Paul Krugman is mucking up the deficit debate once again. His diatribes about the sustainability of overspending are not helpful and sugar-coat the serious problems of our nation. Apparently, Krugman is so intent on maintaining current levels of social spending and entitlements that he is not shy about twisting the facts and diverting attention to the wealthy and those who have different perspectives than his.
The logic of Krugman's latest pretzel logic is that a one trillion dollar deficit is okay; he mocks fiscal conservatives with the title of his op-ed, “That Terrible Trillion,” and a reference to Dr. Evil in the Austin Powers movies. But the deficit is no joking matter.
Krugman makes the following points:
- “U.S. borrowing costs are near historic lows.” True, they are. But when the global economy heats up, more companies and sovereigns will need capital and rates will begin to increase reflecting this demand. If you multiply the rapidly growing national debt of $16 trillion, by an increase of one, two, or three percentage points, you’re talking about some seriously higher interest costs that will in turn increase the deficit. Moreover, the growing money supply will eventually drive up inflation, which will have a similar impact on interest rates.
- Krugman says that “Dr. Evil” types (fiscal conservatives) want to decrease the deficit and severely cut Social Security, Medicare, and Medicaid. Here’s a news flash: conservatives want to “reform” entitlements because they will gobble up a larger and larger percent of the country’s revenues and further increase the deficit to “unsustainable” levels. Currently, Social Security, Medicare, and Medicaid account for 44% of the annual budget. Together with Obamacare costs, these entitlements will drain 18.5% of the nation’s total economic output. By mid-century, the aforementioned will equal total tax revenues so that all other expenditures will need to be funded with new national debt. Does anyone believe this is a healthy situation, or is something we should not worry about now?
- “Now, America does have a long-run budget problem thanks to our ageing population and the rising cost of health care. However, the current deficit has nothing to do with that problem....” There are many things happening now that have increased the deficit: recession, lower tax rolls, unemployment, wars, government waste, repeat government waste, etc. But, health care costs are a huge item and they are expected to become a much larger problem prospectively as exhibited above.
- Krugman states that a $400 billion deficit is sustainable. I have no problems with this assessment other than to say the country should not be happy with the number. Every well-run enterprise strives for balanced cash flow. Our government should do the same and create a cushion in good years that can carry it through lean years.
- The depressed economy is accounting for $600 billion of the deficit, out of $1 trillion, according to Krugman. I do not dispute this observation, as the deficit is greater because national revenues are depressed. But, our country has been spending at a frantic rate and there has been no fiscal austerity during these bad times. During Obama’s tenure, the national debt increased $5.4 trillion. Some may say that Obama inherited problems that necessitated higher expenditures. I would say that Obama has done nothing to address this situation and has exacerbated the problem by refusing to consider entitlement reform. When downturns happen, well-run organizations tighten their belts. It is idiotic to just disregard the present and depend upon better times prospectively. It should be noted that since 2002, health program costs increased 38%, housing assistance costs rose 48%, and food stamps costs have tripled. I am not arguing these programs are unnecessary, just that they may be unaffordable at the current levels.
- “...the prospects for economic recovery are looking pretty good right now - or would be looking good if it weren’t for the political risks posed by Republican hostage-taking.” Could Krugman be any more inflammatory? Is he trying to incite a revolution that pits the middle and lower classes against the "aristocracy"? This is an outright declaration of war, class warfare that Obama has wholeheartedly endorsed. The repercussions of this un-American strategy are obstructionism in Congress and greater contempt between Americans. We should be working together to fix our problems, not calling each other names.
- “Housing is reviving.” I don’t think Krugman is reading the statistics correctly. He’s dreaming that housing prices are on the rise to any meaningful extent. Currently, the nation’s housing market is only inching back. New and existing house sales were 6.1 million in 2000, reached a highpoint of 8.5 million in 2005, and are currently at 6.8 million. The median price of homes was $144,000 in 2000, reached a highpoint of $226,000 in 2005, and currently are at $171,000.
- “Employment has improved steadily.” This has occurred only because more people are exiting the job market. The numbers are still horrible for many groups in our society. Considering the generally quoted unemployment rate of 7.7% in November, a lot of job creation will be needed to achieve an acceptable level. The Federal Reserve has promised more monetary easing until the unemployment rate reaches 6.5%, a 1.9 million increase in jobs right now. Analysts estimate that 5 million jobs would have to be created, 200,000 per month to reach the 6.5% target in 2014. Currently, job increases are running at about 150,000 per month.
Krugman continues to use his op-ed platform to proselytize for action against the wealthy class, as if it is responsible for all the problems of our society or some sort of terrorist organization. His hatred for the group seems to grow with every new column. I find his rhetoric and vitriolic comments to more offensive each time I read his words.