Paul Krugman Crows

Paul Krugman is crowing.

A New York Times columnist and Nobel laureate, Mr. Krugman has had a pretty good run for the past half-dozen years very publicly analyzing and prognosticating economic trends and the effects of government fiscal policy. His blog post this morning was a positive gloat.

Granted, he’s gloating over some fairly technical stuff, from a CBO report newly released showing even more favorable trends for the trajectory of the US government’s annual budget deficit under current law – that is, without accounting for any new deficit-reduction schemes Congress might dream up.

You can read the report here, and the post here, if you’re so inclined. But here is what Mr. Krugman had to say about it:

Yes, late this decade deficits will start to rise again thanks to rising health costs and an aging population, yada yada. But I have yet to hear a coherent argument about why the long-term problem of paying for the benefits we want — which will eventually have to be resolved through a combination of cost savings and revenue increases — should constrain our fiscal policy right now, in the midst of what remains a terrible economic slump…because it is just crazy that in this deeply depressed economy we are now pursuing a fiscal policy that is tighter than the policy we followed at the height of the housing bubble.

You can’t say the man doesn’t have a point. But inquiring minds might be put off by his throw-away about rising health costs and an aging population. One suspects it’s a little more than yada-yada.

If you take the trouble to collect some historical data from the BEA and combine it with CBO projections through 2020, you can see the likely trajectory of what we sloppily refer to as ‘entitlements’, at least as far as federal spending is concerned:

OASI and Medicare versus GDP

Federal entitlement spending as a percentage of GDP.
Red = Social Security (OASI)
Blue = Medicare (HI + SMI)
Years 2013-2020 projected.

If you’re wondering what caused the sudden rise in 2009, that was due to a big drop in GDP during the recession. The big jump in Medicare going into 2007 was the result of the Part D prescription drug benefit. The drop in Medicare through 2015 is based on a statutory requirement in the Affordable Health Care Act that requires a reduction in payment rates. It’s not yada-yada. But the sky’s not falling, either, at least not through 2020.

But why not look further than 2020? Doesn’t the sky fall sometime?

The projections out to 2020 are based on what is most likely to happen, given current law. But laws can be changed. The baby boomers might get bored and work more years than we anticipate. Another financial bubble could burst. Or some clever person might really invent cold fusion. The fact is that looking out much further is pure guesswork, pure speculation. That might not leave you feeling very comfortable, but there are some uncertainties we have to live with. We can’t plan our fiscal future fifty years from now, any more than we can zap all the asteroids in the solar system that might one day pose a danger to Earth.

The facts have never supported prophets of fiscal doomsday, not even the presumably well-heeled ones writing for the Wall Street Journal. Perhaps especially not them. Their sightings of ‘bond vigilantes’ have been on par with sightings of Elvis.

Yet the debate over ‘entitlements’ will continue. No one should expect otherwise. This is partly because the subject is complex, technical, and can be made to sound scary. That makes it an excellent political football. But it’s also partly because we have lingering doubts about things like ‘entitlements’ and ‘income transfers’, on principle.

It’s to our credit as a nation that we’re not entirely comfortable with it. Despite what certain national political candidates have told their wealthy backers behind closed doors (but not out of the hearing of stealthy cell phones), we are not a nation of moochers. But it’s also to our credit that we’re open to being persuaded of the wisdom of these things. We are above all a practical people, at least most of us are. (And it’s worth keeping that firmly in mind when you hear some very pragmatic political leaders, especially those out of power, declaim in thundering voices on their principles.)

I can think of any number of reasons why something like Social Security is good for the country. For one thing, I strongly suspect mutual funds would be subjected to much more destructive volatility if they held everyone’s entire nest egg.

More prosaically, we are a society dependant on having a large number of double-breadwinner households. And if we are to resume healthy economic growth and be competitive in the world, we will become more so. Without some form of social insurance, an aging population would impose a very direct and personal burden on its children, one more onerous than taxation. Sadly, but inevitably, that burden would fall disproportionately on middle-aged women. It’s the kind of burden we as a society would do well without. We are better off with those employable brains and hands doing whatever it is they are trained for.

Whatever specific problems may dog Social Security or Medicare, social insurance is something that government can, and does, do well. And it’s something we need.

This is not a vision of society to suit everyone’s tastes and sentiments. It’s not Little House on the Prairie. But the prairie was ploughed over long ago. We are who we are, the world is what it is, and it’s best to just deal with it.

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