By Maya MacGuineas
Last night I attended a curtain raiser dinner for today’s Dealing with America’s Debt Overhang event, hosted by New America Foundation’s Economic Growth Program. (If you can’t attend in person be sure to watch it online.)
As a budget scold – as one of my dinner companions has called our ilk – who worries about medium-term deficits, I certainly held the minority viewpoint in the room that deficits do indeed matter. I share my colleagues’ concerns that the growth model of the past – where growth was driven by US consumption – will not be the model of the future, nor should it be. The US consumer de-leveraging process is likely to go on for some time. The Federal Reserve Bank of San Francisco has a study on U.S. Household Deleveraging and Future Consumption Growth showing that if the household saving rate were to rise from 4% to 10% by the end of 2018 (a reasonable scenario they predict) it would reduce annual consumption growth by ¾ ths of a percentage point each year.