Saturday, February 9, 2013

Paul Krugman: Kick The Deficit Can Down The Road

Paul Krugman reminds us that, despite the warnings of deficit scolds that we're in a "fiscal crisis," now is not the time to cut spending. The Republicans want to apply the same austerity here that has derailed recovery in Great Britain. Their positions, though, are rife with contradictions. Bush squandered the Clinton surplus, but the GOP didn't focus on the deficit until a Democrat became president. The Republicans also resist more revenue through tax increases for the wealthy, which they falsely claim creates jobs. They defend defense contracts, however, in part by arguing that cuts to the military results in job losses–a contention that Krugman refers to as "'weaponized Keynesianism,' a doctrine under which military spending, and only military spending, creates jobs." Krugman answers the deficits hawks' objections and advises us that the responsible thing to do regarding the deficit is to "kick that can" down the road:

Start with a basic point: Slashing government spending destroys jobs and causes the economy to shrink.

...Still, won’t spending cuts (or tax increases) cost jobs whenever they take place, so we might as well bite the bullet now? The answer is no — given the state of our economy, this is a uniquely bad time for austerity.

...But aren’t we facing a fiscal crisis? No, not at all. The federal government can borrow more cheaply than at almost any point in history, and medium-term forecasts, like the 10-year projections released Tuesday by the Congressional Budget Office, are distinctly not alarming. Yes, there’s a long-term fiscal problem, but it’s not urgent that we resolve that long-term problem right now. The alleged fiscal crisis exists only in the minds of Beltway insiders.

...Still, even if we should put off spending cuts for now, wouldn’t it be a good thing if our politicians could simultaneously agree on a long-term fiscal plan? Indeed, it would. It would also be a good thing if we had peace on earth and universal marital fidelity. In the real world, Republican senators are saying that the situation is desperate — but not desperate enough to justify even a penny in additional taxes. Do these sound like men ready and willing to reach a grand fiscal bargain?

Realistically, we’re not going to resolve our long-run fiscal issues any time soon, which is O.K. — not ideal, but nothing terrible will happen if we don’t fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts.

So we should avoid that damage by kicking the can down the road. It’s the responsible thing to do.

No comments: