Paul Krugman
@ NYT:
... (T)he current budget deficit is overwhelmingly the result of the
depressed economy, and it’s not clear that we have a structural budget
problem at all, let alone the fundamental mismatch between what we want
and what we’re willing to pay for that people like to claim exists.
Here’s another chart, showing the primary federal balance — that is, not
counting interest payments — since 1972 (data from CBO):
It’s
hard to look at that chart and not conclude that the slump is the
principal cause of the deficit. (Evan) Soltas suggests, based on a more careful
statistical analysis, that the structural budget deficit, including
interest, is 2 percent of GDP or less. He also makes an interesting
observation: the deficit has become more cyclically sensitive over time
thanks to rising inequality. How so? More revenue comes from the wealthy
— even though their tax rates have fallen — and their income is more
volatile than that of ordinary workers.
So, the whole deficit
panic is fundamentally misplaced. And it’s especially galling if you
look at what many of the same people now opining about the evils of
deficits said back when we had a surplus. Remember, George W. Bush
campaigned on the basis that the surplus of the late Clinton years meant
that we needed to cut taxes — and Alan Greenspan provided crucial
support, telling Congress that the biggest danger we faced was that we
might pay off our debt too fast. Now Greenspan is helping groups like
Fix the Debt.
And as Duncan Black
points out, the Bush experience tells us something important about
fiscal policy: namely, that when Democrats get obsessed with deficit
reduction, all they do is provide a pot of money that Republicans will
squander on more tax breaks for the wealthy as soon as they get a
chance. Suppose Romney had won; do you have even a bit of doubt that all
the supposed deficit hawks of the GOP would suddenly have discovered
that unfunded tax cuts and military spending are perfectly fine?
The
point is that the whole focus of budget discussion is based on a
combination of bad economics and bad (and fundamentally dishonest)
politics. We’re looking not so much at a Grand Bargain as at a Great
Scam.
More
HERE from Joe Weisenthal @ Business Insider on the fact that the path to deficit reduction isn't imposing austerity "pain" but addressing unemployment. Excellent article with lots of data, worth reading in full.
