Friday, July 18, 2003
BACK TO NORMAL FOR KRUGGY
Paul Krugman returns from vacation and his first column accuses President Bush of lying about the War to liberate Iraq, and the second accuses Bush of lying about the deficit. Wow, how original. Another trend that continues is the ease with which one can refute Krugman’s sophistry. In fact, it is so transparent that I doubt it even rises to the level of sophistry.
The theme of today’s column is the Bush Administration is cooking the budget books to make it easier to justify tax cuts and, in the process, is heading us toward fiscal disaster. He begins:
Here's another sentence in George Bush's State of the Union address that wasn't true: "We will not deny, we will not ignore, we will not pass along our problems to other Congresses, to other presidents and other generations."
Oh, isn’t that clever! We’re done with the 16-word scandal, now we’re onto the 24-word one!
The numbers tell the tale. In its first budget, released in April 2001, the administration projected a budget surplus of $334 billion for this year. More tellingly, in its second budget, released in February 2002 — that is, after the administration knew about the recession and Sept. 11 — it projected a deficit of only $80 billion this year, and an almost balanced budget next year. Just six months ago, it was projecting deficits of about $300 billion this year and next.
There's no mystery about why the administration's budget projections have borne so little resemblance to reality: realistic budget numbers would have undermined the case for tax cuts. So budget analysts were pressured to high-ball estimates of future revenues and low-ball estimates of future expenditures. Any resemblance to the way the threat from Iraq was exaggerated is no coincidence at all.
I bet it isn’t! That’s the way the Bush Mafia operates in Krugman’s little mind. “Put pressure on those underlings so the reports say what we want them to, or give ‘em a pair of cement shoes!” But here’s the first thing that suggests that Krugman’s argument isn’t quite on the up and up. Does he really expect us to believe that a deficit projection of $300 billion as opposed to $400 billion made it that much easier for Bush to push his 2003 tax cut? It seems like the $300 billion figure gave the tax cut opponents plenty of ammo—a $400 billion figure would have only added a few more bullets.
Furthermore, Krugman should now his recent budget history well enough to know that you shouldn’t put too much stock in budget projections: they are the economic equivalent of reading tea leaves. Back in 1997 the OMB projected a budget deficit of $121 billion for 1998 (scroll down to page 25). Recall that 1998 was the year the deficit returned to surplus. Thus, it is not wise to make hysterical proclamations based on such numbers.
Some point out that Ronald Reagan ran even bigger deficits as a share of G.D.P. But they hope people won't remember that in the face of those deficits, Mr. Reagan raised taxes, reversing part of his initial tax cut.
And Krugman hopes that no one remembers that those tax increases were ineffective. The deficit still rose after they took affect, to 6% of GDP. Tip O’Neill and the Democrats in the House were also supposed to enact some spending cuts in exchange for those tax increases—we’re still waiting for those spending cuts. In short, you can raise taxes all you want—it won’t do didly to bring down the deficit unless you have spending restraint.
But Krugman finds himself in a bit of a pickle. Some readers might recall that he is a Keynesian (or is it neo-Keynesian?) Anyway, Krugman believes that government spending can get us out of a recession by boosting consumption. Thus, why is it such a bad thing to run a deficit if it means that government is spending more? Krugman twists himself into a pretzel:
The last defense of the budget deficit is that it helps a depressed economy — to which the answer is "yes, but." Yes, deficit spending stimulates demand — but tax cuts for the rich, which have dominated the administration's economic program, generate very little employment bang for the deficit buck. Of the 2.6 million jobs the economy has lost under the Bush administration, 2 million have been lost since the 2001 tax cut.
In other words, yes, but this one is, well, different! Because there are those terrible tax cuts for this rich which “generate little employment bang for the buck.” This is reminiscent of his column in which he promoted his ludicrous claim that the tax cut would cost $500,000 per new job created. Does Krugman really want to tread this territoryagain?
The facts also do not support Krugman’s contention that government spending boosts the economy. If so, our economy should have overcome its sluggishness quite some time ago, given that spending under the Bush Administration has increased spending at a very high rate. The fact that it has had little impact on the economy should give Krugman some pause.
But he would rather repeat the lame and discredited DNC talking point that “2 million [jobs] have been lost since the 2001 tax cut.” Krugman knows full well that most of the 2001 tax cut was not set to take effect until 2004, 2005, and 2006. This year’s tax cut was designed to speed them up. Krugman knows this, and his suggestion that the 2001 tax cut hasn’t worked is patently disingenuous.
Thus, Krugman continues his doomsday scenarios, although he doesn’t make his Banana republic reference this time:
Still, do deficits matter? Some economists worry, with good reason, about their long-run effect on economic growth. But I worry most about America's fiscal credibility.
You see, a government that has a reputation for sound finance and honest budgets can get away with running temporary deficits; if it lacks such a reputation, it can't. Right now the U.S. government is running deficits bigger, as a share of G.D.P., than those that plunged Argentina into crisis. The reason we don't face a comparable crisis is that markets, extrapolating from our responsible past, trust us to get our house in order.
The sky is falling! The sky is falling! As noted above, the deficit under Reagan was 6% of GDP. Under Bush it is about 4.2% of GDP. Thus, it won’t be too hard to get the budget back to surplus. We just need economic growth and some spending restraint. We’ll get the former soon enough; maybe Krugman could help by calling for the latter. I won’t hold my breath.
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AS THE CROOOOW FLIES
Croooow Blog has moved! Update links, etc., etc., as appropriate.
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BUSH, IRAQ, AND LIBERIA
The left is wrong again. Who knew?
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Monday, July 14, 2003
ON VACATION
Blogging will be intermittent for the next two weeks. I'm out in sunny California. Don't you wish you were?
Aaahhh...
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