Krugman’s Blog

There were 2 posts yesterday.  First up we have “An Insurance Company With an Army:”

Jonathan Chait and Greg Sargent both weigh in on the absurd Republican claim that they’ll produce a plan to balance the budget in 10 years, without a penny in additional revenue. Chait points out that the Ryan plan, even if you accepted all its magic asterisks, still didn’t produce a balanced budget until 2040. Sargent, armed with numbers from the Center on Budget and Policy Priorities, points out that if the GOP were to honor its promises not to cut military spending or benefits for those over 55, you’d have to impose savage cuts on everything else.

What all this comes down to is a collision between GOP deficit scare tactics and the reality of what the federal government does. The government really is an insurance company with an army; if you demand rapid deficit reduction without raising taxes or cutting military spending, you have to cut deeply into programs that the public values.

Republicans have, for the most part, managed until recently to skate over this reality, simultaneously calling for lower spending in the abstract while posing as the defenders of seniors against Obama’s Medicare cuts.They’ve been aided in this by pundits and reporters unwilling to seem “unbalanced” by pointing out the realities. But they’ve now run out of room, and are facing a crisis of arithmetic.

But aren’t they the people who have “the math” and say they create their own reality?  Next up he tells us:  “Tim Geithner is Wrong:”

But he’s right, too.

He has a very interesting interview with Liaquat Ahamed; I was struck by what he says about the fiscal outlook:

TG: There’s something strange about the debate today. The magnitude of additional deficit reduction – revenue increases or spending cuts – that you need to lock in in order to achieve fiscal sustainability is pretty modest. By most accounting, because of what we’ve already done on the spending side and tax side, we have to find another ¾ of 1 percent of GDP of policy measures. And if we did that, that would achieve the economist test of sustainability, meaning it would get the deficit down to a modest primary surplus so the debt would start falling as a share of GDP.

That’s basically consistent with the CBPP analysis: 3/4 of a percent over the next decade is around $1.5 trillion. It’s important to note that this same analysis suggests that it’s not a disaster if we don’t take any more deficit-reduction steps: instead of stabilizing the debt at around 73 percent of GDP, it rises to around 80 percent, which isn’t great but isn’t cause for panic.

Where Geithner goes wrong is in suggesting that since what should be done over the next decade is fairly modest, we ought to be able to get bipartisan agreement. I don’t know if he really believes this or just feels that it’s what he has to say, but nobody who has actually been paying attention can take this seriously.

To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling the social insurance system. They want a fiscal crisis; they need it; they’re enjoying it. I mean, how is “starve the beast” supposed to work? Precisely by creating a fiscal crisis, giving you an excuse to slash Social Security and Medicare.

The idea that they’re going to cheerfully accept a deal that will take the current deficit off the table as a scare story without doing major damage to the key social insurance programs, and then have a philosophical discussion about how we might change those programs over the longer term, is pure fantasy. That would amount to an admission of defeat on their part.

Now, maybe we will get that admission of defeat. But that’s what it will be — not a Grand Bargain between the parties, acting together in the nation’s interest.



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