Friday Krugman: Tune Out The Deficit Scolds

Posted by Bob Lord

What do you suppose would happen if Democrats had the guts to advance Paul Krugman's eminently sensible views? Today, he points out the inconvenient truths that Pete Peterson and his band of deficits scolds don't want us to know. First, the mid-term deficit outlook isn't all that terrible:

Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.

The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming.

Second, it would make a lot of sense to wait a bit before addressing long-term deficit issues:

Well, it’s probable (although not certain) that, within two or three decades, the Social Security trust fund will be exhausted, leaving the system unable to pay the full benefits specified by current law. So the plan is to avoid cuts in future benefits by committing right now to … cuts in future benefits. Huh?

O.K., you can argue that the adjustment to an aging population would be smoother if we commit to a glide path of benefit cuts now. On the other hand, by moving too soon we might lock in benefit cuts that turn out not to have been necessary. And much the same logic applies to Medicare. So there’s a reasonable argument for leaving the question of how to deal with future problems up to future politicians.

The point is that the case for urgent action now to reduce spending decades in the future is far weaker than conventional rhetoric might lead you to suspect. And, no, it’s nothing like the case for urgent action on climate change.

So, what would happen if Democrats had the guts to advance Krugman's views? First, Pete Peterson and his band of deficit scolds, the "Fix the Debt" crowd, would become irrelevant. Second,we might not shred the social safety net, the next step in setting the stage for future tax cuts for the wealthy. 

Which explains why the economist whose views are the most rational is so marginalized.  

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