Greg Mankiw's Blog: Krugman on the Deficit
リンク: Greg Mankiw's Blog: Krugman on the Deficit.
Paul Krugman's column in the NY Times today is worth reading--even if, naturally, I disagree with a lot of it. (Reprinted by Brad DeLong.) I interpret Paul as being in the left-realpolitik camp on economic policy. He seems to be saying the following:I know some policy wonks from the right-realpolitik camp on economic policy with a similar view:Democrats shouldn't worry too much about the budget deficit. Yes, ideally it would be smaller, but given political reality, deficit reduction should not be the first priority. Any attempt to reduce the deficit will only end up giving the other party more opportunity to pursue unjustifiable tax cuts. The best way to help the American people would be to worry later about the looming fiscal gap and focus now on desirable spending increases.
Alberto Alesina and Allan Drazen once modelled this phenomenon as a war of attrition.Republicans shouldn't worry too much about the budget deficit. Yes, ideally it would be smaller, but given political reality, deficit reduction should not be the first priority. Any attempt to reduce the deficit will only end up giving the other party more opportunity to pursue unjustifiable spending increases. The best way to help the American people would be to worry later about the looming fiscal gap and focus now on desirable tax cuts.
If Paul and his conservative counterparts get their way, then at least for now we won't see a grand bargain between the parties of the sort I described in this WSJ op-ed earlier in the year. Maybe I was just dreaming.
8 Comments:
Two questions. First, don't you think the left-realpolitik view is a little bit more justified considering that it's an accurate description of the past 15 years of political history, while the right-realpolitik view is a hypothetical with no evidence to support it? (Cato actually released a study suggesting that spending increased more when the government took in less money, described here: http://www.cato.org/pubs/policy_report/v26n2/cpr-26n2-2.pdf )
Second, as long as you accept the counterfactual that the government programs are worthwhile, the left stance makes sense: it's worth having these federal programs, even if the government is in deficit. But the right stance doesn't seem to make any sense to me. Without spending cuts, a tax cut today just means we're borrowing the money and will have to pay it back later through different taxes. I understand how it can make political sense to focus on tax cuts and worry about spending later, but it doesn't make economic sense. If anything, assuming costs (deadweight losses) are convex, you'd want taxes to be smoothed over time; you wouldn't want low taxes now and high taxes later. What's the economic argument for lowering taxes when the government is already in deficit, without attacking spending?
Did I miss the memo where academic economists revoked the crowding out effect?
(In the same way they seem to have revoked the impact of raising the minimum wage on unemployment among the ultra-unskilled).
Excellent juxtaposition of the two view here...
If the Democrats take Krugman's advice, they will be proving exactly what Krugman (correctly) accuses the Republicans of proving: that they only care about deficits as a cudgel with which to bludgeon the other party when they are in opposition.
Given the terrible record of both parties on increasing the size of government, what's a libertarian to do? (There is no realistic chance of the Libertarian party becomming viable and non-kook-driven.) The answer is: divided government.
Since WWII, the record shows that divided governments grow the slowest. (A Democratic president and a Republican congress is the best combination, but a Republican president and the Democratic congress is nearly as good.) In this arrangement, the President vetos any spending the Congress passes and the Congress doesn't pass any spending that the President wouldn't veto.
(Let's just hope that Bush has the backbone to finally wield his veto pen.)
1. Krugmans column today was a real shocker, theres no doubt about that. Im sure Mankiw nearly spilled his morning coffee reading it - esp given the dire implications re Pigou revenues. Even ultra-leftists like DeLong and Thoma were clearly stunned, shocked. Neither could add as much as a line of substantive comment; but, dutifully, gave the column prime time viewing.
2. So why the big deal? Well, Krugman - the intellectual headquarters of leftist econ - sent a clear Christmas message to his comrades: "Guys, lets face it, none of us ever really believed all that crowding out whatsyamacallit. It was just a means of presenting something -anything- to prevent those horrid tax cuts. Now, to hell with all that - we have some power, so lets raid the coffers. Quick!" And, really, you have to admire the balls, the sheer chutzpah, of Krugman contradicting col of col like this. But, heh, Im not complaining; it was a clear, indeed chilling, articulation of the leftist mindset. Sure, they can just "improve Americans lives" with a bit more spending. Geez, if only I could have thought of that one.
3. Now, you might say, well, theres a war of attrition or whatever here. But hardly; thats not how I see it. Spending on welfare programs is what the left is all about; its in their blood; its their raison d'etre. See, controlling exp on gov programs is like controlling your virginity - you have to learn to say no. But leftists like Krugman, at the end of the day, cant say no. Remember, for instance, Kerrys economic plan? i.e. repeal the tax cuts, and blow the revenues on a health program; and here, Krugman was fully complicit and supportive too. Indeed, back in 04, I was at a talk by Krugman, and after bemoaning Bush deficits for almost an hour (Argentina like crises and all that, Ball/Mankiw readings thrown in for spicing - you know the story) someone asked him about prospective Kerry deficits. And the poor guy basically went speechless -speechless-, and lamely mustered a response to the effect that -get this- we're not actually meant to believe Kerrys plan; the real plan is to save most of the repealed tax revenues. Oh? Now I get it. Thats was obvious all along, wasnt it?
4. Now, for the above-mentioned reasons (and think: SS "trust rund"), Id oppose any efforts to raise revenues - since theyd just go down the gov sinkhole. Especially fatal here would be incremental increases in tax rates in an effort to "save SS" (as if I really want to); since b4 we know it, we'd have European style rates and more - which is exactly what Krugman et al. want. Point is, as time goes on, the more likely my ideal solution comes to pass; that is, increases in retirement age and benefit cuts. Point is, a sudden tax hike of 10% is well nigh impossible to pass, compared to 1% increases over 10 years. Lets not fall into the latter trap, since this clandestine approach is precisely why gov is so big in the first place.
I didn't read his view this way at all. He seems to be saying that all that good effort in the 1990s was for nothing, because the Republo's just took the (projected) surplus and spent it. Better not to gift him a surplus (smaller deficit) again. I saw this as just a tired, "why bother" prescription.
the propensity of the Right to cut taxes is more beneficial to the economy than the propensity of the Left to spend on wasteful programmes.
Hence, though both policies increase deficit and public debt, one would rather have a profligate Republican government than a profligate Dem-Presidency... ;)
Krugman is a political hack in need of a Civics course; the President can veto any outlandish spending proposed by the Democrats.
(Ironic since he didn't veto any spending by his pork lovers.)
Universal Health Care would not be the way to go; look to Canada and Europe for the reasons why.
Long live Arnold Kling and his vision for health care reform!!!