Dr. Krugman telegraphs the Left’s long-term fiscal strategy
10 November
In Monday’s New York Times, columnist and Nobel laureate Dr. Paul Krugman telegraphs the Left’s long-term fiscal strategy when he writes about California Republicans.
For what we may be seeing is America starting to be Californiafied. … And if Tea Party Republicans do win big next year, what has already happened in California could happen at the national level. In California, the G.O.P. has essentially shrunk down to a rump party with no interest in actually governing — but that rump remains big enough to prevent anyone else from dealing with the state’s fiscal crisis. If this happens to America as a whole, as it all too easily could, the country could become effectively ungovernable in the midst of an ongoing economic disaster.
The strategy is simple:
- Increase government spending, especially through rapidly growing entitlements. At the state level it’s Medicaid.
- Wait. While you’re waiting, define deficits as the problem, rather than spending.
- Try to label as radical and extreme those who argue for slowing spending growth and preventing tax increases. The goal is to discredit these solutions as legitimate.
- Once deficits get large enough, shrug and say we have no choice but to raise taxes. This is especially true for entitlement programs directed toward the elderly, who have less ability to adjust to changed government promises.
- Argue we must protect low and middle-income from higher taxes, so upper-income taxpayers must bear the entire burden increase.
- Raise taxes on upper-income taxpayers.
- Rinse and repeat.
This is a simplified version of an Engorge the Beast strategy, which is almost the converse of the Starve the Beast strategy developed about 20 years ago by some on the Right.
When Dr. Krugman writes “no interest in actually governing … prevent anyone else from dealing with the state’s fiscal crisis,” he means “no interest in raising taxes … prevent anyone else from raising taxes …”
Sure the tea partiers are rauc0us, and the California Republicans are an embittered minority. Yes, there are some offensive fringe nuts at Tea Party rallies. Both parties have their paranoid nutcases and bigots. Dr. Krugman tries to use a few signs to discredit a reasonable position on fiscal policy. I would dismiss this as amateurish if the Times didn’t give him such a big megaphone.
California and the Federal government have another quite reasonable option available. Cut spending. Indeed, just slowing unsustainable spending growth would be a great start. California needs to do this with Medicaid, the Feds need to do it with Social Security, Medicare, and Medicaid, as well as with the new health care entitlement Congress is trying to create.
This is why I try to encourage elected officials to use the phrase “spending discipline” rather than “fiscal discipline.” Our long-term deficit problem is a spending problem.
New readers of this blog may find these related past posts helpful:
- A short history of higher taxes
- The total tax battle
- America’s long run fiscal problem is spending growth, not taxes
(photo credit: 106177 by El Bibliomata)
Related Posts
(best matches are listed first)- Medicare: Krugman v. Gingrich, and Krugman v. Ryan
- The Administration’s flawed health care argument threatens their fiscal policy strategy
- What is the goal of the President’s Fiscal Commission?
- America’s long run fiscal problem is spending growth, not taxes
- The Smoot-Krugman carbon import tariff
- A health care fallback strategy, or merely a messaging shift?
- Challenges of the two bill strategy
- Mechanics of the two bill strategy
It sounds like a plan in which "the people who call themselves the government" get to confiscate most of the assets, productive energies, and lives of the Citizens, using various flimsy excuses that they contrive. Can they pull this off? Or are the Citizens not yet sufficiently cowed to go gently into the night of Slavery?
Keith,
As for Krugman, he is clearly an ideological hyperpartisan first and an economist second.
Here's what Krugman said in 2003 amid debate over the 2003 Bush tax cuts (to which he objected, of course, and which were passed two months later) in a column entitled "A Fiscal Train Wreck" http://www.nytimes.com/2003/03/11/opinion/11KRUG…. :
it's clear that the 10-year deficit will be at least $3 trillion…we're looking at a fiscal crisis that will drive interest rates sky-high…what's really scary… is the looming threat to the federal government's solvency. That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 , make that 3, O.K., maybe 4 percent of G.D.P. But that misses the point … because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.
… the conclusion is inescapable. Without the Bush tax cuts, it would have been difficult to cope with the fiscal implications of an aging population. With those tax cuts, the task is simply impossible. The accident — the fiscal train wreck — is already under way.
In other words, Krugman is saying in 2003 that the projected long-term fiscal imbalance at that time should be associated with an extremely high probability of great harm in the long term. As of 2003, with the Bush tax cuts, "coping" with our fiscal future is "simply impossible" and the "fiscal train wreck is already underway".
Flash forward to 2009, as Krugman favors more deficit-spending as stimulus (and adding a new healthcare entitlement that will make it tougher to solve our long-term fiscal imbalance problem). The projected long-term fiscal imbalance is now much WORSE from any perspective: the projected deficit numbers themselves, timing (baby boomers start retiring now), drivers of the imbalance, and political, economic, and lifestyle difficulty of solving the problem. Yet "Krugman 2009" characterizes as "hysterical" those who express anywhere near the level of concern that Krugman 2003 expressed. Krugman 2009 writes:
There’s been some hysteria about the administration’s new estimate that the cumulative deficit will be $9 trillion over the next decade. Don’t get me wrong: this is bad. But it’s being treated as an inconceivable sum, far beyond anything that could possibly be handled. And it isn’t.
… Right now, federal debt is about 50% of GDP. So even if we do run these deficits, federal debt as a share of GDP will be substantially less than it was at the end of World War II. It will also be substantially less than, say, debt in several European countries in the mid to late 1990s.
Again, the debt outlook is bad. But we’re not looking at something inconceivable, impossible to deal with; we’re looking at debt levels that a number of advanced countries, the US included, have had in the past, and dealt with.
Even leaving aside the absurdity of his comparison of our current long-term fiscal challenge with our post-WWII experience, I presume that in 2003 Krugman was already very familiar with the fiscal history of the post-WWII years and at least with the experience to that point of those European countries with high debt levels in the mid/late-1990s, so it's not like Krugman has experienced some revelation that would explain his marked shift in the degree of long-term harm/risk he associates with a given level of projected long-term fiscal imbalance. I posted comments on a few threads of his blog asking him what accounts for this difference, never with any reply.
Krugman is a quintessential example of a hyperpartisan expert, one who abuses his credibility as an expert to mislead people on analytical matters in his advocacy for policies he prefers (and to feed red meat to his hyperpartisan fan club). Rather than presenting trade-offs in good faith, making a case for why one set of trade-offs (and related policies) are preferable to another, and leaving each reader to apply his own values and priorities in deciding for himself which trade-offs (and thus which policies) best reflect his values and priorities, he misleads people about what those trade-offs are.
I forgot to include link to the 2009 Krugman column: http://krugman.blogs.nytimes.com/2009/08/23/how-b...
FWIW, last December I called Krugman on analytical bullsh*t that just coincidentally fit with the policy he supported (more deficit-financed stimulus) http://swordscrossed.org/diary/20081202/nobel-pri...
Krugman 2003 wasn't looking at a collapsing credit bubble. Facts changed, his policy recommendations changed. I share the concern about what kind of 'exit strategy' we can possibly find from the big stimulus/cheap money 'rescue' operation now in progress. But it's unfair to say that Krugman just fit his story to political goals.
Also, "I posted comments on … his blog … never any reply" is pretty comical. Have you ever even attempted to read all the comments on a single one of his posts? How on earth could the man keep up?
Seth,
You are missing the point entirely. Whether or not Krugman believes that higher deficits now are good policy is irrelevant. As I think I made very clear, he shows gross inconsistency in the level of harm/risk he associates with a given level of projected long-term fiscal imbalance. I dealt recently with someone who was confused in the same way you are, so I suggest you check out my final comment (as "B Rational") at http://swordscrossed.org/story/20090917/hey-guys#... and if it's still not clear, check my exchange with "knocienz" above that comment (which lead to that comment).
Re: "never any reply", yes, of course I realize he gets an abundance of replies, and you make a fair point, but he often responds to what he says commenters have been saying, I asked on about four different threads, and in one case it was a thread on which he was soliciting questions, and I include a long quote of him (which, other things equal, would tend to draw one's attention) so I'd say there is more than an insignificant chance that he saw it.
With regard to the Laffer Curve, are we to the left or the right of the maximum?
To the left. Higher taxes would generally mean higher revenues, net of dynamic effects. Even conservative economists generally agree on that assumption. I compiled a relevant list of quotes/excerpts at http://swordscrossed.org/diary/20081017/no-bush-t... Since then, even Dan Mitchel of Cato (formerly of Heritage) has said as much in a video (although he spins a bit with some language and with some misleading analytics, and is misleading about capital gains tax cuts), saying that "it is only in rare cases" that tax cuts pay for themselves http://www.youtube.com/watch?v=fIqyCpCPrvU&fe...
PMA,
I thought I posted my reply, but it's not showing up so I'll write it up again and post again.
In general, we are to the left of the revenue-maximizing point on the Laffer Curve. In other words, in general, increasing tax rates would increase revenues, net of dynamic effects. Even conservative economists are in general agreement on this point. See my collection of quotes and excerpts at http://swordscrossed.org/diary/20081017/no-bush-t...
Even Dan Mitchell of Cato (formerly of Heritage) admits as much in this video http://www.youtube.com/watch?v=fIqyCpCPrvU He adds some spin, some misleading, cherry-picked historical data, and some misleading talk about capital gains tax cuts, but he says explicitly that it is rare for tax cuts to be revenue-neutral (to "pay for themselves").
Keith,
It's disappointing and inconsistent with your usual level of rationality and analytical/conceptual quality when you present that crude, irrational, rhetorical argument that "it's all spending problem, so the solution should be all on the spending side (cutting projected spending rather than any tax increases". If that's not your position and your argument, please let me know, but I'm coupling your post above with my recollection of past blog posts of yours that seem to indicate that position and argument.
Yes, as you've pointed out in the past, the projected long-term fiscal imbalance results from projected spending growth (driven by Medicare, Medicaid and Social Security). But it does not logically follow that the solution should be all on the spending side. Or, to be more precise, it does not imply (1) that one should consider the optimal solution all on the spending side, let alone (2) that one should advocate such an approach and fight against any approach that combines an effective tax rate above 18% or 19% with cuts in projected spending.
It's all about trade-offs and choices. We face an unsustainable long-term fiscal imbalance. What balance between tax vs. spending sides we each consider ideal should reflect what we each consider worth taxpayers paying for, and which policies (and politicians supporting them) we support should reflect not only our ideal solution, but also what is politically plausible, or more precisely what happens to the probabilities of mitigating the problem to X degree by Year Y, considering that the longer we go without a solution, the more the problem grows and the greater the ultimate sacrifices.
And with regard to political plausibility: Just as anyone on the left who obstinately and unrealistically resists phasing in substantial reductions in projected entitlement spending — insisting instead on trying to solve the problem by "taxing the rich" and gutting Defense — is harming the nation by delaying a solution, so are those who insist, just as unrealistically, on a spending-side-only solution. There is simply no way (politically) we are going to keep the effective tax rate at 19% or lower and solve this problem solely by cutting projected spending, let alone doing so while protecting the Defense budget as many on the spending-side-only also insist.
Keith, I hope you'll lend your voice in support of the SAFE Commission. I realize commissions often do no good, and this one, if created, may end up also doing no good, but it has some significant potential to bring us closer to fiscal responsibility, mainly by providing some degree of political cover to members of Congress and the White House, and to some extent also via a public education/P.R. component. The Concord Coalition supports it. Heritage supports it http://www.heritage.org/Research/Budget/tst062508...
The state of Indiana is running a surplus under Governor Mitch Daniels. He did it by controlling spending and waste all up and down the budget. It really can be done by cutting costs. And the more employees the feds add, and they are already the largest employer in the country, the more long term problems we have.
I visited California a couple of years ago and got a warning on the beach from a state employee about disturbing the seagulls habitat by walking through an area of the beach. I bet that dope still has a job.
Indiana is an economic disaster zone. A cursory review of the misery index by county is all one needs to confirm this. I'm not blaming this entirely on Mitch Daniels, but Indiana could use a massive jobs and infrastructure investment.
This should be Indiana's state motto, "Indiana — at least we're not Michigan"
"According to the U.S. Environmental Protection Agency (EPA), Indiana industries, utilities and governmental facilities released 266 million pounds of toxic chemicals into the air, land and water in 2006. Only Alaska, with 18 times the land mass, and Ohio, with 181 percent the population, released more than Indiana."
How about a link to that misery index by county. I have a hard time believing that Indiana is in worse shape than Michigan. Let's see your basis for the comment.
I didn't say Indiana is in worse shape than Michigan, I should've been clearer. By the state motto dig, I meant at least they are NOT Michigan, as in they are better off than Michigan.
It's precisely because Indiana's economy is in such a bad state that Daniels's fiscal stewardship is impressive. It's relatively easy to hit fiscal balance during booms; a rising flood of revenue papers over all the waste and inefficiency in government.
As for causality from fiscal policy to economic conditions in a state, the main effects are naturally long-term ones having to do with tax levels, regulations, and the general business climate. Cyclical swings like the current recession are hardly the responsibility of state governments that lack their own monetary policies.
Agreed and good points, which is why I qualified by saying it is not entirely Mitch Daniels fault. Should have said I don't believe he deserves the most blame or something to that effect.