Mr. Mankiw's article provides a bipartisan, straightforward analysis of the current debt situation. He does not side with Paul Ryan or President Obama, but rather provides a critique of both their plans and ends up with a middle ground that is both reasonable and sustainable. A huge source of conflict between Democrats and Republicans has been how to deal with our continual deficits and what are the best budget decisions moving forward. Ryan wants to balance the budget, while Obama wants to keep running deficits, but not raise the debt to GDP ratio. Mankiw says that Ryan's plan is unreasonable and unnecessary because it is ok for governments to run deficits because there will be a payoff in the future. However, the government must be reasonable with their spending especially in times without major military conflicts. Obama thinks that maintaining the current deficit rate is sustainable, but this plan does not take into account "military and economic catastrophes" (Mankiw). We have to begin reducing our deficit when the economy is more stable, so we are prepared for times when the debt level will spike upwards.
Nicky has given a good summary of this article. Something I don't necessarily agree with is that "The debt-to-G.D.P. ratio has increased to 77 percent, from 36 percent in 2007." I believe right now the debt-to-G.D.P ratio is approximately 100 percent, or at least significantly higher than 77 percent. http://visual.ly/united-states-debt-percentage-gdp-1940-2012From the link I have attached and from the graph drawn in class, we know that debt as a percentage of GDP goes up and down, that is just the nature of our economy. I think that we should look at past history and take this into account on what could happen to debt-to-GDP. Now I don't think there is a single right answer to the deficit issue, but I do think the right now we need to figure out how to increase jobs and help build the economy and that in the long term we should start thinking about the debt-to-GDP ratio. Jobs first, deficit second
In his article, Mr. Mankiw derails the president’s goal of fiscal sustainability on the basis that maintaining the current high debt-to-GDP ratio leaves the US susceptible to financial crisis in the long-run. Mankiw attributes this vulnerability to unforeseen adverse events such as military conflicts, recessions and depressions. Tackling any of these issues with an already massive amount of government debt (which would be the case if the current debt-to-GDP ratio was kept stable) would severely limit the government’s ability to enact expansionary fiscal policies in response. Although his argument is logical enough on its own, Mankiw’s inclusion of various debt-to-GDP ratio trends during wars and downturns in US history induces the drawing of parallels between those periods in history with the current state of the economy; the 41 percent increase in the debt-to-GDP ratio since 2007 rivals the increases seen during the World Wars and even the Great Depression. While I believe that Mankiw included these statistics to induce a sense of urgency in enacting a plan to move the economy away from its current point, I think his primary goal is to advocate for decreasing the debt-to-GDP ratio in prosperous times to offset increases incurred while dealing with unforeseen catastrophes.
I'm not sure I agree with Mankiw's position that debt-to-GDP is the most important statistic for tracking economic success. Like Johnny said, this ratio is bound to change constantly and may or may not be indicative of long-term trends. In any case, the debt-to-GDP ratio could be also be reduced by raising GDP, not just by shrinking the debt. I think this goes along with what we've been saying for a while now, that the debt crisis tends to be overemphasized in national discourse about the economy.
I think Mankiw presents some pretty interesting points in this article. Nicky did a good job summarizing the whole premise of the piece while Johnny presented some nice counter information to the stats presented in the article. I think one particularly important point that people overlook is this: " It may be tempting to look at these facts and to conclude that there’s no limit to what the federal government can borrow. But that would be a mistake. Even though the credit markets give the government more latitude than they give to ordinary individuals, the government still faces limits. It can borrow for a long time, perhaps even forever, but it can’t go nuts about it" (Mankiw). This is a good basis for his overall half-criticism of Obama. He agrees with the overall premise of what Obama thinks about long term fiscal policy but warns us that to only look at it from a perspective of sustainability leaves us vulnerable to unpredictable catastrophes. I think the balancing the budget is important but should not be the primary goal in today's economy.
The issue that Mankiw addresses in this article is what we should think or do about our current deficit spending. There are two drastically different approaches that have been proposed by Barack Obama and Paul Ryan. Barack Obama thinks that we can continue to borrow as long as the debt to GDP ratio stays consistent. Paul Ryan thinks that we should balance the budget in as little as 10 years. Mankiw looks into Barack Obama's viewpoints on borrowing and spending. He realizes that as GDP increases, borrowed spending can increase and the ratio can stay consistent, but Mankiw thinks this is troublesome. It is a good attempt on the surface, but Mankiw believes we should be trying to decrease this ratio. His reason is that we do not know when the next big event that will require substantial amounts of spending will be. If we continue on this same consistent path, if we have another downturn or have to fund the war, the ratio will grow even more. Ultimately, Mankiw wants Obama to try to improve the deficit situation in order to protect ourselves from a financial disaster if we are forced to spend even more in a short period of time.
In this article, Mankiw discusses two different approaches to achieving the long-run goal of financial sustainability. He talks about Obama’s approach, keeping the debt-to-GDP ratio at a new, higher level and says this is easier to achieve than balancing the budget, as Paul Ryan wants to do. But Mankiw also cautions that Obama’s goals will be hard to reach because we cannot predict “extreme events” which might unexpectedly run up government debt. It is difficult to achieve fiscal sustainability in an unstable environment. The government needs to redefine what being fiscally stable means before we can attempt to achieve it.
I think Mankiw does a good job within his article of illustrating the concept of fiscal sustainability as well as drawing attention to the potential danger of having a high deficit should a future Military and economic catastrophe arise. Unfortunately, I believe Makiw leaves out a few important bits of information that would really help illustrate his point and clarify the situation. The first of which is the consequence of having a high deficit. Instead of mentioning the dangers of ‘crowding out’ which could raise interest rates and cripple the private investment sector of the economy, Mankiw simply takes the stance of vaguely saying bad things will happen. The second idea, which is heavily tied to the first, is the reason why we have not faced the effects of crowding out yet. The economic situation in the majority of the world right now is even grimmer than ours, which creates a high demand for the American dollar so that people in other countries can save in the US. This inflow of loanable funds counters the raising American demand for funds, and consequently keeps interest rates low. Finally, it would have been interesting if Mankiw had delved into the issue of the American unemployment rate which has been hovering around 7.6 percent (well short of full employment) for some time now. Focusing on decreasing the deficit now would lower government spending, therefor decreasing GDP and potentially increasing the unemployment rate. In my opinion, we should currently be focusing on decreasing unemployment first and worry more about fiscal deficits if we begin to see signs of crowding out.