Paul Krugman is in a channeling frenzy in today’s column, entitled “The Dwindling Deficit.” His inner Alfred E. Neuman says, ‘What, me worry?”:
The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.
Who knew? He argues that economic recovery will raise federal revenues and decrease such costs as unemployment and food stamps. That’s usually true enough, except we’ve been in “recovery” since June 2009 and it hasn’t helped yet. Budget deficits for the last four fiscal years were $1.41 trillion (2009), $1.29 trillion, $1.3 trillion, and $1.08 trillion.
The administration shows no sign of pushing activities that would have an immediate positive effect on the economy, such as encouraging new oil and gas production, and many signs that it intends to continue its crony capitalist “investments” in green energy, which have been an expensive bust.
A slew of new regulations on business, and tens of thousands of pages more to come with Obamacare and Dodd Frank, will not speed up the recovery. Neither will higher taxes on capital gains and dividends. And the Fed will have to at some point start reining in the money creation (euphemistically termed quantitative easing) that is currently keeping interest rates historically low. That means the cost of servicing the debt will go up. Each one-percent rise in interest rates that the government has to pay raises annual interest costs $160 billion.
Krugman writes that, “. . . the budget outlook for the next 10 years doesn’t look at all alarming.” Of course, the budget outlook in 2000 foresaw nothing but budget surpluses for the next ten years. Krugman explains that, “George W. Bush squandered the Clinton surplus on tax cuts and wars.” (There were no Clinton surpluses, in fact, just phony accounting that called money borrowed from the Social Security Trust Fund income. But let that go.) It was the collapse of the Internet bubble in 2000 and the ensuing recession—which began on Clinton’s watch—that caused the “surpluses” to disappear. As for those tax cuts, they were nothing but a giveaway to the rich until, this year, they suddenly became vital to the middle class.
Most egregiously, he writes with regard to Social Security, “At this point, ‘reform’ proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?”
Ummmm, perhaps the problem pointed out by the Social Security Administration itself that the system will run out of money in 2037? That’s not an economic projection; it’s a demographic one. All those who will be on Social Security in 2037 are, at least, now in their forties.
But Krugman, like, Scarlett O’Hara, wants to think about that tomorrow: “by moving too soon we might lock in benefit cuts that turn out not to have been necessary. And much the same logic applies to Medicare [now scheduled to go broke by 2024]. So there’s a reasonable argument for leaving the question of how to deal with future problems up to future politicians.”
Like Krugman, Wilkens Micawber, was quite certain that “something will turn up.” At least he was until the police turned up and he was arrested for debt.