John Podesta and Michael Ettlinger did an op-ed in the Financial Times laying out CAP’s view on how to get a handle on the medium-term budget situation. Stan Collender did a writeup of the piece that I’d recommend to people who’d like some more background (for a substantially longer and more detailed version of CAP’s proposals see here). But I did want to take issue with the implication that the idea of “primary balance” — a budget whereby tax revenues equal non-interest expenditures — is something that my colleagues just made up because “it’s absolutely brilliant communications.”
It is good communications. But it’s not a brand new idea. I think that graphic illustrates the basic thinking clearly and I borrowed it from the Japanese Ministry of Finance. It’s in the official OECD glossary of statistical terms. I could go on.
At any rate, if you accept the idea that we ought to move toward balanced budgets but that it would be unrealistic to balance the budget extremely rapidly, then it’s obvious that picking an interim goal would be a good idea. “Primary Balance” works as a good one, since the cost of rolling over the debt piled up during the Bush years and during the 2008–2009 crisis isn’t going to be really under the control of future congresses. What those congresses can control is the amount of tax revenue they vote to raise, and the amount of non-interest monies they vote to appropriate. And that’s what the primary balance concept measures. In economic terms of course a deficit is a deficit, whether primary or otherwise, but to get from Point A to Point B we need to pass through some measurable intermediate stages.