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Friday, January 29, 2010

Paul Krugman: March of the Peacocks

Is our political system capable of solving the economic and fiscal problems that we face?

March of the Peacocks, by Paul Krugman, Commentary, NY Times: Last week, the Center for American Progress, a think tank with close ties to the Obama administration, published an acerbic essay about the difference between true deficit hawks and showy “deficit peacocks.” You can identify deficit peacocks, readers were told, by the way they pretend that our budget problems can be solved with gimmicks like a temporary freeze in nondefense discretionary spending.
One week later, in the State of the Union address, President Obama proposed a temporary freeze in nondefense discretionary spending.
Wait, it gets worse. To justify the freeze, Mr. Obama used language ... almost identical to widely ridiculed remarks early last year by John Boehner, the House minority leader. Boehner then: “American families are tightening their belt, but they don’t see government tightening its belt.” Obama now: “Families across the country are tightening their belts and making tough decisions. The federal government should do the same.”
What’s going on here? The answer, presumably, is that Mr. Obama’s advisers believed he could score some political points by doing the deficit-peacock strut. I think they were wrong, that he did himself more harm than good. Either way, however, the fact that anyone thought such a dumb policy idea was politically smart is bad news because it’s an indication of the extent to which we’re failing to come to grips with our economic and fiscal problems.
The nature of America’s troubles is easy to state. We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more ... deficit spending ... to bring unemployment down.
In the long run, however,... the ... budget outlook was dire even before the recent surge in the deficit, mainly because of inexorably rising health care costs. Looking ahead, we’re going to have to find a way to run smaller, not larger, deficits. ... The sad truth, however, is that our political system doesn’t seem capable of doing what’s necessary.
On jobs, it’s now clear that the Obama stimulus wasn’t nearly big enough..., we’re still facing years of mass unemployment. ... Yet there is little sentiment in Congress for any major new job-creation efforts.
Meanwhile, health care reform faces a troubled outlook. ...Democrats may yet manage to pass a bill; they’ll be committing political suicide if they don’t. But there’s no question that Republicans were very successful at demonizing the plan. And, crucially, what they demonized most effectively were the cost-control efforts: modest, totally reasonable measures to ensure that Medicare dollars are spent wisely became evil “death panels.”
So if health reform fails, you can forget about any serious effort to rein in rising Medicare costs. And even if it succeeds, many politicians will have learned a hard lesson: you don’t get any credit for doing the fiscally responsible thing. It’s better, for the sake of your career, to just pretend that you’re fiscally responsible — that is, to be a deficit peacock.
So we’re paralyzed in the face of mass unemployment and out-of-control health care costs. Don’t blame Mr. Obama. There’s only so much one man can do, even if he sits in the White House. Blame our political culture instead, a culture that rewards hypocrisy and irresponsibility rather than serious efforts to solve America’s problems. And blame the filibuster, under which 41 senators can make the country ungovernable, if they choose — and they have so chosen.
I’m sorry to say this, but the state of the union — not the speech, but the thing itself — isn’t looking very good.

    Posted by on Friday, January 29, 2010 at 12:02 AM in Economics, Fiscal Policy, Unemployment | Permalink  Comments (89)


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