The release of the Erskine Bowles-Alan Simpson deficit commission's recommendations highlights one of the few points of consensus to be found in Washington: the long-term deficit is a crisis that needs addressing. While Democrats and Republicans tend to have very different ideas about how to bring the nation back into financially sound shape, few who are in power argue with the basic premise that there is, in fact, a crisis here.
So it comes as a bit of a surprise that some economists disagree entirely.
One of them, James K. Galbraith of the University of Texas, has been an outspoken opponent of the deficit commission. Invited to present a statement to the commission in June, he criticized it roundly, saying it was "clouded by illegitimacy" because of its secrecy and the fact that it consists mostly of politicians rather than economists.
I recently emailed him (he was out of the country at the time) to get his thoughts on the matter — and his explanation for why so many people had bought into what he and others call "deficit hysteria."
"The long-term deficit is a projection," Galbraith said, "which depends entirely on the assumptions used in making the projection. The practice here is to accept the CBO's assumptions on the ground that the CBO is a professional, non-partisan organization. But... the CBO's projections are not a coherent or plausible economic forecast — they are an incoherent, mutually inconsistent mish-mash of assumptions that no economist could believe would happen together."
Galbraith said that this is fine when it comes to evaluating legislative proposals, where consistency is key (you wouldn't want to project Bill A's costs using one set of assumptions, and Bill B's using another), but that it's very problematic to use the CBO's assumptions as a method of economic forecasting.
Simply altering these assumptions "would radically change the long-term deficit baseline and the long-term debt/GDP ratio," he said.
In fact, Galbraith explained, the Bowles-Simpson proposal (at the time he was referring to the draft proposal released last month) "gets its results in part by doing exactly that: relaxing the health care cost assumption in the CBO baseline. But since they offer no policies that would produce this result, obviously for consistency they should compare their result to a baseline making the same assumption, and not to the CBO baseline as it is."
"[T]here is no 'problem' that can be resolved here," he wrote, "and even if there were a problem, actions taken today would not resolve it. The problem that we have today is unemployment. We can do something about that. The other thing is a pure charade, except that it is being used to advance an effort to put into place draconian long-term cuts in programs that prevent poverty and provide middle-class security to the working population."
Galbraith said he wasn't alone in these assertions. He said Joe Stiglitz, Dean Baker, Paul Krugman agree with him on "many but not all" of his points, and also cited Luigi Pasinetti, John Eatwell, Bill Mitchell, L. Randall Wray, Hiroshi Yoshikawa, Marcellus Andrews, Alain Parguez, Yung-Ping Chen, Jan Kregel, and William Darity.
As far as explaining why the deficit concerns have taken a central place in American politics, Galbraith wasn't feeling particularly charitable.
"I generally believe that most of the deficit hysteria is politically motivated and in bad faith — part of a long-standing campaign against Social Security and Medicare," he said. "The alternative idea — that these are good- faith beliefs sincerely held by uninformed and unreflective people — is even less flattering. But I suppose either interpretation is possible and there may be some truth in both."