I spent the last two days, and indeed all day both days, at the National Tax Association's annual meeting, which was held this year in New Orleans. All told, I participated in three sessions and attended (depending on how you count) as many as nine others, including an award session for lifetime accomplishment honoring Alan Auerbach, as well as a lunch on Friday in which Peter Diamond gave a keynote address on how policymakers ought to assess the current macroeconomic situation.
Diamond made, to my mind, a compelling and verging on unanswerable case for the proposition that policy makers ought to be VERY concerned about persistent cyclical unemployment, and not, under current circumstances, at all concerned about the immediate prospects for inflation. OK, this is a very familiar point to anyone who reads the New York Times. But in addition to making it well he explained his view, which I largely share, that the long-term fiscal gap, while a significant long-term problem, is not an immediate crisis.
In the course of doing this, he focused on the projected path of the U.S. publicly-held debt to GDP ratio, which is not projected to get really hairy for at least 15 years.
This led to a question after his speech by a well-known (at least within the field) and somewhat idiosyncratic economist who has done important work relating to how we should think about long-term budgetary issues, but who has not previously been named in this blog post (hint hint). This individual strongly holds the view that public debt is an entirely, and I mean 100 percent, meaningless measure and that only the infinite horizon fiscal gap has any economic meaning whatsoever. Hence, in his view, if the infinite horizon fiscal gap, under our best forecasts of current Medicare, Social Security, & Medicaid policy et al, indicates fiscal unsustainability, then it is utterly irrelevant how fast the public debt rises. In his view, if there is a present value of, say, $20 trillion for expected 22nd century unfunded Medicare outlays, the fiscal problem this represents is literally indistinguishable from the case where the U.S. issues (for zero cash) $20 trillion of additional public debt today. If you say: Ah, but we could change Medicare policy before the 22nd century actually gets here, he will answer: So what, it is equally true that we could renounce $20 trillion of explicit debt. Only naive formalists, he is certain, could see any difference whatsoever between the two. (What is more, to him this is a matter of logic or science, not empirics. He alternates between saying that the empirics MUST match up with the economic logic, and that if they don't, then so much the worse for them.)
Diamond, who is familiar with these arguments by this individual, gave them somewhat short shrift. This brought to my mind e-mail debates that I have had with this individual on exactly this topic. In these debates, he repeatedly, and one could almost say a bit indelicately or even tactlessly, told me that the only reason I don't realize that he is correct is because my training as a lawyer has left me cognitively unable to see past mere semantics and form. This struck me as not just ad hominem but affirmatively incorrect, given that (I am pretty sure) at least 99 out of 100 economists would agree with me and not with him. (Indeed, perhaps all 100 unless he was included in the group.)
Anyway, I saw this individual afterwards, and could not resist noting that Diamond shares my view rather than his. I said, while this doesn't prove that we are correct, surely it does suggest that my view doesn't just rest on my being a lawyer.
"Oh, Diamond isn't very serious about the economics of this," he replied - perhaps not quite breezily, which in any case would be clichéd writing on my part, but certainly dismissively.
Speak of non-falsifiable propositions ...