Nearly two weeks ago, the Bureau of Economic Analysis released its GDP report with a $560 billion upward revision for 2012. As we explained at the time, the BEA has adopted a new accounting system, which changes the way GDP is measured. Now R&D and artistic creation are accounted for as investments, instead of as immediate expenditures. As a result, GDP appears larger than under previous measurements.
Detroit's recent bankruptcy makes it the largest municipal bankruptcy in our nation's history as the city seeks to restructure $18 billion in debt. However, this didn't just happen overnight, it was the result of years of deficit spending and inadequate revenues compounded and demonstrated in particular by its pension program.
As of Wednesday's GDP report, GDP for fiscal year 2012 was revised upward by roughly $560 billion to a total of $16.2 trillion. This almost Houdini-like event is due in no part to direct increases in production and consumption, but rather it is the result of the Bureau of Economic Analysis's (BEA) new accounting system.
CRFB President Participates in Center for American Progress Event: "Is It Time to Hit the Reset Button on the Fiscal Debate?"
Today, the Center for American Progress (CAP) hosted a panel discussion featuring Center on Budget and Policy Priorities Senior Fellow Jared Bernstein, CAP President Neera Tanden, Concord Coalition Executive Director Robert Bixby, and President of the Committee for a Responsible Federal Budget Maya MacGuineas.
Former CBO director and CRFB board member Alice Rivlin was interviewed by the Fiscal Times Sunday on the state of our budget and economy. Rivlin emphasized that while short-term improvements have been made in terms of the current fiscal outlook and economic recovery, there are still numerous long-term problems that remain.
Yesterday, the Center on Budget and Policy Priorities updated its long-term outlook for the federal budget and like our long-term Realistic Baseline, its shows debt on a clear upward path. Debt will fall in the next few years as the economy recovers and revenue rebounds, but will steadily rise in the following decades as the baby boomers retire and entitlement spending grows. By 2040, debt will have grown to nearly 100 percent of GDP in CBPP's Base Case scenario.
When the financial crisis began at the end of 2007, it soon became clear that the government would need to run higher deficits in response. Tax revenue fell, spending on "automatic stabilizers" rose, and policymakers enacted new spending to stimulate the economy. At that time, the debt level was lower and in line with historical averages, giving lawmakers the room to borrow what they needed to adequately respond.