After a month of high drama the Senate at high noon today voted to pass a bill to raise the debt ceiling. How to evaluate this outcome? If I must give a one-word verdict, it would be “good.” If I can expand to two words, it would be “not good.” If I can elaborate to 20 words: “The legislation confirms the sorry state of our public deliberations, but it is probably the best that could be hoped for,” given where the negotiations were as the big hand on the clock approached twelve.
Most prominent economists and the sensible political middle ground in Washington agree that the federal government must eventually address its long run fiscal problem; but they also know that it is not possible to begin to eliminate the budget deficit if tax increases and entitlements cuts are ruled out. The Bowles-Simpson Commission in December made specific proposals, many of which are the sort that we are going to need — all of them highly unpopular….proposals like raising the retirement age, limiting tax expenditures, and raising the gas tax. Many reasonable-sounding editorialists and commentators have said recently that President Obama ought to be brave enough to lead, by coming out in favor of unpopular measures such as those in the Commission’s report. Supposedly the American public is mature enough to rally around such a candid position.
Alan Krueger, Assistant Secretary of the Treasury for Economic Affairs, suggested in a recent speech a useful metaphor to distinguish different kinds of economic indicators. Some indicators are like the gauges on the dashboard of the car — industrial production, unemployment, inflation and so on. They give the latest bits of information on the business cycle outlook, for businesspeople, government policy-makers, economic forecasters, and anyone else who wishes to follow such developments at high frequency. Many of these numbers are collected on a monthly basis. Other statistics are like the results of 10,000 mile checkups – the poverty rate, infant mortality, life expectancy, carbon emissions, natural resource depletion, the crime rate, traffic congestion, leisure time, and other measures of inequality, health, the environment and the quality of life. They supplement market-measured activity and are needed in order to get a comprehensive feel for welfare and the longer term sustainability of the economy. This second category of statistics is more often collected on an annual basis.