May I assume that Paul Krugman and Joe Scarborough won’t send each other holiday greeting cards this December? After an argument on the set of Morning Joe this week over whether America needs to act now on long-term debt, the host of the show wrote not one but two Politico op-eds in the past 24 hours blasting his guest. This morning, Scarborough laid out the case for why long-term debt needs to be addressed in the short term by deficit elimination and structural reform for entitlement programs:
More troubling for the future is that private domestic investment—the fuel for future economic growth—shows a strong negative correlation with government debt levels over several business cycles dating back to the late 1950s. Continuing high debt does not bode well in this regard.
As the biggest economy in the world, America has a lot to say about how the world works. But the economics profession is beginning to understand that high levels of public debt can slow economic growth, especially when gross general government debt rises above 85 or 90 percent of GDP.
The United States crossed that threshold in 2009, and the negative effects are probably mostly out in the future. These will come at a bad time. The U.S. share of global economic output has been falling since 1999—by nearly 5 percentage points as of 2011. As America’s GDP share declined, so did its share of world trade, which may reduce U.S. influence in setting the rules for international trade.
It’s not until the end that Scarborough pre-rebuts critics by revealing that the entire column was written by economists from the RAND Corporation:
If you believe that I am wrong and Paul Krugman is right, if you disagree that America’s debt crisis is serious today, that it is draining American soft power globally, that it is devaluing the dollar, that it is undermining our influence with international trading partners, that painful adjustments in government outlays will be necessary, and that we cannot afford to wait until 2025 to worry about Medicare and other drivers of U.S. debt, then take it up with the RAND Corporation, whose senior economist wrote everything you have read here other than this concluding paragraph. The debt crisis is real and waiting another decade to fix it is not an option. Anyone who suggests it is operates well outside the mainstream of where serious economists reside.
That shot about “serious economists” must sting for a man who’s won the Nobel Prize in that field. That, however, was just Scarborough calming down. Less than 20 hours earlier, the MSNBC host ripped Krugman for his “ideological Vaudeville act” and all but called him a clown for claiming that the US didn’t need to worry about entitlement programs until they actually collapsed:
Mr. Krugman responded to the flurry of criticism he received by excoriating “in-crowd” types like “Joe Scarborough, Erskine Bowles and Pete Peterson,” (and anyone else who disagreed with him) as members of an incestuous clique populated by shallow simpletons who draw their economic conclusions based on hearsay instead of rigorous study and hard data.
Unfortunately for the self-consumed professor, his latest lurch left has created an entirely new collection of critics that are a far cry from the right-wing straw men that he usually sets up to knock down. Instead, Krugman’s extreme view that Washington should ignore long-term debt until the bottom falls out of entitlements now places him at odds with liberal Keynesians as well as conservative Republicans.
I would like to believe that Paul’s “Morning Joe” routine was simply an attempt to be provocative and bring to camera the ideological Vaudeville act that he performs daily on his hilariously entitled New York Times blog. This is where Krugman flails about at windmills while professing his omnipotence daily, in between stints as a serious economist.
Scarborough also blasted Krugman’s “merry band of bloggers” busily defending the “In-the-end-we’ll-all-be-dead” approach to U.S. long-term debt:
Krugman’s views on long-term debt are, in fact, wildly outside mainstream economic thought. But he is wrong in saying that his interview made me angry. Watch it here and see how I was polite, engaged and entertained by the preposterousness of his debt-denying logic. Far from being angered, I found the interview to be one of my favorites of the year. He is welcome back anytime.
Unfortunately, Paul Krugman and his merry band of bloggers were not as excited by the “Morning Joe” appearance, as they rushed to their laptops to launch a ham-fisted defense of debt denial. Krugman’s apostles then proceeded to mischaracterize his critics and reframe the debate.
Bloggers from The Washington Post, Business Insider and New York Magazine all wrote posts accusing Paul Krugman’s critics of being ignorant of basic economics. All three then proceeded to embarrass themselves by mixing up the most basic concepts of economics by repeatedly confusing the terms “deficits” and “debt.”
The Atlantic’s Derek Thompson falls on the side of Krugman, albeit with an explanation:
Joe Scarborough understands this. He says he wants higher deficits *and* a game-plan for cutting our long-term debt (which is the accumulation of our deficits). But he doesn’t fully understand — or properly communicate — how the argument for long-term debt reduction rests on assumptions about the future that are exquisitely sensitive to change. The precise dimensions of our 2020 debt are calculated from a matrix of variables (e.g. immigration, productivity growth, hospital construction growth, MRI inflation rates) whose very nature is to fluctuate, sometimes dramatically, on a quarterly or annual basis. …
Our debt projections looks like math, because they have numbers all over them. But math is a law. Actuarial projections are not. They are smart guesswork facilitated by multiplying current trends over many years. There’s an important difference, because everything can change.
For example, what if health care inflation slows down?
Actually, that’s not a “what-if.” Two weeks ago, CBO revealed that health care spending has “grown much more slowly than historical rates would have predicted.” It cut estimates of federal spending on Medicaid and Medicare in 2020 by “about $200 billion.” That’s a lot of money. It is much more than Washington would save by raising the Medicare eligibility age from 65 to 67. If you thought raising the retirement age was enough to calm the market’s appetite for debt reduction, then guess what? We just got those 2X those savings by doing nothing.
It’s true that projections of debt and liability growth are imperfect, as all such projections are, but that doesn’t mean they’re not math-based. And one doesn’t need to rely too much on projections out to 2020 or 2035, because we can take a look back at the expansion of national debt over the last ten years, thanks in large part to the programs that Krugman argues don’t require attention now. In the last five years, we’ve added over $5 trillion to that debt, which accounts for one-third of all our national debt, and the rate won’t slow down. Even the White House projects annual deficits to go down to just around $600 billion and then rise back to the trillion-dollar level at the end of the decade, and that’s assuming some very rosy economic-growth numbers.
That’s why Scarborough and RAND see the need for structural reform now — and there is another reason not to wait. By the time we get out to The Great Collapse, we will have crowded out all of the potential private-sector options for people to use when the government programs fail. We will have hundreds of millions of people whose money got sucked into the system, and who will have no services to see for them. Even if we could successfully rebuild those programs immediately and maintain service rationally for the future, any such reform would leave tens of millions outside that system, with nowhere else to go. (And if we could do that then, why not now?)
Now, that may not matter to those who will be dead by then, but it will matter to those who will be alive. We would be allowing a massive societal breakdown to occur even though we can clearly see today how to prevent it, and we would be allowing the destruction of safety-net programs in the future by refusing to reform them today, and left no options for assistance for those in need. Just how responsible and compassionate is that?
Addendum: As far as Krugman being welcome back to Morning Joe, it’s kind of Joe to say, but … this doesn’t seem to be a very good way to treat a guest. I’m no fan of Paul Krugman, but writing an insult-filled op-ed in another prominent forum about someone after they’ve left the set doesn’t seem like good form to me. This is something Joe could have said to Krugman on set, where Krugman could have answered him in real time. Joe owes Paul an apology.