Life After Debt

By Doug Bowles (UMKC)

The CBO’s post-election report released a couple of days ago (apparently in support of advancing the prospects for a Grand Bargain, aka the Great Betrayal) is grounded in relatively pessimistic projections with regard to federal deficit and debt growth.  (See this powerful critique of CBO’s methodology by Follette and Sheiner)  In assessing just how much credibility these projections deserve to be accorded in our policy debate, it might also instructive to remember how wildly optimistic the CBO projections were not so very long ago with regard to complete elimination of the federal debt.

Regular readers of this blog may already be familiar with a Planet Money report by David Kestenbaum (October 20, 2011) about “a secret government study outlining what once looked like a potential crisis:  the possibility that the U.S. government might pay off its entire debt.”   The study is titled “Life After Debt,” and was obtained through the Freedom of Information Act.  You can read the Planet Money blog post and download the original “Life After Debt” pdf document they obtained from the government here.  Kastenbaum describes it as having a “strange, science-fictiony” quality.

The essence of the issue, of course, is that when you start thinking seriously about the elimination of U.S. Treasury debt instruments, you must then confront the potential loss of the extraordinary instrumental value they represent in the world financial system.  This leads immediately to a more theoretically (or perhaps philosophically) informed consideration of the “value” of the U.S. debt, as opposed to the disutility with which it is conventionally regarded.

For your edification, I have taken the liberty of parsing and annotating the “Life After Debt” document posted by Planet Money.  The full document (14 pages in length) is followed by three pages of a second document, containing edits of the first one.  Be sure not to miss the highlighted comments on those last three pages.  They might be the best part of the whole thing.

A couple of final notes:

  1. “Life After Debt” was originally proposed as a chapter in the final Economic Report to the President of the Clinton Administration, but it was eventually jettisoned as too provocative.
  2. Annotation tools for text in pdf documents can be a little bit touchy.  Sometimes the highlighter works, other times it doesn’t.  I’ve supplemented highlights with underlining where necessary.  Also, I used green highlights to distinguish references to the (unattributed) CBO projections for debt elimination from the yellow highlights featuring concern with the problems that elimination represents.

5 Responses to Life After Debt

  1. Off-topic to NEP’s editors:

    I don’t understand why Professor Hudson’s nail-on-the-head analysis of the election (at Counterpunch) isn’t cross-posted here.

    Everyone:

    Don’t miss it. http://www.counterpunch.org/2012/11/09/by-their-fruits-ye-shall-know-them/

    I also notice that whenever Michael Hudson posts over there, they always put his article first. I guess they have good gravitas detectors or something.

    Also, they’re fund-raising at the moment, so I would urge all NEP followers to both donate and check them out. They’re eclectic and occasionally goofy (they even have a radicalized ex-Reagan supply-sider who posts there), but they are a deeply committed, all-out-progressive cadre of folks. And people who show exceptional respect to Dr. Hudson surely deserve respect and support from people like us.

  2. Thanks. Wonderful to have this and the annotations. I’ve written some about CBO projections and their nearly worthless and ideological character as projections. Here, here, here, and here are some references.

    One thing, I’d like to see, don’t have the resources to easily do myself, seems ideal for a university environment like UMKC is a serious study of the reliability of CBO projections over the years. I know, that its projections around 2000 stand out as ridiculous. But, I suspect a detailed study would show that they are rarely accurate even two years out, much less 10 years out or even longer. I suspect also, that they’ve always had a deficit hawk bias from the beginning under Rivlin and others right up through the present whether the CBO Director was a nominal Democrat or a Republican. I really think this needs to be exposed and the public credibility of CBO destroyed. They are profoundly political, and in a way that has cost Americans a great deal of suffering over the years.

  3. I love the way they keep saying ” we need to convince people that the federal debt is a bad thing”.

  4. Let me rephrase fwe things.

    “The CBO’s post-election report released a couple of days ago (apparently in support of advancing the prospects for a Grand Bargain, aka the Great Betrayal) is grounded in relatively pessimistic projections with regard to federal deficit and debt growth. ”

    …is grounded in relatively pessimistic projections with regard to federal deficit and public financial asset growth.

    “complete elimination of the federal debt.”

    compelete elimination of public financial assets.

    “a secret government study outlining what once looked like a potential crisis: the possibility that the U.S. government might pay off its entire debt.”

    …U.S. government might eliminate all public financial assets.

    Et cetera. Doesn’t this rephrasing just make it so much easier to understand what is going here?

    And is there anybody who would like to deny asset nature of these debts?