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Friday, January 18, 2013

Paul Krugman: The Dwindling Deficit

The budget deficit is not our biggest problem:

The Dwindling Deficit, by Paul Krugman, Commentary, NY Times: It’s hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument...; it’s supposed to be part of what everyone knows.
This is, however, a case in which what everyone knows just ain’t so. ...
It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers... Indeed, that’s already happening. ...
Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much..., the budget outlook for the next 10 years doesn’t look at all alarming.
Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?
Consider, for example, the case of Social Security. ... At this point, “reform” proposals are all about ... moves that would gradually reduce benefits... So the plan is to avoid cuts in future benefits by committing right now to ... cuts in future benefits. Huh? ...
And much the same logic applies to Medicare. So there’s a reasonable argument for leaving the question of how to deal with future problems up to future politicians. ...
So, no big problem in the medium term, no strong case for worrying now about long-run budget issues.
The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.
But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.

    Posted by on Friday, January 18, 2013 at 12:33 AM in Budget Deficit, Economics, Unemployment | Permalink  Comments (90)


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