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.
He may be right that this is no time to slam on the brakes and doing so could push us into a second recessionary "dip." But any promise by the Obama administration or the leaders of Congress or even (maybe I should say "especially") the Republicans in Congress to get serious about the deficit in just a couple of years is completely incredible. And none of these people have even made such a pledge in any serious way. To be serious would require a detailed list of policy changes--less spending, new revenue--certified by some credible agency such as the Congressional Budget Office as being sufficient to put the deficit on a steep downward path. We don't have to start doing it now, but we have to say now, in detail, how we're going to go about it. If we don't (and we apparently aren't going to), nobody will believe that we will ever bring the deficit under control. And expectations of endless deficits will fuel (justified) expectations of future inflation, which will hurt the economy just like insufficient stimulus now, if not worse.
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.
How hard is that to understand?
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