I agree with Krugman’s (new?) stance that we should not be deficit-obsessed, at least "not now." As Brad DeLong points out, under Krugman’s scenario the Bush tax cuts would/will expire, and there will be new revenue. Krugman wants to spend it, Matt Yglesias does too. That would be my position, were I a moderate Democrat. I don’t favor those spending plans for other reasons, but the deficit per se would not scare me off. In that sense, it is easy to defend Krugman’s Op-Ed.
What puzzles me is what happened to the forthcoming fiscal destruction of the United States, given the current (and presumably future) level of the deficit. If Krugman has simply changed his mind, that is fine; after all neither the United States nor the dollar has collapsed. We’ve been getting new evidence every day and it suggests a relative degree of optimism. If Krugman has changed his mind, I would like to know why. Is it because of this evidence, or for some other reason? I don’t require a "Krugman moping in abject defeat and the rest of us cackling I told you so" moment (or do I?), but I genuinely would like to know what is up.
I think part of it might be specific to the spending he expects to be enacted. Contrary to popular belief, Democrats don’t like spending money just for the heck of it. Individual congressmen all have their own pet projects, of course, but the only truly big spending program any Democrats are talking about is some kind of health care reform. And Krugman in particular has been pushing for universal health care.
Now, as we all learned during the social security debates of 2005, Social Security is actually pretty well financed and over the long term will only increase by about 2% of GDP. The real killers aren’t abstract entitlements, but Medicare and Medicaid. That is to say, health care.
I can’t prove it, but I would guess that Krugman’s line of thought is that the spending project he’s preemptively defending is a health care reform which, one way or another, absorbs Medicare and Medicaid. The overall increase in government spending is largely a substitution away from current private health spending, so that’s not too worrisome. And even if the government isn’t able to fully finance it now, once we fix that (ie, get more tax money, hopefully more than covered by the private savings) we’ve also solved the long-term entitlement problem.
Tyler, have you tried emailing him?
Krugman has changed his mind on the danger of deficits because he sees the shift in political power
and it is convenient for his party to have academic support for their spending desires. It is wrong to model
Krugman’s beliefs as a reflection of an honest intellectual looking for the truth. Better to recognize
Krugman as the political operator that he is. It’s not the truth that matters, but what advances
his adgenda.
Tyler,
I don’t think Krugman’s positions on deficits has changed. He still thinks that we would be better off without them. However, his position is that they are going to exist, regardless. If Democrats restrain spending and get rid of the deficit, Republicans will cut taxes, bring it back. So, the deficit and its costs are just something you have to live with.
Better to accept that political reality and advance your other priorities, rather than sacrifice those priorities to deficit reduction, only to have the benefits of deficit reduction eliminated by the other party through tax cuts.
If you don’t accept reality, you get the worst of all possible worlds. You sacrifice spending, but then don’t get deficit reduction in exchange. Instead, all you do is advance Republican priorities.
If Republicans had been more fiscally responsible, this would have enabled Democrats to continue a balanced budget now that they have power. But Democrats are not going to balance the budget at the expense of spending, only to have Republicans go on a massive spending spree on tax cuts that primarily benefit the wealthy and run the deficit back up again as soon as they get the chance.
If someone spends their credit irresponsibly, you cut back on their limit, you don’t give them more. Here, the Republicans have run up deficits to finance tax cuts for the wealthy. To balance the budget in a situation where power must be shared with Republicans is like expanding Republican’s line of credit. The first thing they will do as soon as they get the chance is run up a new deficit to pay for new tax cuts for their friends.
He has been given hope, just as Brad Delong has been given. Nothing has changed except the Dems taking control in the mid-terms, and suddenly the murky night has a dawn on the horizon.
This was my tack against Delong’s baseless posts a day or so back. He’s arguing paygo, which is good in and of itself, but why are he and so many others convinced the Pelosi & Co. are going to effectively implement such a plan?
Paygo is great if they are going to reduce mandatory spending “here,† so that they can pay for something else “there,† and basically behave responsibly.
But that’s not what they are going to do.
Krugman has pimped himself out so that he’s no longer an economist with an advisory eye on politics.
Yes, it would be nice if Krugman would say that he overrated the risk factor of high deficits in the past, but his dire concerns didn’t materialize, and he thinks that being fiscally responsible is not a dominant strategy for Democrats in the political game. But we ain’t gonna see that kind of intellectual honesty from Krugman. That would raise a lot of questions that Krugman likely can’t face about himself. Why did he buy into such dire warnings when the Republicans were in power, but drops them now? There might be a great reason, but Krugman doesn’t strike me as psychologically capable of assessing the degree to which his political bias has driven his ostensible economic analysis.
And those of us who haven’t turned ourselves into hacks can also choose not to buy into the Saint Clinton routine. Clinton was responsible on the budget deficit, but he was completely irresponsible on entitlements, opposing even reasonable changes in Medicare (including a change that he himself had suggested just months before). As we know, Medicare is the biggest looming fiscal issue. So yeah, nobody’s getting out clean. As economists, we can just advocate the best policy we can, which is addressing the three deficits we face in the general budget, Social Security, and Medicare.
Consider it the opposite of the “starve the beast” strategy of Republicans. As the deficit doesn’t seem to matter on an annual or even business cycle timescale, why not use it as a pretext to minimize spending (Republicans), or maximize spending (Republicans), as the case may be.
Actually Barry, history is his proof.
Barry, Democrats responded to the threat of Perot voters breaking Republican by trying to ‘pay for’ the hugely expensive central health care proposal by being fiscally responsible in other areas. As a package it would have been revenue negative, but since the health care proposal failed, it ended up not being negative.
Maybe he realizes that Bush will use the veto pen, and partisan fighting in Washington will keep them from happily spending our money. Basically, a repeat of 1995, with the parties switched.
One argument for tax cuts is, as pointed out above, “starve the beast.” Unfortunately, the Republicans did not put the beast on a diet when they had the chance–in fact, they stuffed it. As someone else pointed out, federal tax revenue now is as high or higher than before the tax cuts. Spending’s the problem. Perhaps President Bush will now discover that he has the power to veto spending increases.
Comments on this entry are closed.