The Economist blog, Free Exchange, weighs in on the Paul Krugman article:
Beating around the Bush Budget, FreeExchange, The Economst: For a certain stripe of Democrat, one of the shining defenses of their lot is that they are the "party of fiscal responsibility". A number of left-leaning economists, notably Paul Krugman, have been leaning hard on this theme.
Perhaps too hard; it seems to have collapsed beneath them. On Friday, as Mark Thoma points out, Mr Krugman wrote ...[that] cutting the budget deficit is a very fine idea, but unfortunately, it makes it difficult to hold onto power. Mr Krugman, along with his supporters, seems to believe that this is somehow different from the Republican position. It must be a very subtle difference, then.
The genial Tyler Cowen is ... uncharacteristically cutting:
Suppose the Democrats can free up some money...Should they use the reclaimed revenue to reduce the deficit, or spend it on other things?
That is Paul Krugman, and the answer is that Rubinomics is dead and they should spend the money. Deficit reduction is for "the long run." Even from Krugman's point of view, the use of "they" seems premature with a Republican President and a hard-to-elect Democratic frontrunner candidate in the wings. More economically, I am pleased that the forthcoming fiscal destruction of the United States has been averted, or at least held at bay for some time. It took a mere mid-term election; cuts in spending or tax hikes were not necessary, quite the contrary.
Brad DeLong argues that no, really, they're the party of fiscal responsibility:
Most commentators--whether by accident or by design--have missed the significance of this passage in Krugman's op-ed: "Nancy Pelosi, the incoming House speaker, has promised to restore the "pay-as-you-go" rule that the Republicans tossed aside in the Bush years. This rule would basically prevent Congress from passing budgets that increase the deficit. I'm for pay-as-you-go. The question, however, is whether to go further..." ...
The embrace of pay-as-you-go orders up a $300 billion rise in taxes at the end of this decade. That's a significant amount of deficit reduction all by itself, and a very significant change from Bush administration idiocy.
Actually, I make it about $250 billion by the CBO figures, but this assumes that there is no bipartisan coalition for keeping the bits that don't benefit "the rich". This seems like a big assumption; who doesn't want to keep taxes low on the majority of voters? The problem is that while the wealthy got more benefit, as individuals, from the Bush tax cut, they didn't do nearly so well collectively against the poor and middle class, because there are just so damn many of the latter.
According to the widely respected William Gale of Brookings, Mr Kerry's plan to reinstate the top marginal income rate of 39%, and roll back the capital gains and dividend taxes, would have gleaned about $50 billion a year for the treasury. Going back to 1998 (so as to miss the effects of the stock market bubble), we find that bringing back the estate tax in full force would raise about $28 billion in today's dollars. $78 billion is, to be sure, nothing to sneeze at. But it is about 1/4 of the current budget deficit... Closing the budget deficit will involve much more; either raising taxes on the middle class, or dangerously stiff increases in marginal tax rates on the wealthy. I will be interested to see whether the Democratic increase in PAYGO survives this political reality.
I'm short on time - will try to weigh in later. But very quickly, let's be clear. Nobody, not Krugman, not DeLong, mot me, not anyone I'm aware of is talking about increasing the deficit. The question Krugman and DeLong are asking is how much to cut. Is 300 billion enough? Should it be even more? How that turns them into the party of big spenders or makes them fiscally irresponsible as implied, especially after recent experience with Republicans, is puzzling.