Alfred E. Newman, meet Paul Krugman. Less than a week after the Treasury reported that the US was on its way to a fifth straight trillion-dollar annual budget deficit, the New York Times columnist and Nobel Prize winner says we’re worried about nothing. The deficit problem, Krugman assures us, has been “already, to a large degree, solved.”
Did I miss the space invaders?
This is, however, a case in which what everyone knows just ain’t so. The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.
It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening. (And similar things are happening at the state and local levels — for example, California appears to be back in budget surplus.)
Er, yeah. California has spent the last several budget years appearing to be back in surplus, thanks to tax hikes and fee assessments, only to discover ten-figure deficits when the theoretical meets reality. Krugman is right, though, that this largely mirrors what happens on the federal level, such as when the President insists that he has cut spending by more than $1.4 trillion while federal spending has increased by almost 10% during his tenure.
But what about those future budget projections that Krugman insists are overhyped?
Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?
Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?
How about the current problem of the SSA paying out more than it receives? That’s not a future-projection issue; that’s a problem that has been going on for almost three years. Krugman’s own newspaper managed to report that; did he miss it? Furthermore, the acceleration of people climbing onto the disability program in Social Security has made the problem get worse at a faster rate than projected at that time, too.
That’s also the larger reason we want to reform the entitlement programs now rather than in the 2030s. They’re producing big deficits now, and it will get worse as we expand those programs through ObamaCare. We are rapidly increasing our national debt to fund benefits we can’t afford not just in the future but in the present, which is a big reason why we’re about to have our fifth straight trillion-dollar annual budget deficit.
Bloomberg’s Caroline Baum wants to file this away for later amusement:
Krugman’s “What me worry?” column today is going in my famous last words file. Says deficit problem “mostly solved.”nyti.ms/VNS4kE
— Caroline Baum (@cabaum1) January 18, 2013
Meanwhile, add this to Damon Linker’s lament at The Week about reckless liberal pundits:
The White House likes to portray the president as the adult in the room — especially when the room is being used to negotiate with House Republicans over the federal budget. The good news for Obama and the Democrats is that the GOP, repeatedly driven toward reckless brinksmanship by the ideological fervor of the party’s base, appears determined to confirm the impression. But that doesn’t mean that progressives have earned the right to boast of their own fiscal sobriety and good sense. On the contrary, leading liberals have recently begun to defend positions that seem designed to prove that Democrats can be even more fiscally irresponsible than their Republican counterparts.
Consider the case of Paul Krugman — arguably the country’s most influential liberal pundit. In several New York Times columns over the past few years, and most recently this past Monday, Krugman has mocked the “Very Serious People” in Washington who express concern about the enormous deficits (in the range of $1 trillion a year) the federal government is currently running. Yes, the nation faces long-term budget challenges, Krugman concedes, but with interest rates at or near historic lows and unemployment still high, policymakers should ignore the fiscal Chicken Littles and keep right on spending.
He’s not talking about today’s column, by the way.
Everyone who looks at the issue honestly admits that addressing this deeper problem will require significant tax hikes as well as deep spending cuts. Yet Krugman continually tells his fellow liberals (and the president, whom he undoubtedly hopes is listening) that there’s no need at all to cut spending seriously. Quite the opposite. With governments currently able to finance debt at low and even negative interest rates — a development that amounts to them being offered “free money for the next 10 years” — we have no reason not to increase spending still further.
Krugman is not the only liberal to stake out such a fanciful position. Slate economics blogger Matthew Yglesias has even gone so far as to make the outlandish suggestion that the government stop collecting taxes altogether and finance its spending entirely through debt. Reading Krugman and Yglesias on the topic, you’d never guess that the principal on a loan (even one taken at zero or negative interest) eventually has to be repaid.
They must know this, right? Given that both authors recently endorsed the manifestly absurd idea that the president could pay down a chunk of the nation’s debt by instructing the Treasury Department to mint a trillion-dollar platinum coin, I’m not so sure. The suggestion is so ludicrous, it’s astonishing anyone — let alone two leading liberal pundits, one of whom is a Nobel laureate in economics — would advocate it. Yet advocate it they did.
Maybe we’ll just wait for the aliens to land.