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Goolsbee's Nuanced Definition of Fiscal Sustainability

The White House and the Treasury Department seem to have different ideas about how much spending is too much.

2:00 PM, Feb 24, 2011 • By MICHAEL WARREN
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At a breakfast meeting this morning with reporters, President Obama's top economic adviser Austan Goolsbee maintained that the president's budget proposal is "sustainable." Goolsbee was asked by THE WEEKLY STANDARD about Treasury secretary Timothy Geithner's testimony last week to the Senate Budget Committee that the budget plan was "unsustainable." He said he assumed Geithner was referring to the current year's budget deficits, which Goolsbee said "cannot be sustained forever, nor would you want them to be."

Goolsbee's Nuanced Definition of Fiscal Sustainability

"Obviously, the current year, when you're coming out of the worst downturn since 1929, you would not sustain the deficit at that level," Goolsbee admitted. But, "in the president's budget, they are trying to deal with getting the house in order: spending freeze, cutting hundreds of billions in spending, and getting deficits down to a level of something like primary surplus, meaning you're covering your costs, the debt-to-GDP ratio is not rising. That is, by the technical economists' definition, sustainable."

Goolsbee has carefully set the bar at achieving a "primary surplus." Primary budget accounting refers to a deficit or surplus that ignores interest payments. But Geithner had been asked specifically about the interest obligations in the president's budget plan, which the Treasury secretary called "excessively high" and "unsustainable."

"With the president’s plan, even if Congress were to enact it, and even if Congress were to hold to it and reduce those deficits to GDP, over the next five years we would still be left with a very large interest burden and unsustainable obligations over time," Geithner said in his testimony.

Goolsbee can perhaps be excused for not knowing that Geithner was talking about the interest burden the budget incurs over the next five years, since he said today he did not know about the Treasury secretary's testimony at a congressional hearing. Still, the White House seemingly uses the "technical economists'" definition of sustainability to ignore the spiraling increase in the interest on the national debt, which makes the budget, in Geithner's words, unsustainable. America's creditors, meanwhile, are likely more interested in the real-world definition.

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