Transcript
MR. WILLIAM G. GALE: The purpose of today's meeting is to present a paper that Peter Orszag and I have just completed on The Economic Effects of Long-Term Fiscal Discipline.
I'll present the first half the paper, probably talk 15-20 minutes. Peter will present the second half of the paper. Then we'll open it up to questions and we'll go presumably until the questions are done unless you have an enormous number of questions.
The last two years have seen a marked deterioration in the long-term federal budget outlook. The projected ratio of net debt to GDP for 2011 has gone up by one-third of GDP since January 2001, since President Bush took office. That's roughly a $5 trillion increase in net debt projected for 2011 in the last two years.
Some people have raised concerns that this change in fiscal status is irresponsible, that it reduces future income, that it raises current interest rates. The Bush Administration is notably not among those people, and in particular the Chairman of the Council of Economic Advisers, Glenn Hubbard, recently stated, "I don't buy that there's a link between swings in the budget deficit of the size that we see in the United States and interest rates. There's just no evidence."
This is not an isolated comment on Hubbard's part. In a series of speeches, articles and interviews he's ridiculed the notion that deficits matter. He's called it Rubenomics, called it nonsense, and so on. So this is part of what appears to be a pretty concerted Administration effort to downplay the cost of budget deficits, and in particular to try to justify a new round of tax cuts, and looking backwards, to justify the previous round of tax cuts as well as arguing that the change in fiscal status is not a concern.
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