Saturday, March 21, 2009

Paul Krugman, "CBO Projections"

Paul Krugman writes:

Just a quick note on the new, pessimistic CBO budget projections:

1. These projections have no bearing on the case for a large stimulus now — none. Adding, say, another $600 billion to stimulus spending would, on net, add around $400 billion to debt a decade from now (net is less than gross because the stimulus expands GDP, which leads to higher revenues that partly offset the initial outlay.) This would make essentially no difference to the outlook. Peter Orszag has this exactly right.

2. What the projections suggest is that Obama’s longer-term agenda, or a progressive agenda in general, needs more revenue; that’s probably true, although there’s huge uncertainty about any long-term projection. That revenue might come from environmental policies: I’ve been hearing that realistic projections of the revenue from cap and trade might be much higher than assumed in the budget. In any case, however, it’s really a political question: are we willing, ultimately, to pay the modest costs of a better society.