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Never mind
...Suppose the Democrats can free up some money...Should they use the reclaimed revenue to reduce the deficit, or spend it on other things?
That is Paul Krugman, and the answer is that Rubinomics is dead and they should spend the money. Deficit reduction is for "the long run." Even from Krugman's point of view, the use of "they" seems premature with a Republican President and a hard-to-elect Democratic frontrunner candidate in the wings. More economically, I am pleased that the forthcoming fiscal destruction of the United States has been averted, or at least held at bay for some time. It took a mere mid-term election; cuts in spending or tax hikes were not necessary, quite the contrary.
Brad Delong has more. Mark Thoma has more. I am sure others have more too, time to walk around Brazil.
Posted by Tyler Cowen on December 23, 2006 at 06:49 AM in Economics | Permalink
Comments
Zing!
Posted by: Dan Klein at Dec 23, 2006 8:06:49 AM
Why did you point me to those other blogs? All the comments in them made me sad to be an American.
Posted by: Xmas at Dec 23, 2006 8:22:05 AM
i agree with xmas....delong & thoma both have started to behave more like politicians than economists.....guilty of the same things that they accuse the republicans of....
Posted by: sa at Dec 23, 2006 8:34:39 AM
Why did you point me to those other blogs? All the comments in them made me sad to be an American.Interesting... when I see diversity of opinion, I feel proud to be an American. Perhaps you'd be less sad in Cuba, North Korea, or China?
Posted by: Jim V. at Dec 23, 2006 8:52:58 AM
Jim V - Your comment was gratuitous, confrontational and intentionally hurtful. If you posted it in order to provide "diversity of opinion," you've spoken quite poorly to the benefit of that strategy.
Posted by: Henry at Dec 23, 2006 10:27:50 AM
sa: what? DeLong and Thoma merely quoted Krugman's column at length, offering no commentary.
(Mind you, I wish they had offered some commentary, positive or negative, because I for one find Krugman's column completely baffling, like some sort of left-wing starve-the-beast theory, which makes about as much sense as the original right-wing version. But neither of them did.)
Posted by: the other brock at Dec 23, 2006 10:36:11 AM
But Xmas's comment was just fine, Henry? I appreciated Jim V's comment and think he made a point.
As far as the so-called zinger in this post, I think Krugman was just saying that it may not serve Democrats well to be the responsible ones and pay down the deficit. That will be unpopular and the Republicans will just come back in to power and give it all away again. They've learned that big government is popular, but that people don't want to pay for it.
Fortunately, we all lose with the approach taken by both parties today.
Posted by: John Smith at Dec 23, 2006 10:39:55 AM
So we spend now, worry about deficits later, because "the state of our politics" is so abysmal? What would lead one to expect matters to improve in a decade or two?
Posted by: gundryggia at Dec 23, 2006 10:41:26 AM
Krugman is as always entertaining but not much on economics. I suspect if you go back to his columns in the 1990s that he was for raising spending then. Delong is actually a pretty good economist but his understanding of the effects of the Bush tax cuts seem to be a bit limited. Or has he not read that the top 1% are paying a higher percentage of the tax burden than they did under Rubinomics?
Posted by: drtaxsacto at Dec 23, 2006 10:45:38 AM
I think you miss the significance of the return of pay-as-you-go. Pay-as-you-go means that the Bush tax cuts expire unless a coalition finds sufficient spending reductions relative to baseline to pay for them.
Pelosi and Reid's embrace of pay-as-you-go orders up a $300 billion rise in annual taxes in 2010.
Posted by: Brad DeLong at Dec 23, 2006 11:28:05 AM
Pelosi and Reid's embrace of pay-as-you-go orders up a $300 billion rise in annual taxes in 2010.
There are lots of conditionals(rebuild the military and Vet's benefits?) and possibilities (good economy? Weakening dollar?) in DeLong's 11:28, but at very best this brings the budget into balance. At best.
There is no "responsible" new spending available there.
Posted by: bob mcmanus at Dec 23, 2006 1:07:22 PM
I see a lot of Krugman's journalism linked via DeLong, Mankiw, here and elsewhere - but it seems poor stuff to me.
Clearly, Krugman is an outstanding technical economist, which is why he gets all the attention he does for his political musings and rantings.
But his journalism seems unaffected by the reasoning processes of science, except in its implicit claim to rationality and integrity. Indeed, I would go so far as to say that Krugman seems to be something of a rabble-rouser, and a stirrer-up of resentments.
Why this should be, I have no idea - but I would have-to regard him as a moderately-bad influence on civilized discourse.
Posted by: Bruce G Charlton at Dec 23, 2006 1:45:18 PM
I'm sad because the diversity of opinion in those comments is all about how the Federal Government should be spending money. No one is saying that the federal government would be better if it didn't spend the money in the first place.
The fingerpointing is particularly annoying when everyone ignores the big hole in the ground and in our economy from September 11.
http://en.wikipedia.org/wiki/September_11,_2001_attacks#Economic_aftermath
Posted by: Xmas at Dec 23, 2006 5:34:48 PM
Among other problems, pay-as-you-go enables liberal and populist minded politicians to play too many games with the numbers.
Using static measures to project growth/decline or gain/loss, etc.
And the Dems know this.
The GOP takes power and spends like a sailor in port. They eventually lose their majority because this is contradictory to their doctrinal base.
Liberals were not upset with the spending per se, but with the tax cuts. It actually took them awhile, as a group anyway, to link together their anger over tax cuts with the spending problems the GOP was serving up. The public at large just wasn't getting upset about a govt not taking enough of their money, but, attach that tax cut anger to the runaway spending, pow, we have a nice sweep in the mid-terms.
Point being is that regardless of what is said in the press or proposed by the various academics that support their Left wing economics, the Dems are going to raise taxes AND spend money. Period.
So within certain circles, all of the debate is meaningless. The Dems are going to tax and spend. Liberal bloggers will try to explain why this is a good thing; guys like Krugman will try to dress it up and put some lipstick on it; but God or Buddha, or Zeus or Elvis with angle's wings could come down tomorrow, and show the world the enlightened, undisputable truth about lower spending and lower taxes, and the Dems would simply march forward and, tax & spend, tax & spend; it's for the women and children, especially the non-white ones.
Posted by: Ray G at Dec 23, 2006 6:29:22 PM
Re: "pay-as-you-go enables liberal and populist minded politicians to play too many games with the numbers."
My head just exploded. Now my thirteen-year-old has an enormous mess to clean up.
Thanks guys...
Posted by: Brad DeLong at Dec 23, 2006 7:46:00 PM
Hi Brad,
I see you deleted my on-topic and non-obscene comment wherein I point out that: (1) Krugman now writes as a political tactician rather than as an economist, (2) he entirely misses the symmetry between the hypocritical deficit spending in which Republicans have engaged and the hypocritical deficit spending in which he now advises Democrats to engage, and (3) shifting spending and mantaining the present deficit won't produce enough money to cover the massive costs of the policies he has publicly advocated.
I see you are allowed to read dissenting comments. How come your blog's reader's aren't?
Posted by: David Wright at Dec 23, 2006 9:45:47 PM
Quote Delong:
Re: "pay-as-you-go enables liberal and populist minded politicians to play too many games with the numbers."
My head just exploded.
You mean that Pelosi and company won't misguide, misconstrue, and basically lie to the American public using static numbers to say that a $1 tax cut equals $1 in lost govt revenue? That every $1 in higher taxes will translate to $1 more govt income?
Really? They won't do claim such things using the "pay-as-you-go?"
Forget your own explanations of how and why this method may or may not work. You can honestly say that the Dems won't abuse the notion of 1 for 1 accounting methods in projecting tax revenues and supposed shortfalls?
Posted by: Ray G at Dec 23, 2006 10:43:05 PM
Is the Government going to collect enough tax revenue form its expansionary fiscal policy to pay some of the debt the Federal Reserve is allowing to grow ? How much more employment can we create before prices start to climb?
Posted by: Charles Gainor at Dec 24, 2006 12:21:19 AM
Interesting topic. I would have to agree with spend it on today the debt is past and really all I think all we can do is slow the growth not stop. With the way our gov blows money I see lots of ways to cut back.
Posted by: Kris at Dec 24, 2006 3:35:27 AM
Well, I was hoping to get something from Delong besides trite and silly, but the bottom line remains that of course, paygo works if done correctly, but why do so many like Delong and others think the Democrats are going to actually implement an effective system, paygo or otherwise?
All they are going to do is raise taxes, and tell the American public that each new $1 in taxes will equal new $1 in revenue. No one has offered anything convincing to show that Pelosi & Co. are actually going to make reductions in current mandatory spending, that they are going to curtail the "bridges to nowhere," that there will be no new buildings or monuments erected in W.VA with the name of Byrd on them.
They are simply going to raise taxes, and spend money, period. And Brad Delong or Krugman nor anyone else have given us anything to show why we should expect them to do otherwise.
Posted by: Ray G at Dec 24, 2006 9:01:09 PM
Well, my faction of the Democratic Party did it in the 1990s. We'll try as hard as we can to do it again.
Brad DeLong
To Mr. Wright: I'm happy to have dissenting opinions in my comments. I'm not happy to have trolls.
Posted by: Brad DeLong at Dec 24, 2006 11:17:37 PM
I love economists who pretend that game theory doesn't exist. Crowding them out of advising is why I got them into the profession in the first place.
It's a prisoner's dilemma, and the way out of it is for both parties to actually care about the country in the long term. Since only the Democrats do, we lose when we try to take hits for the team. Solomon understood this; guess which of the two mothers the Republicans are?
Posted by: Kimmitt at Dec 25, 2006 12:21:43 AM
Brad: Just out of curiosity, which of my three points were trolling? -David
Posted by: David Wright at Dec 25, 2006 1:12:33 AM
"my faction of the Democratic Party did it in the 1990s. We'll try as hard as we can to do it again."
That's what we're worried about.
From 1990 to 2002, not one sequestration took place. Paygo as it was, was not self-enforceable, and was riddled with loop holes large enough you could drive a senator's SUV caravan through it.
In effect, it was useless against the kind of frivolous spending that we're seeing now. A mixed power balance was what kept things in relative control, and as soon as that was shifted, the spending ran away.
So what'll the Democrats do with paygo now? The same they did before. They'll tax and spend, abusing loop-holes, and telling the public that $1 equals $1 in their accounting methods, and as long as they're raising taxes, they're spending the money wisely.
Now excuse me, my head just exploded, I have my own mess to clean up. A respected academic telling us that a bunch of politicians are going to follow some loop-hole ridden spending plan without abuse or public obfuscation. . . sheesh, . .
Posted by: Ray G at Dec 25, 2006 10:35:55 AM
Ray G, from 1990 (Bush I's tax increase) until Bush II's tax cuts, there was continued progress on fiscal responsibility. Accompanied by howls from the GOP - at first, that these actions would drive us into catastophe; later, that the GOP was responsible.
In engineering, there's something called an 'ABA test', which means that the failure can be turned on and off again, by manipulating a particular factor. At that point, that factor is judged to be causal. The USA has performed that experiment, turning massive deficits on and off with specific policy changes, from the early 80's through now.
Posted by: Barry at Dec 26, 2006 8:34:01 AM
