Krugman: CBO Doesn't Know How To Read Its Own Report

Tyler Durden's picture

Submitted by Robert Murphy via Mises Canada blog,

Paul Krugman reads the latest long-term forecast from the US Congressional Budget Office (CBO) and he likes what he sees. Even though the nearby graph is the CBO’s projections for the growth of federal debt, Krugman nonetheless offers this rosy commentary:

Nick Bunker notes an important point about the CBO’s new long-term fiscal projections (pdf): The budget office has marked down its estimate of long-term interest rates…


This markdown has the effect of making the budget outlook — which was already a lot less dire than conventional wisdom has it — look even less dire. But there’s a further point worth emphasizing: the CBO has just declared an end to the debt spiral.


You’ve heard the story: the more debt we have, the more we pay in interest, so the bigger the deficit, and the faster debt grows, until boom, we’ve turned into Greece, Greece I tell you.


…So we turn to Table A-1 on page 104 of the CBO report, and we learn that for the next 25 years CBO projects an average interest rate on federal debt of 4.1 percent and an average growth rate of nominal GDP of 4.3 percent. And this means no debt spiral at all.


Now, wait a second, you may say: higher debt will mean higher borrowing rates, because people will fear that we’re about to turn into Greece, Greece I tell you. That was the theme of quite a few analyses…


As many of us pointed out, however, such results were driven almost entirely by the euro crisis; high-debt countries that borrow in their own currencies haven’t seemed to face anything like the same costs…


I don’t want to say that debt doesn’t matter at all. But it clearly matters a lot less than the fearmongers tried to tell us.

Huh, even though that graph–which I took from the cover of the CBO report–looks pretty scary, apparently the report actually shows that the budget outlook “is even less dire.” I mean, Krugman tells us that the CBO has declared “an end to the debt spiral,” and some of the numbers on page 104 of the report apparently mean that the fearmongers are full of it–we don’t need to worry about the debt getting out of control.

In contrast to Krugman’s optimistic assessment of what the CBO report says, here’s a decidedly different take:

The gap between federal spending and revenues would widen after 2015 under the assumptions of the extended baseline, CBO projects. By 2039, the deficit would equal 6.5 percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 106 percent of GDP, more than in any year except 1946—even without factoring in the economic effects of growing debt.


Beyond the next 25 years, the pressures caused by rising budget deficits and debt would become even greater unless laws governing taxes and spending were changed. With deficits as big as the ones that CBO projects, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable.


How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to pay its debt obligations, which would require the government to pay much higher interest costs to borrow money. Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country.


Even before that point was reached, the high and rising amount of federal debt that CBO projects under the extended baseline would have significant negative consequences for both the economy and the federal budget…

Well gee whiz, what kind of fearmonger wrote this shoddy analysis? As Krugman gets sick and tired of pointing out, talking about the debt leading to a “fiscal crisis” and spiking interest rates just shows how ignorant the analyst is, because everybody knows this type of thing can’t happen to the United States. You would think that someone describing the CBO analysis would finally get it, since–Krugman has just assured us–the new CBO report shows that there will be no debt spiral and that the fearmongers are full of it.

So where did I grab the above analysis? The Heritage Foundation? The Wall Street Journal? John Cochrane’s blog?

Nope, I quoted the above from the Executive Summary of the new CBO report itself. But it doesn’t appear until page 3 of the report, so I’m guessing most of Krugman’s readers won’t see it.

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Arius's picture

with all due respect to Mr. Krugman, he might be wrong this time ... CBO after all is the Guvernment!

knukles's picture

Somebody please....
Ebola.  There's a handy outbreak over Niger way ...
Broken windows...
Go investigate...
Do Something!
Retire, for fucks sake
Go away
Learn to use a nail gun
Run away


It is irresponsible letting this man run amok.

Lead by example. 
Personally take in 100 2 legged sand fleas

flacon's picture

"GDP = C + I + G + (X-M)" is a false formula. Keynes (Krugman) was wrong all along. 

remain calm's picture

Krugman is anencephalic.

NoDebt's picture

He has no penis?  I never heard that about him before.  

No brain, sure, everyone knows that, but missing yet another important organ is really making me feel sorry for the guy.

Herd Redirection Committee's picture

Government accounting....  You know that once you go work for the gov't as an accountant, the private sector won't take you back?

Richard Chesler's picture

Clearly none of you understand the exciting new field of doucheonomics.


ugmug's picture

Krugman is going to have a sex change operation so he can be the first person to be a Nobel Prize winner as a male and female.

yogibear's picture

When the US dollar crashes Krugman will say because there wasn't enough debt and stimulus.

Balvan's picture

By the time dollar crashes, none of us will be alive, certainly not Krugman who is in his 60s

Herd Redirection Committee's picture

Boy are you in for a surprise.

daxtonbrown's picture

"federal debt of 4.1 percent and an average growth rate of nominal GDP of 4.3 percent."


Gee, a 4.3 percent NOMINAL GDP growth rate to eternity. Like who doesn't believe that's going to happen. I mean, at some point we have to assume there are monkeys writing this shit at the CBO. And then they take this poop and fling it at us like we are idiots.

sodbuster's picture

This is what "experts" always do- they take current data, and extrapolate it out to eternity. Interest rates are never going up! Wanna bet? Never is a LONG time.

hidingfromhelis's picture

Calling it data is way too kind.  I prefer hedonically manipulated, seasonally adjusted, propagandized fabricated bullshit supporting a pre-determined conclusion.  Shoot, I'm probably being too kind as well.

sodbuster's picture

HaHaHa!! I stand corrected in a grand way!!! Thank you!

tarsubil's picture

When I read 4.3 percent growth, I laughed. Whatever, Krugman has lots of money but he looks like an unhappy freak. Whatcha gonna do?

Captain Willard's picture

Exactly! I will take the "under" on both projections.

Of course, the debt forecast doesn't take into consideration the UNFUNDED entitlement programs, which are growing faster than nominal GDP growth currently and probably faster than the forecast too.

Captain Willard's picture

Exactly! I will take the "under" on both projections.

Of course, the debt forecast doesn't take into consideration the UNFUNDED entitlement programs, which are growing faster than nominal GDP growth currently and probably faster than the forecast too.

QEternity's picture

I think our Krugman is malfunctioning

Ariadne's picture

Looks like Jay Carney's propaganda writer was reassigned. Go union!

LasVegasDave's picture

1 rope + 1 lampost -1 NY Times economist = bullish

Dr. Richard Head's picture

I can't wait until I can go home and see that video on the internet, "2 bankers, 1 Rope"

whotookmyalias's picture

Winners of Nobel Peace Prize should not pontificate in areas where they lack expertise...or something like that

cougar_w's picture

Paul Krugman is a fatuous oaf so I fed him to my tiger:

Alert the Nobel committee!

MsCreant's picture

Your tiger will get gas, an inflated ego, and then become pretentious.

PETA will want a meeting with you about this. 

TMLutas's picture

Bring a bomb dog for the PETA meeting. 

Otto Zitte's picture

Bring a dope sniffing dog.

cougar_w's picture

Look, PETA gave me a down-vote over it.

You must excuse me now while I go commit suicide.

MsCreant's picture

Now that is a Nobel Prize winning formula for Economics.


astoriajoe's picture

After the collapse, when municipalities can no longer afford to provide street lights, all alleys will be dark alleys, where I will look forward to meeting Mr. Krugman one day.

angel_of_joy's picture

Krugman is in the same category of idiocy as Obozo... and has a Nobel price to prove it, too.

Heavy's picture

Save the bankers at your own peril.

CrimsonAvenger's picture

"an average growth rate of nominal GDP of 4.3 percent"


MidwestJester's picture

Yeah, talk about rosy commentary!

cougar_w's picture

Somewhere beyond "rosey" is the realm of mind fuck.

MsCreant's picture

Dunno. Mind fuck implies he knows what he is doing and the deception is on purpose. It may have indeed started out that way, you know, lie a little bit, help the economy. But like the fed, the more you do, the more you gotta do. So instead of more printing to support the printing, we are talking about more lying to support the lying. Then his reputation is at stake. Then it gets interesting--cognitive dissonance. He starts to bridge the gulf between what he says and reality by believing it himself. Now we are talking delusional, as in stark raving batshit crazy, mad. No meds for this. Without the lies he is ontologically and epistemologically insecure. HE CANNOT BACKTRACK NOW!

Just a guess, ya know...

Dollarmedes's picture

As time goes on, and each quarter fails to reach the goal, we will be treated to stories of how "we can still make 4.3%...if only the next 12 quarters come in at 10.5%!"

Nick Jihad's picture

Never doubt the Hockey Stick.  Eternally one quarter away, but eternal nevertheless.

consider me gone's picture

For a minute I thought nobody had noticed

Eyeroller's picture

and the horse you rode in on, SLUGMAN.

JustObserving's picture

CBO's projections are worth far less than a bucket of warm piss.  In 2000, the CBO predicted a surplus of more than 3.5% of GDP for 2009.  We got a deficit of nearly 10%.

You have to be crazy or a delusional idiot to take any projection by the CBO as anything but a fantasy:


john39's picture

yeah, but leave it to krugman to take it the next level of crazy...

gdiamond22's picture are a chode, a chode I tell you

pods's picture

Let's see what the projections are when the USD loses reserve currency status.


Stuck on Zero's picture

Let's see what the projections are when the stock market drops 70%.