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Harvard Economics Professor Martin Feldstein on growing calls to balance the government’s budget.
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Our top story the -- plan by Republicans to balance the budget which in the next ten years.
I I would be so Florida except I cannot understand where it's gonna take them ten years to get it done.
It doesn't take an economics degree from Harvard to know that you really should spend more money did you make.
And here to break it all that is being most patios -- in the universe.
My Harvard economics -- -- -- Marty Feldstein that's quite -- don't compress from I.
I don't know about upping your my -- professor of thank you so much for joining us today and it's very nice to hear it -- nice to be reviewed in -- what.
Well listen I want -- -- budget ten years I'm wondering can Washington help them with the -- maybe didn't get it done a little sooner that seems like a long time horizon to be what do you think.
-- it is a long time horizon but the budget is way out of balance now you know five years ago.
The deficit was less than 2% of GDP.
And it's now 7%.
And according to the Congressional Budget Office.
Ten years from now if we don't make some further progress we still going to be looking -- a deficit of 5% of GDP.
So the challenges how do you turn that five income was -- What difference does it make a lot of people making the argument that balancing your books at home -- in the same as the government balancing its books deficit spending is just fine.
Why does it matter of when does it start to matter.
It's already matters mean we now.
It matters because it drives up the national debt and that creates problems let me explain.
Five years ago we had a national debt which was relatively modest in comparison to -- GDP it was about 35%.
It's now more than 70%.
And it's heading toward a 100%.
So what's the effect of having a large.
Debt.
Well first devoid of gotta pay the interest on right now interest rates very low but that's not gonna last.
And so when interest rates rise our taxes are gonna have to be higher to pay -- debt.
Now.
Not all of that debt is held in the United States so it's not a question of just having to pay taxes in order to.
-- The American holders of that bit about half the -- is now held outside the United States.
Chinese middle easterners others so.
We're gonna have do.
Raise taxes in the US.
Produce goods and services in the US and ship them.
To the Chinese to the Middle East and others and the bigger the debt is the more of that we're gonna have to do.
So it's a serious problem and it also means that.
Things could get I don't really out of whack as they have in Europe if suddenly foreigners or others just don't wanna go one holding that.
But -- -- I would happily because there's a lot of there's a lot of people let's say that you know they're never gonna wanna stop buying our -- is where the best game in town no matter how bad things yet.
But you know that that would be the tipping point in the bond vigilantes they can't come in and finally say they don't wanna fire death of a lot of people -- that would never -- you honestly believe that what -- It certainly could it's not that they wouldn't buy -- -- that the interest rates required to get them to hold it.
Would be much higher if you go back to.
The early 1980s.
We were paying about 10%.
On ten year bonds now we're paying about 2%.
So a combination of an unwillingness of foreigners to hold it.
Or.
Desire and airport not to hold it yeah and perhaps increasing inflation and -- we could be paying a lot.
And a lot of that has to do with the Vatican may be getting control about have been able to hold those interest rates down you know it's it's unclear how long they can keep that going you know the Saint Louis -- begin the Fed said today.
That this is the slowest and worst recovery ever -- we're looking quantitative week.
Growth the GDP from the low point which was the second quarter of 2009 when you look at average recovery.
After a recession.
You know with -- didn't there -- The best the worst than the average were below the worst ever this is just -- why why why is this the worst recovery what have we done wrong.
And what can we change.
Will two things first.
The recession was different from previous recessions the typical recession in the past was caused when the Federal Reserve raised interest rates to deal -- inflation.
Once they felt they'd done that they could lower rates in the economy would bounce back will this time that is why we got into a recession.
We got into -- recession -- course of bad investment decisions made all across the board missed pricing of risk.
Everything from.
Bank investors.
To people buying homes that they couldn't afford.
So the Fed couldn't turn around and that was an important thing there -- thing is that when the government stepped in with fiscal policy.
It was really badly designed it was not.
Powerful.
Increasing spending all that talk about shovel ready projects break didn't ever really didn't didn't materialize -- don't.
That's right -- Lotta transfer payments to states to individuals.
Which really didn't end up doing much for.
The the pace of the recovery -- -- right the GDP is just not.
Come back -- terrible recovery professor belts and thanks so much for coming -- which -- -- -- my transcript and give me an a plus for X ten could you just can't have you learned is that okay.
You know we can talk about it later I think -- can -- that night continue to and I -- that it's coming I'm Ari.
