Krugman's Long-Term Plan for the Deficit

Is it politically feasible?

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For some time now, Paul Krugman's critics have been waiting for his long-term fix for the economy. Routinely, the Nobel Prize-winning economist argues persuasively for short-term, recessionary spending. But those concerned about inflation and deficits have wondered how the U.S. will ever get its finances in order. On Monday, Krugman offered his solution:


So America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control -- without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn't be hard -- in particular, a modest value-added tax, say at a 5 percent rate, would go a long way toward closing the gap, while leaving overall U.S. taxes among the lowest in the advanced world.

Do bloggers find his fixes convincing? While some praised his emphasis on spending now and save later, others worried about the feasibility of Krugman's long-term solutions.


  • He's Exactly Right, writes Mark Thoma at Economist's View: "Starving the economy during the recovery period risks a relapse and, further, this can cause long-run damage. Getting the economy back to the best possible health will require addressing our long-run budget issues, but best to wait until the economy has recovered its health before starting it on a strict diet."
  • It's Too Bad Obama Has Not Advanced Krugman's Message, writes economist Brad DeLong: "Obama was really not helpful--he stomped all over this appropriate and true message--with his claim that now was the time for a 'three-year non-security discretionary spending freeze.' That phrase shows up newly-written on the White House website about once every two days."
  • I'm Skeptical, writes Kurt Brouwer at MarketWatch: "For Krugman and the others advocating more government programs and stimulus spending, I wonder what level of budget deficits and increasing government debt it would take for them to say enough is enough? ...The U.S. government cannot borrow unlimited sums. I'm sure Professor Krugman would agree... but Krugman apparently believes trillion dollar deficits and vast increases in government debt are necessary for years to come in order to ward off a recession now. I'm very skeptical about the value of much of the government stimulus spending we are seeing."
  • Krugman's Prescription Is Politically Unfeasible, writes The Wire's own Michael Kinsley: "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."
  • I Just Can't See Congress Doing It, writes Angus, an econoblogger: "On the long-run part of the equation, Krugman points, with apparently no sense of irony, to out of control health costs as the killer problem. Wow. Just wow... He says we currently need stimulus and health care cost control. Hey Paul, the government has spent most of the last year working on those two issues with apparently no results."
This article is from the archive of our partner The Wire.