Monday, May 7, 2012

Paul Krugman on the long-term debt

Paul Krugman is easily the loudest voice in the discussion today advocating sensible policy to stimulate the economy in the short-run and make policy today (not promises to make policy tomorrow) that will help the long-term budget outlook. And he consistently cites the long-term budget outlook as his reasons for opposing the Bush tax cuts. Because he's such a leader on all this, he goes first.


1. “If we could wave away political reality, I’d let all the Bush tax cuts expire, and use the improvement in the budget outlook to justify a large, temporary increase in public spending. Unfortunately, that’s not going to happen. Given the political realities, I’d go for a temporary extension of the lower-end cuts, and just letting the upper-end cuts expire. Why? It comes down to the dual fiscal problem the U.S. economy faces: short-term, the government needs to do all it can to prop up spending; long-term, it needs to reduce the deficit. The latter concern means that it would be a terrible idea to make the high-end tax cuts permanent; that would be a huge drain on the public finances, serving no good purpose. But why not a temporary extension? Because it would do very little to promote spending.” (here).

2. What’s at stake here? According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. For the sake of comparison, it took months of hard negotiations to get Congressional approval for a mere $26 billion in desperately needed aid to state and local governments. And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year.” (here).

3. the [Ryan] budget is a fraud. No, it’s not “imperfect”, it’s not a bit shaky on the numbers; it’s completely based on almost $5 trillion dollars of alleged revenue that are pure fabrication. On the other side, 14 million is the minimum number of people who would lose health insurance due to Medicaid cuts — the Urban Institute, working off the very similar plan Ryan unveiled last year, puts it at between 14 and 27 million people losing Medicaid. That’s a lot of people — and a lot of suffering. And again, bear in mind that none of this would be done to reduce the deficit — it would be done to make room for those $4.6 trillion in tax cuts, and in particular a tax cut of $240,000 a year to the average member of the one percent.” (here).

4. And here’s what it tells us: According to an “intermediate debt scenario,” the budget proposals of Newt Gingrich, Rick Santorum, and Mitt Romney would all lead to much higher debt a decade from now than the proposals in the 2013 Obama budget. Ron Paul would do better, roughly matching Mr. Obama. But if you look at the details, it turns out that Mr. Paul is assuming trillions of dollars in unspecified and implausible spending cuts. So, in the end, he’s really a spendthrift, too.” [In other words, Paul is ignoring a lot of the public choice issues associated with his plans, and he's facing the classic time inconsistency problem of a politician promising to do things in the future that we have reason to believe might not get done]. (here).


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