I thought I linked to their paper before, but I cannot find the post.*
we calculate the level of the primary government surplus that would be necessary to keep debt from continually growing as a percentage of GDP. We argue that if this required surplus is sufficiently far from a country’s historical experience and politically plausible levels, the government will begin to pay a premium to international lenders as compensation for default or inflation risk.
This sounds a lot like my Guessing the Trigger Point paper, in which I say that a key variable is the “pain threshold,” which is my term for “politically plausible levels” of the required fiscal adjustment.
I heard Jim present a different paper, on estimating the off-balance-sheet liabilities of the U.S. government, at a recent Cato event. I questioned the usefulness of an exercise that tries to come up with a single number, when so many of these liabilities are contingent (the government has written a lot of put options). Douglas Holtz-Eakin shot back that policy makers cannot handle multiple possibilities. They need one number.
Fine, then. If policy makers cannot handle something that is essential to financial management in any public corporation in America, tell me why we want them to manage trillions of dollars?