Joe Scarborough Is Wrong About The Deficit - But For A Much Different Reason Than People Realize
So economist Paul Krugman and MSNBC host Joe Scarborough squared off last night on the deficit, and Krugman felt that he lost the fight.
In Krugman's post on why he lost, he expressed surprise at some of Joe Scarborough's opinions:
...I wasn’t prepared for Joe Scarborough’s slipperiness about what he actually advocates (he’s for more spending in the near term? Who knew?)
It's not that surprising that Scarborough came out in favor of more near-term spending. The stimulus-up-front, austerity-in-the-rear concept is a pretty popular idea, even among fans of Simpson-Bowles deficit reduction.
And since even Krugman is prone to admit that the US has some long-term spending issues, it seems like the debate wasn't as simple as the "austerity vs. stimulus" argument that Krugman was expecting.
In fact, the real debate isn't austerity vs. stimulus at all. The real (and interesting) debate is whether Washington can "walk and chew gum" so to speak: stimulate now, while simultaneously getting our long-term deficit down.
So Scarborough is the consummate walk-and-chew-gummer.
The problem is, walking and chewing gum doesn't work in theory or practice.
Our favorite commentary on this came from Richard Koo, who explained the problem with addressing long-term deficits while also stimulating in the near-term.
He likened addressing both concepts to a doctor upbraiding a patient in intensive care about whether they can afford treatment. It's indecent. The patient is dying. Save the patient. Then figure it out!
Arguing need for longer-term fiscal consolidation is irresponsible
The insistence that fiscal consolidation is necessary in the longer term is like the doctor who, faced with a patient who has just been admitted to the intensive care ward, repeatedly questions the patient about his ability to afford the treatment. This is both lacking in decency and irresponsible.
If the patient loses heart after learning the cost of the treatment, he may end up spending even longer in the hospital, leading to a larger final bill. Completely ignoring the policy duration effect of fiscal policy and constantly insisting on longer-term fiscal consolidation was what prolonged Japan’s recession.
For instance, it was because Japan’s policymakers refused to give up the medium-term fiscal consolidation target of achieving a primary fiscal balance by 2011 that the government stumbled from fiscal stimulus to fiscal retrenchment and back again and, ultimately, was unable to meet its fiscal targets even once in the last 20 years.
That is why Japan’s recession lasted as long as it did and why the nation’s debt has risen to some 200% of GDP.
And this formulation has totally been born out by practice.
It's because there's this huge obsession with long-term deficits and debts that we got the debt ceiling fight, and the end of the payroll tax cut, and now the sequester, and all the author austerity pushes. If we people didn't think the long-term deficit problems, then all of these short-term pushes would have seemed indecent.
And that's the scandal!
You've no doubt seen all those charts about medical carts exploding in the future, swallowing US government spending.
Here's one from Paul Ryan. It looks scary!
But in the meantime, the deficit is being driven by one thing: Weak growth. The current deficit has nothing to do with entitlements of big structural issues or anything like that. This you can see by comparing the deficit as a % of GDP to the unemployment rate.
But it's because of the first long-term scare chart, that people don't understand that current deficits are all about growth, and that any current policy should first not be growth harming.
And so we get this dumb sequester, which not only could cost hundreds of thousands of jobs, but doesn't actually do anything to address the long-term debt trajectory of the US.
So this is why Joe Scarborough is wrong.
This obsessions long-term deficits is causing bad short-term, counterproductive policy that only harms growth, and doesn't do anything to address long-term deficits!
Let's focus on getting unemployment down to normal, and getting the economy humming again. At that point, we can see how else to deal with rising healthcare costs.