Is Effective Deficit Reduction Possible Without a ‘Catastrophic Crisis’?
Michael Kinsley, managing editor of The Atlantic Wire, is annoyed with Paul Krugman’s latest column in The New York Times, which he calls “patronizing” for its language and seeming blindness to political reality:
Paul Krugman writes another patronizing column Monday morning in the New York Times, accusing deficit hawks of not understanding a simple proposition: “Spend now, while the economy remains depressed; save later, once it has recovered. How hard is that to understand?” He says that we need just a couple more years of stimulus through deficit spending and then we’ll be ready to start saving to pay down the debt. [...]
Krugman himself looks at CBO projections of deficits declining from 10 percent of GDP now to four percent in 2014 before starting to rise again, and concedes that this is “not enough.” Then he cavalierly says that all you need to solve the problem is (a) to bring health costs under control, and (b) a five-percent value added tax. Oh, is that all? I have no doubt that if Paul Krugman were economic dictator, we could impose these or other solutions. In the real world (or should I say “unreal world”) of current American politics, either one of these partial solutions is unthinkable without a catastrophic crisis to force our hand.
In fairness to Krugman, he has good reason to be patronizing: Right now, few economists would challenge the notion that deficit cutting is harmful during a recession, and that further spending is necessary in a sluggish economy with unemployment hovering near double digits. President Obama has pressed for additional stimulus, and deficit fears notwithstanding, the public is receptive to further congressional action on unemployment. But even with the wind at their backs, legislators have been extremely reluctant to do anything further for the economy. What’s more, a growing number of columnists and opinion makers are calling for austerity measures that would slow growth and exacerbate the unemployment crisis.
Given all of this, is it any wonder that Krugman sounds short and a little exasperated? In his (and others’) assessment, the United States is staring at a “Japanese-deflationary trap,” with millions stuck in long-term unemployment, never to return to the workforce. But instead of rushing to prevent a “lost decade,” policymakers are turning away from stimulus, and many elites are cheerleading for austerity. Politically feasible or not, mainstream commentary on the economy hasn’t been, well, very economically sound.
That said, I’m not so sure that Krugman’s proposed solutions are politically unfeasible in the absence of a “catastrophic crisis.” The last two significant attempts at deficit reduction occurred in 1993 with President Clinton’s budget and this year with the Affordable Care Act. In both instances, Congress acted despite the fact that crisis was on the horizon. And indeed, given that more than 50 senators voted for the extension of unemployment benefits, it’s not unreasonable to think that Congress would take action on unemployment and the long-term deficit, if not for routine filibustering by Republicans.