Sunday, June 10, 2012

Fact-checking Gary Johnson's economic claims: six years to Greece for the USA?

Everybody else is talking more spending.  From Paul Krugman to Barack Obama the mantra is that there has to be more stimulus, more public sector spending to get us out of the doldrums.  Mitt Romney talks about cutting spending, but would increase defense spending dramatically, while taking Medicare off the table for discussion.

Only Libertarian presidential candidate Governor Gary Johnson has been saying that we need to bite the bullet NOW, return spending to what we take in, and deal with the necessary contraction NOW, or else, as he said on CBS:
Johnson said the U.S. is "not immune from the mathematics of continuing to borrow and print money," adding that "we're only six years away from being in Greece's same statistical situation."
So is this truth or hyperbole?

According to the Congressional Budget Office, in FY 2021 the public debt will reach 90% of the US GDP.  At around that point, borrowing becomes ever more expensive, both as confidence in our credit-worthiness decreases and competition from other economies to borrow the same money increases.

At that point, with even the slightest misstep or unanticipated disaster (war, Katrina, etc. etc.) we are at the tipping point to become Greece.

OK, that's nine years off, not six, so Governor Johnson is exaggerating, right?

Wrong.

Take a look at the optimistic assumptions that the CBO had to use to hold off the 90% threshold for so long:

  • GDP growth, fiscal 2015-2018 — 4.2%, 3.5%, 3.4%, and 3.3%. The best we’ve seen in the past eleven years is 3.5%, one time.
  • Real wage growth for workers covered by Social Security, fiscal 2014-2016 — 4.0%, 4.3%, and 3.9%. That’s after inflation.

Miss two, maybe three of these fairly rosey projections and--guess what?--we slide off the cliff a couple years earlier.

Looks like Gary Johnson is credible on this one, which neither Obama nor Romney wants to talk about at all.

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