NYTimes: Krguman says the Deficit Problem is largely solved.

[JMS]

His basic point is while the deficit remains high, enough work has been done on it.. ( 40% lower compared to deficit/GDP ratio, Bush Tax cuts gone etc) that when the economy recovers fully the resulting revenue improvement will allow the Deficit to fall back to a sustainable level..

Thought it was interesting and worth a post.

http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html

The Dwindling Deficit

It’s hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument about why we should believe this; it’s supposed to be part of what everyone knows.

This is, however, a case in which what everyone knows just ain’t so. The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.

It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening. (And similar things are happening at the state and local levels — for example, California appears to be back in budget surplus.)

Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much.

Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.

The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming.

Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?

Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?

Well, it’s probable (although not certain) that, within two or three decades, the Social Security trust fund will be exhausted, leaving the system unable to pay the full benefits specified by current law. So the plan is to avoid cuts in future benefits by committing right now to ... cuts in future benefits. Huh?

O.K., you can argue that the adjustment to an aging population would be smoother if we commit to a glide path of benefit cuts now. On the other hand, by moving too soon we might lock in benefit cuts that turn out not to have been necessary. And much the same logic applies to Medicare. So there’s a reasonable argument for leaving the question of how to deal with future problems up to future politicians.

The point is that the case for urgent action now to reduce spending decades in the future is far weaker than conventional rhetoric might lead you to suspect. And, no, it’s nothing like the case for urgent action on climate change.

So, no big problem in the medium term, no strong case for worrying now about long-run budget issues.

The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.

But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.

[Larry]

Liberal propaganda. Communist. Bankrupt. Socialist. Debt riots.

----------

Now that I've got that out of the way:

I do disagree with him on the long-term situation. Yes, I do think that we should begin, now, on addressing the long-term sustainability on SS and Medicare. Both because it's easier to address retirement issues before you retire, and because it's not fair to people to make changes at the last minute.

And I will observe that he seems to take it for granted that the economy will improve. I don't think that's guaranteed. I think that there's strong powers in this country that don't want the economy to improve. And they might get their wish.

[Kilmer17]

In his defense (did I say that?) he's using a model that shows us sustaining growth. It's probable, but not guarenteed.

I could similarly claim that our GDP will increase 1000 percent over the next 5 years and then we'd have massive surpluses. Or I could claim GDP will shrink, and therefor his calculations are wrong.

[Larry]

Well, I think our GDP growth, while it's been growing, has been some of the weakest of recent history.

I would suspect that "assume that GDP will grow by <whatever it's averaged since WW2>" would likely be more rosy than what he projected.

Yeah, it might shrink. (For example, the sequester could trigger shrinkage, for a brief time.) But I think that the odds of it shrinking over 10 years are pretty much zero.

Just based on history.

[JMS]

Liberal propaganda. Communist. Bankrupt. Socialist. Debt riots.

----------

Now that I've got that out of the way:

I do disagree with him on the long-term situation. Yes, I do think that we should begin, now, on addressing the long-term sustainability on SS and Medicare. Both because it's easier to address retirement issues before you retire, and because it's not fair to people to make changes at the last minute.

(1) Obamacare was about reforming the existing healthcare system for two reasons... (1)greater availability, (2) Save money by holding down huge cost increases moving forward. Really stop the continued spiraling out of control of healthcare costs. As such it was the most important step we could take in Medicare reform which is or was the most pressing issue facing the federal deficit/debt crisis in the long term.

(2) Social Security is one of those area's refereed by Krugman which get too much attention. Social Security isn't really an issue beyond the GOP's constant attempt to destroy it. It isn't in crisis, or about to go into crisis. Social Security is 100 percent solvent until 2033.. Twenty Years out. Reserves are projected to grow to $3.1 trillion by the end of 2020. Then, if Congress takes no action in the meantime, reserves would start to be drawn down to pay benefits. The trustees’ projections indicate that major changes are not needed, modest changes could be made in a timely manner and can bring Social Security into long-term balance as has occurred just about every decade since the Social Security System was set up.

http://www.nasi.org/research/2012/social-security-finances-findings-2012-trustees-report

And for what the GOP was willing to spend in the first decade of making the Bush Tax Cuts permanent, you could fund the entire social security deficit for the next 70 years.

Coarse that's not what they will do... what they will actually do is tweak the built in increases, or the retirement age; and thus return it to long term solvency. As they've always done.

And I will observe that he seems to take it for granted that the economy will improve. I don't think that's guaranteed. I think that there's strong powers in this country that don't want the economy to improve. And they might get their wish.

I don't think you can keep the economy in a constant downturn anymore than you can keep the cycle in a constant growth period. it will always eventually improve... Sure the GOP's ideas on the economy are world class bad... But the way our political system works is when one party fails the other party takes over and tries... If they fail then the cycle repeats. So it doesn't rely on the GOP getting it right the first time, or second time, but eventually as the Dems continue to struggle too.

---------- Post added February-22nd-2013 at 01:37 PM ----------

In his defense (did I say that?) he's using a model that shows us sustaining growth. It's probable, but not guarenteed.

I could similarly claim that our GDP will increase 1000 percent over the next 5 years and then we'd have massive surpluses. Or I could claim GDP will shrink, and therefor his calculations are wrong.

Not only continued growth of GDP, he's saying as the economy ( jobs) improve, GDP will begin to grow faster.. Everything is dependent upon growth of GDP. If we go back into recession due to sequestration, we have taken a step backwards regardless of the fact we would shave 7%( guess) of the budget.

[Larry]

(2) Social Security is one of those area's refereed by Krugman which get too much attention. Social Security isn't really an issue beyond the GOP's constant attempt to destroy it. It isn't in crisis, or about to go into crisis. Social Security is 100 percent solvent until 2033.. Twenty Years out. Reserves are projected to grow to $3.1 trillion by the end of 2020. Then, if Congress takes no action in the meantime, reserves would start to be drawn down to pay benefits. The trustees’ projections indicate that major changes are not needed, modest changes could be made in a timely manner and can bring Social Security into long-term balance as has occurred just about every decade since the Social Security System was set up.

http://www.nasi.org/research/2012/social-security-finances-findings-2012-trustees-report

I'm aware of those facts. In fact, I've pointed them out, multiple times.

I'm also aware that, at least as far as I'm concerned, it would be massively unfair to fix the 20-year-out problem with less than at least a decade's notice.

Which makes our time window a lot smaller.

[JMS]

I'm aware of those facts. In fact, I've pointed them out, multiple times.

I'm also aware that, at least as far as I'm concerned, it would be massively unfair to fix the 20-year-out problem with less than at least a decade's notice.

Which makes our time window a lot smaller.

Hell no... Look the GOP is calling for drastic change.. Privatizing the entire system, and substantially reducing benefits.. They are giving decades notice for those changes.

The reality is we don't need dramatic changes in the system to fix it. You don't need to give 20 year notice to increase the retirement age from 65 and 10 months, to 66 and 3 months... or to adjust to the fact instead of 2% cost of living increases every 18 months they come every 20 months. These are the kinds of tweaks made all the time historically to the system. It's just not that big a deal.

[gbear]

JMS,

The idea of SS being solvent requires one incoming preconception and a few assumptions.

Incoming preconception: The money taken in by SS above and beyond what has been paid out will be "paid back." This has always bothered me as I see people refusing to raise taxes to cover when SS no longer takes more in than it pays out. This is an eventuality coming in the near term as baby boomers begin to draw SS. For me, the tax payer, the difference between raising my SS tax and raising my federal income tax to cover the now current obligations in negligible.

Among other assumptions of SS is the incoming number of SS eligible is based primarily on age. As disability claims increase as a percentage of our work force, I could see a significant impact on the economic health of SS.

Note, neither of of those points is to say SS is in mortal danger. It's just maintaining it may put other parts of the Fed in economic mortal danger.

On Obamacare/medicare, I think the question is have we done enough (my answer is no), and how much more expensive would it be to restrict things like medicare to an older population?

[nonniey]

His basic point is while the deficit remains high, enough work has been done on it.. ( 40% lower compared to deficit/GDP ratio, Bush Tax cuts gone etc) that when the economy recovers fully the resulting revenue improvement will allow the Deficit to fall back to a sustainable level..

Thought it was interesting and worth a post.

http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html

When the economy recovers fully? When it recovers? Fully recovers? It will be sustainable then? So doesn't that imply it is not sustainable now? His postion is full speed ahead on spending and cross your fingers that the US economy will expand explosively.

---------- Post added February-22nd-2013 at 07:04 PM ----------

Well, I think our GDP growth, while it's been growing, has been some of the weakest of recent history.

I would suspect that "assume that GDP will grow by <whatever it's averaged since WW2>" would likely be more rosy than what he projected.

Yeah, it might shrink. (For example, the sequester could trigger shrinkage, for a brief time.) But I think that the odds of it shrinking over 10 years are pretty much zero.

Just based on history.

Didn't the economy contract last quarter with indications that this quarter has been worse?

[deejaydana]

Krugman is a hack and shill for this administration. He's a professor, and even a Nobel award winner. Unfortunately most of his knowledge is completely within the irony tower vacuum of academia. He wants us to simply spend our way to prosperity even though it's never worked once in history. The fact that he can draw a paycheck from the NY Times just reinforces how disreputable that rag is and how deluded its owners are.

[Larry]

Hell no... Look the GOP is calling for drastic change.. Privatizing the entire system, and substantially reducing benefits.. They are giving decades notice for those changes.

The reality is we don't need dramatic changes in the system to fix it. You don't need to give 20 year notice to increase the retirement age from 65 and 10 months, to 66 and 3 months... or to adjust to the fact instead of 2% cost of living increases every 18 months they come every 20 months. These are the kinds of tweaks made all the time historically to the system. It's just not that big a deal.

My plan is to raise the retirement age from 65 to 70.

I assert that it would be massively unfair to make any changes without 2 years notice. Or to raise it by more than 6 months every year.

Thus, my plan takes 12 years to fully phase in.

---------- Post added February-22nd-2013 at 02:37 PM ----------

JMS,

The idea of SS being solvent requires one incoming preconception and a few assumptions.

Incoming preconception: The money taken in by SS above and beyond what has been paid out will be "paid back."

In short, you have to believe that US Government securities are a safe investment, and that the government will not refuse to honor them.

Good thing we already have a Constitutional Amendment that says that they have to.

Among other assumptions of SS is the incoming number of SS eligible is based primarily on age. As disability claims increase as a percentage of our work force, I could see a significant impact on the economic health of SS.

I will say that I don;t know what assumptions are being made as to the future number of disability claims.

I would assume that they are assuming that current trends (whatever they are) will continue. But I don't know.

---------- Post added February-22nd-2013 at 02:42 PM ----------

When the economy recovers fully? When it recovers? Fully recovers? It will be sustainable then? So doesn't that imply it is not sustainable now? His postion is full speed ahead on spending and cross your fingers that the US economy will expand explosively.

Could you point us at where you're getting this claim that "His postion is full speed ahead on spending and cross your fingers that the US economy will expand explosively."?

Unless, that is, you're pulling it out of the orifice that I suspect you're pulling it out of. If that's the case, then please feel free not to show it to us.

Didn't the economy contract last quarter with indications that this quarter has been worse?

I confess I don't know. The only source I have for GDP numbers is usgovernmentspending.org. And they only have annual numbers, and not until several months after the year is over.

But, it's not unusual or surprising for GDP to go down for a quarter. (Especially in the economy we've got now.)

Having it go down for a year, is a lot rarer. I think it's happened like 5-10 times, since WW2.

Having it go down for 10 years? I'm pretty confident that it's never happened. (In fact, I suspect that 3 years in a row is the record.)

[Kilmer17]

He can be a shill and a hack and in Obamas pocket, but he's still the smartest guy in the room.

His conclusions are valid. It's the assumptions he makes in the beginning that should cause pause. I just dont believe our economy will grow in the manner in which he proposes it will. Our economy is volitile right now, and I dont see any change in that over the next decade. Unless we get unemployment figured out.

[JMS]

JMS,

The idea of SS being solvent requires one incoming preconception and a few assumptions.

Incoming preconception: The money taken in by SS above and beyond what has been paid out will be "paid back."

When Social Security fails to take in enough tax revenue to cover it's outlays, such that it must draw on it's assets; that doesn't mean the US Government is only then having to pay back what it's been borrowing every year since the 1930's. The Government Pays it's debt including bonds given to social security every year and has for decades and decades. The only thing the social security shortfall means is the Government can't borrow more money from social security trust fund. Which really isn't that major an issue either... of the 16.5 trillion dollars our country currently owes... Social security only makes up 16% of that overall debt.

About a third of the overall debt is held by the government in IOU's to itself... Social security makes up about half of this third or 1/6th... military retirement, civil service retirement and medicare trust funds round out most of the rest. About two thirds of our national debt is held privately... 54% of that is held domestically... 46% by foreign nationals.

So frankly if the US Government defaulted on it's debt.. social security really wouldn't be the major concern... the default would literally destroy the international financial system.along with our American Economy.... Lucky the US Government is safest borrower in the world and will remain so for the foreseeable future. Our debt as it stands is more than manageable, especially if we get the deficit ( new debt) under control

JMS,

On Obamacare/medicare, I think the question is have we done enough (my answer is no), and how much more expensive would it be to restrict things like medicare to an older population?

Have we done enough.. No.. Do we have a good start, absolutely.. Our healthcare system is incredible broken. about 1 out of every 2 dollars is waste based upon what other countries spend. Have we done enough to fix it.. No... but we've fixed it enough, and we will fix it more.

[Larry]

Krugman is a hack and shill for this administration.

Ah, I knew we'd get at least one of these claims.

He wants us to simply spend our way to prosperity even though it's never worked once in history.

Might want to check your GOP revisionist history.

Deficit spending is the only method of ending a major depression that has ever worked.

Tax cutting your way to prosperity has never worked.

[gbear]

Larry,

The will be "paid back" bit is meant simply to point out how. Sure, it will be paid back literally. As you point out the Constitution is pretty clear on this even if it was debated with the last debt limit deal leading to current sequestration hub-bub.

I mean it's money the federal government owes itself. The question is how. Will it be paid back by cutting programs today to pay for services going back to the Vietnam War when SS became a pay as you go system so as to avoid raising taxes now (now paging Norquist)? Will it be by hitting a key and creating X trillion more dollars? Or will it be by simply using the same logic I use some months when I say my checking does not "owe" my savings with any intention of ever paying it back for the money my family used to go to Jamaica...The "how" has a large impact on one's definition of solvency both for SS and the Fed.

and I agree completely with your deficit spending versus tax cutting view of history.

Kilmer, he has been saying for months now unemployment is the key issue. Without addressing it, the rest doesn't matter. With addressing it, the other problems become far more manageable.

[JMS]

Krugman is a hack and shill for this administration. He's a professor, and even a Nobel award winner. Unfortunately most of his knowledge is completely within the irony tower vacuum of academia. He wants us to simply spend our way to prosperity even though it's never worked once in history.

When hasn't it worked? More government spending in economic bad times has been the gold standard of economic thought since the Great Depression... It's what Bush, Bernanke, and Paulson called for to address the 2008 recession.... Wait is this more of that Austrian Economic School of thought... The one which was discredited more than 100 years ago and nobody has ever seriously considered since except recent whackadoodle republicans?

The fact that he can draw a paycheck from the NY Times just reinforces how disreputable that rag is and how deluded its owners are.

Yeah what a hack, sheesh.. how did he ever win the Nobel Prize in Economics... sheesh.

[Kilmer17]

Larry,

The will be "paid back" bit is meant simply to point out how. Sure, it will be paid back literally. As you point out the Constitution is pretty clear on this even if it was debated with the last debt limit deal leading to current sequestration hub-bub.

I mean it's money the federal government owes itself. The question is how. Will it be paid back by cutting programs today to pay for services going back to the Vietnam War when SS became a pay as you go system so as to avoid raising taxes now (now paging Norquist)? Will it be by hitting a key and creating X trillion more dollars? Or will it be by simply using the same logic I use some months when I say my checking does not "owe" my savings with any intention of ever paying it back for the money my family used to go to Jamaica...The "how" has a large impact on one's definition of solvency both for SS and the Fed.

and I agree completely with your deficit spending versus tax cutting view of history.

Kilmer, he has been saying for months now unemployment is the key issue. Without addressing it, the rest doesn't matter. With addressing it, the other problems become far more manageable.

Yes, I just dont agree with his rosey outlook of employment. Not stated here, just in other opeds and talkshows.

Again though, his conclusions only work if the assumptions he makes regarding GDP (And therefor unemployment) are accurate.

[JMS]

The question is how. Will it be paid back by cutting programs today to pay for services going back to the Vietnam War when SS became a pay as you go system so as to avoid raising taxes now (now paging Norquist)?

Dude we spent hundreds of billions of dollars servicing our debt, including debt to social security in 2012. We do it every year. That debt servicing doesn't go up or change because social security has a shortfall. The only thing that changes when Social Security has a shortfall is we can't borrow more from social security.. We have to borrow from somewhere else.. We have lots of places to borrow from... That's a given the United States being the Largest and Most Diverse economy in the world.

The sky doesn't fall.

[deejaydana]

Hey Obama won the Nobel as well...for doing absolutely nothing other than getting elected. It's a tainted award at this point (but of course that's just my opinion and we all have them, right?).

[JMS]

He can be a shill and a hack and in Obamas pocket, but he's still the smartest guy in the room..

Actually Krugman is pretty critical of Obama. Krugman thinks Obama is too pragmatic and too willing to compromise with folks who have no reason, history, or economic support behind their ideas. Folks Krugman calls Zombies, or followers of a Zombie economic model... Ideas which has been put to rest by events over and over again, but which are still shuffling the streets because it's followers refuse to let them die.

---------- Post added February-22nd-2013 at 03:13 PM ----------

Hey Obama won the Nobel as well...for doing absolutely nothing other than getting elected. It's a tainted award at this point (but of course that's just my opinion and we all have them, right?).

You are correct, Obama got his award for getting elected. Replacing arguable the worst American President of the modern age who plunged the United States into our first elective war since the Mexican American War... Maybe some think that is worth a Nobel Peace Prize just getting that guy and his party out of office!! The Nobel Selectors thought so.

You are wrong though that getting elected is nothing. Hell the GOP has lost 5 of the last 6 popular presidential elections. And if you had grown up in the South under Segregation or witnessed Bull Connors attacks on peaceful children with dogs on national TV; not sure you wouldn't think giving the Nobel Prize to the first Black President simple for being elected wasn't a pretty worthy gesture.... We've certainly come a long way since 1968. Good for us. I think Obama getting elected was at least as important as Teddy negotiating an end to the Russo-Japanese War in 1904.

[The Evil Genius]

Also, comparing the prizes for Peace vs Economics isn't the best argument to use to belittle either of them (or their winners).

[nonniey]

Also, comparing the prizes for Peace vs Economics isn't the best argument to use to belittle either of them (or their winners).

You have a point. The non Peace Prizes really haven't been tainted as far as I know. Now the Peace Prize is to the point where it is almost be embarrasing to be awarded that one.

[Bliz]

Also, comparing the prizes for Peace vs Economics isn't the best argument to use to belittle either of them (or their winners).

you are being FAR too kind.

It is a completely ridiculous argument that, at best, might merit an F+.

There may be perfectly valid criticisms of the Nobel Prize in economics. Either generally or specifically the decision to award one to Krugman for whatever it was he did. Criticizing one peace prize winner doesn't make the cut.

[JMS]

You have a point. The non Peace Prizes really haven't been tainted as far as I know. Now the Peace Prize is to the point where it is almost be embarrasing to be awarded that one.

It (peace prize) is simpley the most prestigious award in the family of most prestigious awards in human history.

[nonniey]

It (peace prize) is simpley the most prestigious award in the family of most prestigious awards in human history.

Not anymore. The commitee really tarnished it by picking very dubious winners over the last few years.