Lawrence Lindsey wrote an interesting op-ed piece for today’s Wall Street Journal titled The Deficit Is Worse Than We Think.
He points out three reasons for concern:
1. The projected interest rates are based on 2.5% while the average interest rate in the past has been 5.7%.
The 10-year rise in interest expense would be $4.9 trillion higher under “normalized” rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.
2. The growth forecasts are much higher than the academic consensus believes we should expect, which is 2.5%. The president’s budget predicts growth of 4%, 4.5%, and 4.2% (for 2012, 2013, and 2014 respectively). Growing at the trend of 2.5% will add an additional $4 trillion to our debt.
3. The long-run cost estimates of Obamacare will be much higher than expected.
In all fairness, Mr. Lindsey was the director of the National Economic Council for 2001-2002 and had a significant role in passing Bush’s tax cut. He also estimated the cost of the Iraq war to be $200 billion (it’s now supposedly over $700 billion).
Mr. Lindsey played a part in creating this deficit.