall sells. Shop today!

Anonymous said...

Hello, I'm just a retiree from Alabama; cruisin around the 'net, looking for
interesting blogs . And came across your blog.
Pretty darn good. Keep it up! I like your site.

Regards,
Harry


debt consolidation quote

Anonymous said...

Helllllloooooooooooooooo.....Interesting Information on foreclosure public information .. If you are interested in foreclosure public information and Making Money Today.. Got to http://foreclosures444.com... There are plenty of ways to make a living. You choose whether or not you want to be your own boss...

Anonymous said...

Unreal, I don't agree :-(.Need to finish my paper on debt consolidation services.Keep up the good blog,debt consolidation services.

Anonymous said...

Your blog is great, Don't miss visiting this site about home loan rate go to http://thehomemortgageguide.com Start planning for the future home loan rate

Anonymous said...

I agree with the above comment.Back to my studies on keyword debt consolidation service.Thanks for your time,keyword debt consolidation service.

Anonymous said...

Excellent views here. I somewhat agree with last remark.Couldn't agree any less, oh well need to finish up my thesis on debt consolidation service 1.Thanks for your time,debt consolidation service 1.

Anonymous said...

Thanks for all the great comments and insights..By the way, are you looking for more information on job in corporate finance ..If so here is a fantastic resource for everything related to business and job in corporate finance with information, products, articles and more..Check it out here...corpanalytics.com

Anonymous said...

I have been following a site now for almost 2 years and I have found it to be both reliable and profitable. They post daily and their stock trades have been beating
the indexes easily.

Take a look at Wallstreetwinnersonline.com

RickJ

Anonymous said...

Hi, Thank you for having this info on the web. I enjoyed your post. If you may have any interest in
pay day loans Credit Repair
then I know where you may get your solution. For your comfort, I have enclosed the link, so if needed you can visit the site. Thanks again for your lovely blog

Anonymous said...

Blogging does not always widen my mental spectrum, which I need to do as a break from my own real estate work. We need more colorful blogs. Thanks for the read. Visit my site if you have a chance.

Anonymous said...

Join NOW for FREE...

The Quick and FREE Way to Get a SWARM of Visitors to Your Site!

To find out more visit: financial independence site. It successfully exposes FREE information covering Traffic and financial independence related stuff.

Anonymous said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
Keep up the great work, you are providing a great resource on the Internet here!
If you have a moment, please make a visit to my student loan bankruptcy site.
Good luck in your endeavors!

Anonymous said...

Hi Fellow! I was just searching blogs,and I found yours! I like it!
If you have a moment, please visit my student banking site.
Good luck!

Anonymous said...

Hi there Blogger, a real useful blog.Keep with the good work.
If you have a moment, please visit my avoid bankruptcy site.
I send you warm regards and wishes of continued success.

Anonymous said...

A fantastic blog yours. Keep it up.
If you have a moment, please visit my bad credit gauranteed personal loan site.
I send you warm regards and wish you continued success.

Anonymous said...

A fantastic blog yours. Keep it up.
If you have a moment, please visit my second mortgage after bankruptcy site.
I send you warm regards and wish you continued success.

Anonymous said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
Keep up the great work, you are providing a great resource on the Internet here!
If you have a moment, please make a visit to my bad credit interest mortgage rate site.
Good luck in your endeavors!

Anonymous said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
Keep up the great work, you are providing a great resource on the Internet here!
If you have a moment, please make a visit to my bad credit interest mortgage rate site.
Good luck in your endeavors!

Anonymous said...

Debt Consolidation
Debt Help Home Loans Student Loan Consolidation can help you reduce your interest burden by charging an interest rate lower than the rate on your existing loans. Debt consolidation loan can also allow you to make small monthly payments......
http://www.debt-consolidation.com
Debt Consolidation
Debt Help can help you reduce your interest burden by charging an interest rate lower than the rate on your existing loans. Debt consolidation loan can also allow you to make small monthly payments by extending the loan period
http://www.debt1consolidation.com

Anonymous said...

But What about So and SO

Are you tired of hearing those words. Are you tired of your boss and the people at your work . Looking for a opportunitiy to home business online opportunity. then visit http://homebusiness.opportunitiesinfo.com

Anonymous said...

Appreciated your thoughts. Steve @Finance Tips
Got a couple of ideas based on what I saw on your blog. Thanks,Steve @Finance Tips
Hi. Thanks for the insights. Steve @Finance Tips
Interesting. I learn something all the time. Thanks,Steve @Finance Tips
Thanks, that was worth noting. Steve @Finance Tips
I am conducting some research on various work from home sites and ran across this page.Even though it wasn't "exactly" what I was looking for, I think your readers might be interested in reading my internet marketing training home page since it signicantly reduces ones learning curve. As you know, the more information people have before spending their hard earned money -- the better. Sorry for the self promotion, just trying to get the word out while looking for sites to review. On to the next -- thanks!Steve @Finance Tips
Appreciated your info. Thanks,Steve @Finance Tips

Anonymous said...

I really like your site about mortgage calc.
Good job on putting it together.
I've also got a little spot about mortgage calc.
Come on over...

Anonymous said...

.
.
.
.
.
.
Good blog - very interesting!! I liked it so much I'm going to share this hush hush advice with you. Ever wondered how your neighbours are driving around in their brand new BMW or Mercedes cars - with their kids dressed in all the latest named gear and foreign holidays aplenty?? Well they discovered the secret to the extra online income.

If you are looking for a free tool to attract loads of free links to your blog or website then congratulations I've got the solution for you - and it is FREE!!

My website specialises in bankrupt uk and to drive traffic to my website I was searching around the internet for absolutely ages looking for SEO tools and ffa submission sites to fire my site up the Google search engine - unfortunately these doing work and in fact had the opposite affect plunging my site down the rankings like it had a heavy weight attached!!, then I signed up for this free superb traffic generating tool - I now have loads of hits to my websites/blogs and my site is shooting back up the Google rankings quicker than ever before.

Consequently this saw my affiliate commissions shoot through the roof - meaning lots of extra money coming in for my family - I bought my first Mercedes car on the proceeds of my online campaign.
Sign up now - it's free.
. Sorry if this information is of no use to you but seeing as you have the anonymous feature enabled I thought I should share this free bit of essential promotional advice with you and would hope you would do the same for me and others who want to boost their online internet income.

I hope the tool will serve you equally as well as it has me - it's free!!

Best of luck, cheers for now, dave.
.
.
.
.
.
.

Anonymous said...

free house wanted annonces classees

Anonymous said...

free satellite view of my house

Anonymous said...

house painting

Costumes Horizon said...

Online Debt consolidation information is available through many internet sources that specialize in assisting many American households in managing or eliminating their outstanding debt

Sasha Peterson said...

The question of scholarly method is particularly acute for tax scholarship. More than mortgage other academic lawyers, tax professors share a long history with economists.