Krugman: The US is Broke

Paul Krugman recently wrote a column that tried to refute the Republican Pledge to America. Ironically, when you combine what he said and a fact that he must know but didn't say then you have a great argument for cutting spending. Here's what he said:

[...] In other words, Social Security, Medicare and the defense budget are off-limits.

So what's left? Howard Gleckman of the nonpartisan Tax Policy Center has done the math. As he points out, the only way to balance the budget by 2020, while simultaneously (a) making the Bush tax cuts permanent and (b) protecting all the programs Republicans say they won't cut, is to completely abolish the rest of the federal government: "No more national parks, no more Small Business Administration loans, no more export subsidies, no more N.I.H. No more Medicaid (one-third of its budget pays for long-term care for our parents and others with disabilities). No more child health or child nutrition programs. No more highway construction. No more homeland security. Oh, and no more Congress."

Did you get that? Our taxes aren't covering most of what we think of as government.

Now for the part that Krugman didn't mention - interest on the national debt. Interest was the fourth largest single budgeted disbursement category, after defense, Social Security, and Medicare. If we weren't paying that then there would be enough money to cover all of those other functions. The Government Accountability Office says that the current level of debt is fiscally unsustainable.

The $70 billion a year that it would cost to continue the Bush tax cuts for everyone is a drop in the bucket. The current deficit is $1.4 trillion. That makes the "Bush tax cuts for the rich" look like a rounding error.

Raising taxes is not a viable option. A tax increase during an economic downturn (remember, the recession ended last year) would be disastrous. That's why Keynesians, led by Krugman, increased the deficit. But we can't keep spending money that we don't have. Eventually interest on the national debt will grow so large that nothing is left for anything. That's what fiscally unsustainable means.

This doesn't matter to Krugman. He advocates even-increasing deficits on the idea that they will eventually stimulate the economy. He recently threw out the figure of $30 trillion (the current national deficit is $13.4 trillion). This is sometimes called the drink yourself sober school of economics.

What is needed is a real reassessment of the role of government. Politicians have over-promised and left it to future generations to pay the bills. The only way out is to start cutting. The longer we wait the harder it will be and the worse the consequences if we do not.