A Chart for the Fourth of July

Just before Americans started celebrating the July 4th weekend, the Congressional Budget Office (CBO) released its annual Long Term Budget Outlook. The chart shows the CBO projection of the federal debt (as a percent of GDP) assuming that current law or policies do not change as defined in the CBO alternative fiscal scenario (CBO Outlook in 2010). The chart also shows the CBO’s long term projection at the same time last year (CBO Outlook in 2009). And for comparison the chart also shows the history of the debt going back to the time of the founding of the country.

Like the fireworks tonight, you can see one explosion after another, and one higher than the one before. But unlike the fireworks tonight, these are not the kind of explosions you want to see.

We can hope that Washington gets its act together in time for next year’s July 4th celebration so that CBO can make a non-exploding debt projection, like the one at the lower right of the chart. In this lower projection the debt is equal to the 67 percent of GDP currently forecast for 2011, but it then declines in an orderly manner until it reaches 40 percent of GDP, rather than the 947 percent of GDP now projected for 2084. As I testified at the House Budget Committee last Thursday, I think such a plan—if it is clear and credible—would be a much better stimulus to growth and job creation than another “stimulus package” of the kind we saw in recent years.

For more information about the CBO projection, you can examine their spreadsheet by clicking on “additional info.”

About John B. Taylor 117 Articles

Affiliation: Stanford University

John B. Taylor is the Mary and Robert Raymond Professor of Economics at Stanford University and the Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution. He formerly served as the director of the Stanford Institute for Economic Policy Research, where he is now a senior fellow, and he was founding director of Stanford's Introductory Economics Center.

Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor's Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President's Council of Economic Advisers from 1976 to 1977, as a member of the President's Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office's Panel of Economic Advisers from 1995 to 2001.

For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.

Taylor was awarded the Alexander Hamilton Award for his overall leadership in international finance at the U.S. Treasury. He was also awarded the Treasury Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford's introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.

Before joining the Stanford faculty in 1984, Taylor held positions as professor of economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.

Visit: John Taylor's Page, Blog

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