The Difference between Posturing and Setting Real Priorities

In his latest NY Times op-ed Paul Krugman makes it crystal clear that the so-called "budget hawks" are posturing about deficits. Those who are serious want to get the debt under control, but do it with a big, serious, meaningful effort which means addressing the future and not playing politics with the present:

Spend now, while the economy remains depressed; save later, once it has recovered. How hard is that to understand?

Very hard, if the current state of political debate is any indication. All around the world, politicians seem determined to do the reverse. They’re eager to shortchange the economy when it needs help, even as they balk at dealing with long-run budget problems.

...

So America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control — without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard — in particular, a modest value-added tax, say at a 5 percent rate, would go a long way toward closing the gap, while leaving overall U.S. taxes among the lowest in the advanced world.

But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t.

Right now, we have a severely depressed economy — and that depressed economy is inflicting long-run damage. Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there are job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives. And with each passing month we drift closer to a Japanese-style deflationary trap.

...

So now is not the time for fiscal austerity. How will we know when that time has come? The answer is that the budget deficit should become a priority when, and only when, the Federal Reserve has regained some traction over the economy, so that it can offset the negative effects of tax increases and spending cuts by reducing interest rates.

Currently, the Fed can’t do that, because the interest rates it can control are near zero, and can’t go any lower. Eventually, however, as unemployment falls — probably when it goes below 7 percent or less — the Fed will want to raise rates to head off possible inflation. At that point we can make a deal: the government starts cutting back, and the Fed holds off on rate hikes so that these cutbacks don’t tip the economy back into a slump.

But the time for such a deal is a long way off — probably two years or more. The responsible thing, then, is to spend now, while planning to save later.

How can you tell that the right wing Republicans aren't serious as they bellow about "deficits" and "the debt"? Simple. Here's how:

And some of the most vocal deficit scolds in Congress are working hard to reduce taxes for the handful of lucky Americans who are heirs to multimillion-dollar estates. This would do nothing for the economy now, but it would reduce revenues by billions of dollars a year, permanently.

The American public needs to wake up to the fact that for thirty years they have been led by a Pied Piper of right wing promises that "just one more tax cut for the rich will make the country blossom". It won't. It hasn't. It can't.

I read Krugman as having one message: "Get real!" The US is like a patient just recovering from life-threatening pneumonia and the shifty-eyed members of the family are worried that "too much antibiotics is creating drug resistance". That's crazy. Sure drug resistance is a problem, but you wait until the patient is up and walking and has pink in his cheeks before you raise a hue and cry to "cut the antibiotics!" And if you are seriously worried about drug resistance, you don't stop doctors and hospitals, you first start with agri-business who give healthy animals antibiotics. You go after doctors who roll over for pushy patients and prescribe antibiotics for a virus. In short, you do something "reality based" and not "ideology based".