In my previous point I had pointed out that Krugman had computed that the short term deficit problem is serious. I had also written about the long term deficit problem. Well, let's take a second look at that.
In Neil Irwin's analysis, he points out that the US recovery in this recession has been worse than in previous recessions. Here's the chart to prove it:
However, before you start blaming the Keynesian economics Obama has employed, consider the comparison of what has happened in the US with what has happened in the austerity oriented economies of Europe and UK:
Essentially, the US economy has outperformed economies where austerity was employed.
Meanwhile, much of the growth shortfall may be explained by this chart:
As you can see, State and Local governments have been shrinking dramatically. There is some evidence that the recovery may in fact have just as fast as historical ones if that had not been the case.
However, what about the debt?
Well, Sarah Kliff has a post shows that so much of the future depends on what you assume. In this chart, Sarah Kliff shows that if you project out Medicare spending assuming the growth in costs over the last few years, it turns out its expected to grow at the same pace as the GDP.
Huh? If that's the case then in fact, then the cost of Medicare by 2085 would be 4% of GDP instead of 7%, which basically means, as Krugman has been suggesting, there is no deficit problem - long term or short term, and that as long as the US can sustain growth, debt as a percentage of GDP will drop and so there won't really even be a debt problem.
Now, the BIG question is will this sustain? The answer is, frankly, we don't know. It is interesting though that one of the reasons for the healthcare cost decline in the last few years is a dramatic drop in hospital readmission rates:
Readmission is something the Affordable Care Act penalizes, but its unclear whether the link is coincidental or causal.
In Neil Irwin's analysis, he points out that the US recovery in this recession has been worse than in previous recessions. Here's the chart to prove it:
However, before you start blaming the Keynesian economics Obama has employed, consider the comparison of what has happened in the US with what has happened in the austerity oriented economies of Europe and UK:
Essentially, the US economy has outperformed economies where austerity was employed.
Meanwhile, much of the growth shortfall may be explained by this chart:
As you can see, State and Local governments have been shrinking dramatically. There is some evidence that the recovery may in fact have just as fast as historical ones if that had not been the case.
However, what about the debt?
Well, Sarah Kliff has a post shows that so much of the future depends on what you assume. In this chart, Sarah Kliff shows that if you project out Medicare spending assuming the growth in costs over the last few years, it turns out its expected to grow at the same pace as the GDP.
Huh? If that's the case then in fact, then the cost of Medicare by 2085 would be 4% of GDP instead of 7%, which basically means, as Krugman has been suggesting, there is no deficit problem - long term or short term, and that as long as the US can sustain growth, debt as a percentage of GDP will drop and so there won't really even be a debt problem.
Now, the BIG question is will this sustain? The answer is, frankly, we don't know. It is interesting though that one of the reasons for the healthcare cost decline in the last few years is a dramatic drop in hospital readmission rates:
Readmission is something the Affordable Care Act penalizes, but its unclear whether the link is coincidental or causal.
No comments:
Post a Comment