February 19, 2007
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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 borrow-
ing 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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