Some things never change
Paul Krugman is again on the warpath against doing anything about the U.S. deficit. Nothing new here.
Krugman says that there is no case for lower spending now, and that we had better wait three or five years before cutting. I grant he is right that the U.S. federal government could hold off for a while yet, but that seems like a second, or even fourth best policy option when we have technologies like printing presses and asset markets.
Another thing to keep in mind when discussing any hypothetical future policy to be undertaken by America’s federal government is that Americans reelected George W. Bush and then turned down an opportunity to elect a hyper-achieving Mormon. I guess they get some credit for dodging Palin in the senate but can the public really be trusted to elect a new
emperor president with enough guts to shutdown counterproductive NATO bases and cut funding for expensive end-of-life treatments? Nixon went to China and Obama could cut federal spending now. It is the right thing to do and would make democrats out of millions of disillusioned Republicans. Krugman should say so, as he knows what happens when the central bank has a nominal target and a framework for open ended QE.
Oddly, Krugman cites workers “loosing touch with employment” as a reason not to cut spending today. This doesn’t pass the proverbial smell test. The U.S. has added about 150,000 jobs a month for half a year, or about 30k more per month than America needs to bring the unemployment rate lower. It would seem to me that, even if we lived in a Keynesian world, the economy is strong enough to weather at least some meaningful deficit reduction—$300b off 2014?—without more unemployment. This could be done in this hypothetical Keynesian world by simply cutting unemployment benefits, or at least breaking the link between job search and unemployment payments to encourage people to take lesser jobs rather than stay at home, work on the black market, or wait for the perfect job. Cutting unemployment benefits is controversial, but the link between higher jobless benefits and higher unemployment is perhaps the most robust finding in labor economics! I know we can do better.
Krugman of course is just saying whatever he thinks will help the left. But kindly remember that all 50 states are bigger than Iceland, so you can still try to build your social utopia at the state level with all that NGDP which would be freed up from federal use. My home state has sort of already done this by building a broad welfare system of its own.
Ultimately, Krugman is not a honest broker, and of course I am hardly the first to say it. Despite his intelligence, he is visibly rooting for a team, which is revoltingly unscientific and should cost him more credibility than it has. One could say that the great Milton Friedman was also rooting for a team to a certain extent, but he was always so kind and didn’t contradict earlier things he had said without acknowledging the shift in his thinking.