May 28, 2006
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“I’m very worried about the budget situation. You know, government bonds are not a way to finance spending — they are a way to postpone tax increases — only when you postpone those tax increases, you have to pay interest as well. So I think that the magnitude of the deficits we are running — both now and, even more, the deficits that are prospective — are a serious mistake for our country. Republicans and Democrats may have different views on spending priorities, they may have different views on tax priorities, but they ought to be able to agree that borrowing on this scale is a serious mistake for America; it’s a serious mistake for the burden it’s placing on your students, Mr. Dwyer, when they grow up and are going to have to pay the interest on all of this debt. It’s a serious mistake because of the challenge we’re going to be facing in the next decade or two, funding your retirement and my retirement; it’s a serious mistake because much of that borrowing is being held abroad by foreigners, and, one wonders how long the world’s greatest power should be the world’s greatest borrower. So, yes, I’ve got very serious concerns about our fiscal policy….Without regard for political parties or partisanship, I would hope that we could see that budget deficit come down before too terribly long.”
Lawrence H. Summers
President, Harvard University
July 13, 2004—————————————————————-
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Alan S. Blinder is the Gordon S. Rentschler Memorial Professor of Economics at Princeton University. He was previously vice-chairman of the Federal Reserve’s Board of Governors, and before that was a member of President Clinton’s Council of Economic Advisers. Below, an excerpt from a December 4, 2003 interview with Professor Blinder in his Princeton office:
“In talking about deficits it’s very important to keep the long-run, short-run distinction in mind — and this of course gets completely lost in the public discussion — hopefully students ‘get it’ and then they grow up to be grown ups and they’ll still remember . . . It’s when you look at what’s coming. We have set in motion — these things are ‘built-in,’ the word that is used is ‘structural’ — the tax cuts, the spending base, is going to be higher, forever, that is to say, until Congress un-does it. In addition to that, the magic year 2010 is not so far in the future. So, what’s the year 2010? That’s the year that the 1940s birth cohort, the vanguard of the post-war baby boom turns 65 and becomes eligible for medicare, becomes eligible for full retirement benefits under Social Security, and, that continues . . . That post-war baby boom is 17-years long — it gets bigger as it marches through — so, what that means is, in the year 2020, and 2025, and 2030, there’s going to be hugely greater demands on Social Security and Medicare than there are now, even if there is no change in the law . . . So, we know that whatever surplus or deficit we take into the year 2010 is going to deteriorate badly in the decade that follows — we know that — no matter who is president, no matter what is done, the only question is in the details, it has to . . . So that, to me, was the main reason why it would have been nice to go into that period with, say, a surplus of 3% of GDP instead of a deficit of 4 or 5% of GDP which is what it looks like we’re doing now. I think that was a crying shame — it was a great opportunity which fell in our lap — and we fumbled it . . . and we’ve created a long-run problem that we’re going to regret having done.”
Alan S. Blinder
Princeton University
December 4, 2003———————————————————–
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