Crossposted from The Stars Hollow Gazette
With a little bit of Alex Pareene just for sport.
Dwindling Deficit Disorder
By PAUL KRUGMAN, The New York Times
Published: March 10, 2013
What’s really remarkable at this point, however, is the persistence of the deficit fixation in the face of rapidly changing facts. People still talk as if the deficit were exploding, as if the United States budget were on an unsustainable path; in fact, the deficit is falling more rapidly than it has for generations, it is already down to sustainable levels, and it is too small given the state of the economy.
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(A)fter peaking in 2009 at $1.4 trillion, the deficit began coming down. The Congressional Budget Office expects the deficit for fiscal 2013 (which began in October and is almost half over) to be $845 billion. That may still sound like a big number, but given the state of the economy it really isn’t.Bear in mind that the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy. To take the classic example, America never did pay off the debt from World War II – in fact, our debt doubled in the 30 years that followed the war. But debt as a percentage of G.D.P. fell by three-quarters over the same period.
Right now, a sustainable deficit would be around $460 billion. The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The “cyclically adjusted” deficit – what the deficit would be if we were near full employment – is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion. And that’s why budget office projections show the nation’s debt position more or less stable over the next decade.
So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.
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Now, I’m aware that the facts about our dwindling deficit are unwelcome in many quarters. Fiscal fearmongering is a major industry inside the Beltway, especially among those looking for excuses to do what they really want, namely dismantle Medicare, Medicaid and Social Security. People whose careers are heavily invested in the deficit-scold industry don’t want to let evidence undermine their scare tactics; as the deficit dwindles, we’re sure to encounter a blizzard of bogus numbers purporting to show that we’re still in some kind of fiscal crisis.
Gone Deficit Gone
Paul Krugman, The New York Times
March 9, 2013, 8:31 am
Anyone who is serious (as opposed to Serious) about matters fiscal knows that it’s highly misleading just to focus on the raw deficit numbers (ONE TRILLION DOLLARS), for two reasons.
First, fluctuations in the deficit tend to be driven by the business cycle; when the economy slumps, revenues fall and some kinds of expenditure, like unemployment benefits, rise. You want to take out these “automatic stabilizers” when assessing the underlying state of the budget.
Second, we don’t have to balance the budget to have a sustainable fiscal position; all we need is to ensure that debt grows more slowly than GDP.
So CBO is now out with its latest report on automatic stabilizers. It estimates that in fiscal 2013 these stabilizers will amount to $422 billion, accounting for just about half of a projected $845 billion deficit. So the cyclically adjusted deficit will be $423 billion.
How does this compare with the deficit consistent with fiscal sustainability? Well, there’s about $11.5 trillion in federal debt in the hands of the public. A reasonable, indeed fairly conservative guess is that nominal GDP will in future grow by 4 percent per year, half from real growth and half from inflation. This means that the sustainable deficit is 4 percent of $11.5 trillion, or $460 billion. Hey, we’re there!
And next year the adjusted deficit is projected to be much smaller.
Dwindling Deficit Disorder
By PAUL KRUGMAN, The New York Times
Published: March 10, 2013
What’s really remarkable at this point, however, is the persistence of the deficit fixation in the face of rapidly changing facts. People still talk as if the deficit were exploding, as if the United States budget were on an unsustainable path; in fact, the deficit is falling more rapidly than it has for generations, it is already down to sustainable levels, and it is too small given the state of the economy.
…
Now, I’m aware that the facts about our dwindling deficit are unwelcome in many quarters. Fiscal fearmongering is a major industry inside the Beltway, especially among those looking for excuses to do what they really want, namely dismantle Medicare, Medicaid and Social Security. People whose careers are heavily invested in the deficit-scold industry don’t want to let evidence undermine their scare tactics; as the deficit dwindles, we’re sure to encounter a blizzard of bogus numbers purporting to show that we’re still in some kind of fiscal crisis.But we aren’t. The deficit is indeed dwindling, and the case for making the deficit a central policy concern, which was never very strong given low borrowing costs and high unemployment, has now completely vanished.
The undead, unnecessary, unhelpful Grand Bargain
By Alex Pareene, Salon
Monday, Mar 11, 2013 07:45 AM EDT
The Grand Bargain is revered, among the Sunday Show set, as a goal essentially for its own sake. Its Grandness is its point. The thought of the parties coming together, agreeing on a mutually unpleasant compromise involving great political “sacrifice” (symbolic sacrifice for the politicians, likely eventual actual sacrifice for the constituents), warms the cockles of the Beltway Establishmentarian’s heart. If liberals and conservatives can’t stand the deal, all the better, even if one or both sides have perfectly valid reasons for blanching. The Bargain must, by necessity, reduce the deficit by “reining in entitlements.” “Entitlements” means Social Security and Medicare, two very popular and successful programs designed to keep retired people alive. Social Security and Medicare “reforms” that make both programs less generous are among the least popular policy proposals in America today, but both parties – at least, the leaders of both parties – support them (rhetorically). Cutting these programs is probably the single highest priority of the tiny centrist elite, and it has been for years, excepting the usual run-ups to our various wars. Part of the elaborate theater of Performing Seriousness in Washington is claiming that “everyone agrees” that the cuts are urgent and necessary, while also bemoaning that no politicians are “brave” enough to support them.
Cuts to those programs have been offered, repeatedly, by the president, to Republicans. Republicans, thus far, have pretended not to notice, because their parallel news media misinforms them and because they incorrectly believe the president to be insincere in his desire to hack away at those very popular and successful programs. The recent Obama charm offensive is designed to convince Republicans that he is very sincere in his efforts to get a Serious Debt Deal, involving “entitlement” cuts and tax reform.
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(I)f Barack Obama finally gets his Grand Bargain, we’re going to get “entitlement” cuts despite the fact that is a bad idea that Americans do not want.There are two important things to remember about “entitlements”: They are hugely popular programs for a very good reason, and actual sensible “reform” would mean improving them, not sacrificing them at the altar of “fiscal responsibility.” A “grand bargain” that was done with the intention of creating the best possible outcome for the most Americans, instead of with the intention of purposefully doing unpopular things because doing unpopular things denotes “seriousness,” would lower the Medicare eligibility age and expand Social Security. That the opposite approach is effectively the bipartisan consensus approach is the special sort of Beltway madness that makes sensible people wish for either a proper parliamentary system or at the very least for an EMP to take out Georgetown and much of Washington’s surrounding suburbs.
Medicare is very expensive. It’s the “entitlement” that is actually pretty much responsible for those scary “debt will be 10 million percent of GDP by the time the rapidly rising seas have swallowed much of the Earth” graphs. Medicare is expensive because we spend a lot on healthcare. We spend a lot on healthcare basically just because we want to, and doing so has been very good to a lot of people who work in healthcare fields. The way nearly every other advanced nation controls healthcare costs is by just having the government set prices. I thought everyone knew Medicare was cheaper than private insurance because it could negotiate lower rates, but apparently lots of people didn’t understand this until Steven Brill wrote a big article about it in Time. Again, many people understand that “reining in healthcare costs” means just spend less on healthcare, but for some reason Washington is fixated on passing the existing ballooning costs onto old and working people instead of just agreeing to pay doctors less in general.
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Social Security, meanwhile, is lumped in with Medicare not because it faces rapidly ballooning costs in the future – it doesn’t – but because a lot of people just really, really, really want to cut it, or make it less generous, or let the finance industry get its hands on the money. Social Security would seriously be “fixed” just by a) raising taxes and/or b) deciding to pay for it, with borrowing or with some other pot of money.
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We should, in other words, be having a big national debate about how to expand Social Security, not find ways to make it less generous for future retirees. (Maybe let’s make our country seem like a nice livable place and get a bunch of immigrants here to expand our population and contribute to the economy and pay taxes and stuff?) Otherwise instead of a Social Security funding crisis we will have a “no one has enough money to retire” crisis, in a few years. Which will likely require expensive government intervention anyway. Instead, the Obama/Democratic/Centrist position is “chained CPI,” which reduces benefits. (The Republican position is “let’s wait a while and try to privatize it again later, maybe.”)In a country with a political system that was actually responsible and responsive to public preferences, the “grand bargain” following the resounding victory of the more liberal party in national elections would be the expansion of the welfare state and the social safety net. Instead, we have two austerity parties arguing over the rate at which they’ll impoverish the future elderly.
We’ll just have to count on the wingnuts in the House GOP to blow the whole deal up again, like they usually do.
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