Paul Krugman and other liberal economists insist that the federal debt is no real problem. In fact, he and others argue for more stimulus on the basis that borrowing is cheap with historically low-interest rates and eventually the growing economy will take care of a good portion of the debt.
As we enter the fifth year where this philosophy prevails, but with marginal positive results, it crossed my mind; what if after another four years these guys are proved wrong?
Listening to Bloomberg radio this morning I heard several projections for flat or very modest GDP growth, certainly no projections for all of 2013 that will lower the deficit. The recent cliff deal actually adds to the deficit and as we all know does nothing of value except to allow the President to claim he raised taxes on the wealthy (perhaps a positive is we will hear less divisive rhetoric about millionaires and billionaires, and hey, Buffett got his way). Higher taxes on those families earning more than $450,000 a year may give liberals a warm fuzzy feeling, but it does little, very little to help federal finances. On the positive side it gives Hollywood celebs, sports stars, college presidents and many members of congress the opportunity to pay their fair share without going to the trouble of voluntarily writing a check to the Treasury deficit reduction fund; oh wait they never did do that!
The deal does a few other things too like avoiding a cut in Medicare physician fees for another year (partially paid for by cutting payments to hospitals). In case you are interested, the deal also cuts off funding for co-op, consumer run, non-profit health insurance within the new health insurance exchanges and unless you like wasting money, that’s a good thing.
The 2% tax cut for Social Security has been eliminated. Now if you believe that cut actually stimulated the economy for two years, then in 2013 it will unstimulate. In reality neither is true.
There are more battles to fight for sure; chief among them actually doing something that addresses the real
long-term liabilities we face. And then there is raising the debt ceiling (perhaps a slight indication we have not solved much of anything at this point).
Come January 2017, we will have spent eight years under an ideology that deceives us into believing that we can be all things to all people, solve every problem individuals face and do so taxing only 2% of Americans while accumulating massive debt. We will have convinced many Americans that their lot in life is someone else’s fault. We will have a country with fewer people in the work force and more people dependent on government programs and rationalizing their inability to divest themselves from them.
What the heck, there is a chance liberals are right and if they are wrong, it’s always sunny in Greece and Spain.
QUINNSCOMMENTARY 
1, Paul Krugman hasn’t specifically asserted that the federal debt is “no big problem”. I read his columns quite regularly. His position is that it is that the debt is not the crushing, imminent and catastrophic environment that the right-wing portrays it as – for dramatic, political purpose. Personally, I’m undecided, but his credentials on that appear somewhat more substantial than yours.
2. The members of Congress and nearly all writers (except you) seem to understand that the “Fiscal Cliff” deal was only act one in a 3-5 act play. It was a last-minute stopgap measure, and as such it could not possibly deal with all the issues. As McConnell said, it resolves the tax issues, and the next act will concentrate on spending cuts, with tax reform to follow after at some point.
3. For a retired guy, you sure don’t seem to understand how long it takes for historical issues to be resolved. Nobody’s going to be proved right or wrong in any comprehensive sense within 20 years of the end of the Obama administration. Academics and historians are still arguing vigorously over the real meaning and effect of the cultural changes of the 1960s!
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Krugman has asserted many times that the deficit is no big deal now, that now is no time for austerity, but rather increased spending and that a growing economy will cure much of the deficit. That’s all fine if this and future Congresses follow through with prudent fiscal behavior; something that never happens.
Oh I understand, especially number 2 paragraph and as a history buff and avid reader of history I understand 3 as well. What perhaps you place too much faith in is that Congress or the Administration will follow up in the coming year with meaningful strategic long term changes in those policies and programs that most affect long term liabilities and lost revenue and do so in the least harmful manner.
Here are two examples of their inability to do so; the Medicare “doc fix” which has yet to find a permanent solution and the recent flap over the Sandy storm funds where nearly half the money in the legislation was added unrelated pork. Each week there is new spending legislation introduced in Congress with no consideration for dealing with the deficit. Then you have people like Bernie Sanders (and the Center for American Progress) insisting that Social Security has no affect on the deficit (something that was only true when payroll tax revenue was more than sufficient to pay current benefits).
Then there is Obamacare; regardless of what you think of it overall, you should be concerned about the open ended commitment to subsidize coverage in the exchanges. That commitment together with all other mandates driving up costs and setting the stage for employers to gradually shift workers to exchanges is a fiscal time bomb only now beginning to be understood. Even the state insurance commissioners have recently expressed their concern over the increases to premiums that are being created by HHS policy which directly translates to higher subsidies.
Krugman’s credentials are indeed more impressive than mine. On the other hand there are economists with impressive credentials who disagree with him as well.
What I lack in academic accolades I may make up in common sense and hopefully a sense of human behavior for which there is no Nobel prize.
Someday we will see who is right.
Dick
Richard D Quinn Editor
http://www.quinnscommentary.com
Health Insurance Illuminated http://blog.horizonblue.com/
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