Dr. Paul Krugman: Economic Hitman
Take a few moments to read the latest column written by Nobel Prize winning economist Dr. Paul Krugman:
It should frighten many Americans to read his opinions and to know that he has the ear of many decisionmakers in the US federal government. What about this latest column is remarkable? Here are a few phrases that I find remarkable:
"There are, of course, longer-term fiscal issues: rising health costs and an aging population will put the budget under growing pressure over the course of the 2020s. But I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now."
To me that's like saying that one shouldn't ring the warning siren until the tsunami hits the shore.
"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."
Seriously? That may 'sound' like a big number? In 2012 total federal revenues were approximately $2.9T. About $1.8T of that goes to pensions and healthcare, leaving some $1.1T to cover the rest --- defense, infrastructure, education, etc. And that $2.9T was taken from an economy that produces about $15T of GDP (taxes are about 19.3% of GDP). So how big would the economy need to be in order to cover the $845B deficit? Our GDP would need to grow by $4.38T in order to cover this gap. So our economy needs to expand by almost a third to cover the current gap between government revenues (i.e. taxes) and government spending? Sure, no sweat.
Where I am going with this is simple: Krugman is dead wrong when he suggests that the US economy can consume its way (and by consumption, he means the US government as the largest entity consumer within the economy) out of the near-term budget deficit problems. And stating that long-term concerns shouldn't be permitted to determine near-term policy is irresponsible.
He ends the column with a very un-academic, blatantly partisan comment:
" 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."
I worry that Dr. Krugman is too deep into the partisan debate to objectively assess the economic situation we face today and that which we will face over the coming decade.