Note to Self: The Long-Run Fiscal Deficit, the PPACA, the ARRA, and Other Stimulus Initiatives...
i am going to have to rerun all the underlying analyses next Wednesday, after the CBO issues its new Long-Term Budget Outlook. But if the CBO's numbers then are consistent with their analyse last fall of the PPACA, then...
The U.S. has a current-law projected primary federal fiscal deficit over the next 75 years of 3% of GDP, according to the CBO's current-law baseline.
The U.S. has a projected primary federal fiscal deficit over the next 75 years of 8% of GDP under the CBO's alternative fiscal scenario baseline.
These calculations assume current interest rates--where the long-term Treasury rate at which the U.S government is borrowing is only a little bit more than the nominal GDP growth rate. Higher interest rates would lower the 75-year primary fiscal deficit--they would make what happens in near-future years when the projected baseline deficit is relatively small becomes of more relative weight, and what happens in distant-future years becomes of less relative weight.
The stimulus package--the ARRA--raised our 75-year fiscal gap by 0.03% of GDP--and that is assuming that the ARRA did not do anything to boost the capital stock and productivity of the U.S. economy beyond 2014. Add in hysteresis in labor markets of any form--any permanent transformation of cyclical to structural unemployment and thus permanent upward shift in unemployment's natural rate--and the ARRA flips sign and does not add to but subtracts from the 75-year primary fiscal deficit.
A further $100 billion stimulus would raise our 75-year primary fiscal deficit by 0.005% of GDP.
It would take a $2 trillion stimulus to raise our 75-year primary fiscal deficit by 0.1% of GDP
The health care reform act--the PPACA--reduced our 75-year primary fiscal deficit by 0.4% of GDP if repeat if the long-run effects on Medicare spending growth are what the CBO projected them to be last fall.
In short, if we want to do as much harm to the long-term budget picture as we did good by passing the PPACA, we would have to spend $8 trillion on additional stimulus. The effects of fiscal stimulus spending now on our long-term budget position are lost in the rounding error.
The reason, of course, is that the big drivers of the long-term deficit are the excess above GDP projexted growth rates of Medicare and Medicaid. Put in place institutions that slow the long-term growth of Medicare and Medicaid--as the CBO believes the PPACA does--and you do infinitely more to improve the long-term budget picture than any stimulus program could possibly do to harm it.
75-Year Cost of Bush Tax Cut Extension:
2.2% of GDP
75-Year Cost of Medicare Part D:
0.8% of GDP
