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Glad to see some recent posts, I’m a big fan of your work.

Although I’m a fan of the move, David Walker, and the fiscal wake-up tour I agree with you that economic growth is getting short shrift.

I plan to raise this question at the upcoming Philadelphia tour stop. To that point, any suggestions on how to succinctly ask the question such that it doesn’t immediately get dismissed with a “this problem is too big to grow our way out it” response?

Any insights into why growth isn’t getting any air time for at least being part of a solution to narrow the projected gap?

> The participants don’t believe that a high rate of economic growth is feasible without significant changes in immigration, workforce participation during a phase of aging population, and shift in national values/priorities (emphasizing more investment rather than consumption.)
> This is a veiled attempt to reign in entitlements (even if it means compromising on tax policy as well)—i.e., advancing the CATO / classical liberalism philosophy.
> It is difficult to explain and put forward a solution proposal that hinges on the continuing acceleration of technological advances to drive high rates of economic growth—and have this proposal viewed as credible.


You're right; you can expect evasion or a change of subject if the growth question leaves any wiggle room.

I would ask a two-part question:

"David Walker charted the ratio of debt/GDP, showing it increasing to 244% in a few decades. First, what was the annual growth rate assumed for real GDP in that chart, and second, what growth rate would it take to hold the ratio level at 64%?"

That's about as brief I can make it, such that "we won't be able to grow our way out of it" is not a viable answer. Say the whole sentence without pausing so that getting interrupted is not possible.

Thanks for the advice.

To further prepare to challenge the FWT panel, a) have you already estimated/calculated an answer to this question and b) do you think anyone or everyone on the panel will have a rough idea as to the answer?

More broadly, what kind of response would you expect?

I'm curious how entrentched the panelists are in their thinking as to what extent they've totally written off policies that would encourage / drive higher economic growth rates as part of a solution. I hope to find out and report back. Thank you.

GDP growth is just one of several important variables, but (to me) 5% real growth looks to be a rough demarcation above which the doomsday message can be relegated to the fringe.

Although I don't yet have access to the detailed models the think tanks have supposedly been using, I ran some scenarios a while back (540 of them) based on the key factors they were touting at the time. Enlarge the scenario chart in this article -- http://tinyurl.com/2sztvw -- to see what I mean. You might be able to formulate a few good questions based on that.

I hope you (and I) are pleasantly surprised that growth and productivity begin to get more attention once the right questions start getting asked.

Steve, regardless of your personal views, is it not the duty of our elected officials to balance the federal budget and reduce the deficit in accordance with the wishes of the people who elected them?

"GDP growth is just one of several important variables, but (to me) 5% real growth looks to be a rough demarcation above which the doomsday message can be relegated to the fringe."

High, Steve. The problem here is that there's been only one year of 5% real growth in the last 30 -- and that was in the 1984 rebound immediately coming out of the worst recession since the Great Depression (10% unemployment made a lot of room for rapid growth).

Average growth rate over the last 30 years has been 3%. So 5% would be a permanent increase in GDP growth rate of 40% ... non-trivial!

Moreover, GDP growth rate figures to decline as the baby boomers hit retirement age because the growth rate of the work force will decline, and that's the first and biggest input when tallying GDP growth.

To offset that just to maintain the historical 3% growth rate will require workers working more hours (which they probably wouldn't like so much, on the whole) and/or lasting increases in productivity above and beyond the historical norm (which is what we all want and should be working for).

But that's needed just to get back up to the historical level. To push things up another 40% beyond that to 5% growth would require fantastic productivity gains such as have never been seen in an advanced economy.

And while everybody would want that, frankly nobody has even an idea of how to do it. There's no known formula for "increasing productivity" as there is for inflation and interest rates and other such things.

That is, it's not merely "get rid of the deadwood and the political obstacles and all the self- interest and focus on what really matters -- growth!" ... because even if we actually do all those things, still nobody knows how to seriously boost the growth rate.

That's why nobody in the movie seriously considers "faster growth" as a solution to the problem, they don't see how it is a possible solution, even in theory.

(And remember too, no matter what speed we manage to rocket the economy up to and how much revenue that brings in, Friedman's rule was that the politicians would spend it all and incur more debt on top, leaving us back where we started. So there is an unavoidable poltical budget element in all this.)

BTW, for anyone who wants to see the projections and economic assumptions regarding productivity growth, GDP growth, etc., that are used in projecting the future deficits, the numbers used by the Social Security Trustees are explained in some detail right here.


Basically the same numbers are used by CBO and other organizations, with some minor differences. But they all paint pretty much the the same picture.

Higgs: Our elected officials keep running deficits, with few exceptions, and we keep electing them, with few exceptions. To me, that implies that "the wisdom of crowds" is at work: even though not all of us understand the financial truth that a prudent mix of taxation and borrowing is harmless in a growing economy, the typical voter apparently dislikes the idea of paying a higher tax rate next year, and also the idea of a weaker military, a longer backlog in the criminal courts, fewer security checks on inbound containers, or fewer coast guard resources to save lives after hurricanes.

So, we vote our personal preferences, it aggregates up to deficits, and we are in fact "getting what we want" from government. We are getting what we want, and we are financing it by supplementing taxation of citizens with borrowing from willing lenders.

If only the politicians and journalists would start preaching positive economics (the way things are) instead of normative (they way they say it should be -- in order to get elected and sell newspapers), we'd have a better understanding of reality, and would be less apt to endure the fear mongering in political campaigns. (And, by the way, I count the "Fiscal Wake-Up Tour" as a political campaign.)

Jim: I strongly suggest reading Kurzweil's book, The Singularity is Near -- not to "sign up" for the whole message (I haven't), but just to see the argument that says double or even triple-digit growth rates are coming soon. I know it sounds crazy, but even if it's directionally correct, 5% will seem like peanuts. (The "Singularity" by the way is when computers surpass human intelligence; that's when growth really takes off. He says that will happen in 2015 at our current rates of progress.) You won't hear anything like a 5% assumption from a risk-averse government bureau or policy interest group; the risk of being "wrong" is unattractive to policymakers.

What I don't understand is why they just hang their hat on one number -- the historical growth rate -- without doing any kind of sensitivity analysis around it (..."what if it were two points higher, two points lower", etc). Maybe the economic modelers think like the climate modelers do: i.e., that the general public wouldn't understand it, or maybe that they'd rather not have their data and algorithms exposed to scrutiny by those who could understand it.

"Jim: I strongly suggest reading Kurzweil's book ... even if it's directionally correct, 5% will seem like peanuts."

Kruzweil is inspiring, but visionaries like him tend to be correct, when they are, 50 years in advance. The problem is he has to be correct *soon*.

Here's some real numbers and dates: S&P projects that on current policy by 2027 Treasury bonds will be "junk" since spending on SS & Medicare will add 6 points of GDP annually to deficits by then, plus the compounding up of interest thereon. CBO says that to avert that, the 6 points will have to closed by a 50% across-the-board income tax increase (or other comparable tax like a new VAT), or a 20% cut in Social Security (eliminating the income tax increase needed by the trust fund) plus a 50% cut in Medicare (ha! ha!). Or some combination thereof.

That's the middle-case scenario. Things could go better of course.

That 6 points is about 1/3rd the size of all taxes today, so for growth to cover it we can back-of-the-envelope that the economy would have to be 33% larger than projected by 2030. For 33% growth over 22 years we'd need growth to average 1.3 points higher than projected -- or about 40% more than the historical norm. That's a lot!

Over the last 4 Qs GDP growth has been 2.2%, well below historical norm. No sign of Kurzweil yet, with 2027 only 19 years away. So far as I know, he has no policy prescription to increase near term economic growth as needed. If he does, let me know.

Otherwise, we have to take some responsibility for what the old-style historical norm numbers keep telling us, IMHO. (Things could turn out worse than the "middle case" too.)

"What I don't understand is why they just hang their hat on one number -- the historical growth rate -- without doing any kind of sensitivity analysis around it..."

They do perform sensitivity analysis. The SSA stochastic analysis with 5,000 runs of different data combinations is at the link I gave in the prior comment.

"Maybe the economic modelers think like the climate modelers do: i.e., that the general public wouldn't understand it"

Well, yes, one has to speak to voters in terms they understand. How many average voters know what stochastic analysis is?

"or maybe that they'd rather not have their data and algorithms exposed to scrutiny by those who could understand it."

Nah, it's all public. Andrew Biggs, formerly one of Bush's SSA people, has a blog that keeps track of this kind of analysis. For a bunch of posts on it try


Otherwise put "stochastic" in the search box.

Andrew is a very friendly guy and I'm sure he'd be glad to converse with you about this. And considering his former jobs at SSA he is almost the proverbial horse's mouth on this info.

I have a question for David Walker: where does the money go when the government spends it, and if the goverment spends more money than it taxes who has that money?

Jim: Looks like Biggs focuses on social security, but I'll call him. The horse's mouth in this case, however, would be whoever built the models that support the assertion "we can't grow our way out of it." That is pure BS, and an insulting brush-off of anyone, such as Paul Romer, who understands how powerful even a few points of growth can be over the long term.

I suspect the CBO or Brookings or Heritage were behind the doomsday projections David Walker uses in the Fiscal Wax-Off Tour.

Brian Riedl at Heritage told me a while back that, for his doomsday projections, he used the SS Trustees assumption of "4.3% nominal growth" after 2015 -- which translates to 2.3% real growth, at best, for our kids and grandkids. My assessment: Bulls***. Sounds to me like there are a bunch of risk-averse policy groups who'd like to see taxes hiked or entitlements cut (strange bedfellows), who feel comfortable with the assumption that "growth just happens regardless of policy."

I admit it: That assumption makes economic modelling easier; all one has to do is vary the assumptions about tax rate hikes and entitlement cuts, keep pushing the F9 key in Excel, then think up some catchy bumperstickers for decorating the Fiscal Wax-Off Tour bus. I think the IOUSA movie promoters missed an opportunity: they should have hired Kareem Jabbar to reprise his role in "The Stand" by walking around ringing a bell, chanting "Growth just happens; the end is near..."

Count me out of the growth-just-happens crowd. That implicit assumption just makes it that much easier for the neo-Keynesians to increase taxes (e.g., income tax rates in the '90s) and for the neoclassicals to cut "big-government spending" (e.g., national security spending in the '90s). Those strange bedfellows got us into a lot of trouble with their growth-just-happens assumption.

By the way, there's only one group that trumps the growth-just-happens crowd, and that's the cause-effect-reversal crowd. Consider this knee-slapper: "When we increased tax revenues in the 1990s, the economy boomed!" I'm not sure which joke I like better: that one, or "The rooster is really important, because every time he crows, the sun rises!"

Bottom line: 2.3% real growth, 2015 forward, is a knee-slapper of an assumption -- but not a surprise from a risk-averse policy organization.

Jim Glass,

Excellent post. No convoluted, implausible, rationalization; your arguments were concise, factual, and to the point. Growth assumptions seem reasonable. I checked out Andrew Biggs blog and he appears to know his stuff too. Many thanks.

You obviously aren't too familar with Walker's work....

You Said: The “secret” solution, not addressed in the movie, is growth—economic growth

Walker has stated many times, both in GAO reports and in interviews, that it would take double digit growth every year for the next 75 years to eliminate this problem.

He also states that that this country has not experienced that kind of growth since the years following WWII.

It currently is in the low single digits and even at its best, could never get high enough to make a dent in this problem.

I am not an economist, but do follow Walker's work. I have written a number of economic diaries on KOS echoing Walker's fears. Follow the link in the diary and watch his 60 minute interview..very interesting.


Have you read the 2008 GAO report on the economy.


Thank you

Look at page 15 on Walker's GAO report on the economy..your answer is there


TKH: Thanks; I have seen it, but it does not answer key questions. Maybe you can help ferret out some answers(?) Here are a few things from page 15, and the questions that are still open...

(1) "During the 1990s, the economy grew at an average 3.2 percent per year":
Yes, but what long-run growth rate was assumed in your model forecasting 244% debt/GDP in four decades? Looks to me as if 2.5% plus or minus a few tenths, was the assumption; is that correct?

(2) Closing the gap would require "double-digit" growth every year for 75 years:
Really? I find that hard to believe; may I see the model, the assumptions, and the data please? (I do know how to read them.) I am especially interested in your assumptions about productivity per worker, and the number of workers for the next 75 years.

(3) "We cannot simply grow our way out of this problem":
Correct; growth is merely the *most important* of several key variables that influence the outcome. But you seem to be treating growth as an independent, exogenous variable, as if nothing we do can change the real growth rate. Why?

(4) Keeping our debt/GDP ratio approximately level at today's ratio (64%) would require permanent deficits that resulted in debt growth no greater than GDP growth. So, why do you keep implying that a goal of balancing the budget is necessary?

Those aren't the only unanswered questions, but they are a good start. Your help in getting answers would be appreciated.

Hi Steve,

I have been reading your blog for a couple of years and have learned much from you and others over that time. I am enjoying the discussion by those much more knowledgeable than me, but I do have a couple of questions:

1) While I agree that the SSA numbers might be conservative, who knows what will happen over the next 50 years or whatever. We could have unprecedented growth, trend, or below. No one knows for sure and I will happily sit on the sidelines during that discussion on who is correct. But is it not better to be conservative with growth rates here since overestimating growth would lead this great country to failure?

2) I had another question regarding interest rates on the government debt. The low interest rates we have experienced in recent history make our debt service easier, right? Wouldn’t an uptick in interest rates cause the same ratio of debt to become much more expensive? I realize that I only see the obvious moving parts here, but these and all other variables unbeknown to me leads to the same conclusion: Hope for the best and plan for the worst.

By the way, I really enjoyed, The Origin of Wealth. Thank you for your recommendation.

Anton Klein

Thanks; good points. I'll have to be brief, so here's my summary:

(1) - The doomsday message (a) implies inevitability, (b) brushes off growth as if it's unchangeable at ~2%, and anyway it's not even worth examining, and (c) unabashedly forecasts 50-75 years into the future, even though few econometricians will "commit" to more than a five year forecast without profuse disclaimers. To me, those make the doomsday message highly suspect, and it simply amazes me how many people continue to be mesmerized by it. Doomsday has been selling books and movies for at least the forty years I've been paying attention, and its "success" continues unabated. It must be lucrative, because it sure hasn't been predictive.

And (2) - You're correct; debt service depends on both the debt level and on interest rates. The fact that both of those are folded into the Times Interest Taxed ratio is another reason I think it is more to the point than the more-popular debt/GDP ratio.

Growth, yes, I understand that growth is key, I keep seeing that, but how is the American economy going to grow now that cheap energy is a thing of the past? I never get an answer to this question that makes any firm sense.

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