Keynesian Civil War on CBO Report
[UPDATE below.]
Paul Krugman, May 20:
Where Are the Deficit Celebrations?
For three years and more Beltway politics has been all about the deficit. Urgent action was needed to avert crisis. A Grand Bargain absolutely had to be reached. Fix the Debt, now now now!So where are the celebrations now that the debt issue looks, if not solved, at least greatly mitigated? And it’s not just recovering revenues: health costs, the biggest driver of long-run spending, have slowed dramatically.
What we’re getting from the deficit scolds, however, are at best grudging admissions that things may look a bit less dire…
[T]hink about the personal career incentives of the professional deficit scolds. You’re Bowles/Simpson, with a lucrative and ego-satisfying business of going around the country delivering ominous talks about The Deficit; you’re an employee of one of the many Pete Peterson front groups; and now, all of a sudden, the deficit is receding, and you had nothing to do with it. It’s a disaster!
And so the deficit progress must be minimized and bad-mouthed.
Ezra Klein, May 22:
Stop celebrating our falling deficits.
It’s time to stop celebrating last week’s Congressional Budget Office report. Our deficits aren’t dropping because we’re doing something right. They’re dropping because we’re doing everything wrong.My initial piece on the CBO report led with the surprising news that the agency had knocked more than $600 billion off its projections for the deficit over the next decade. But as I wrote then, the deficit is following a weird path. It’s not a gradual decline. It’s not a temporary uptick as we spend to create jobs followed by a sharper decline as the economy recovers. It’s a sharp decline followed by a gradual rise — it looks a bit like a Nike Swoosh.
The types of policies matter, too. We want to cut the deficit by reducing spending on programs that don’t add much to the economy and raising taxes on people who can afford it. Instead, a lot of our deficit reduction is coming through sequestration, which everyone agrees is pretty much insane, and which focuses on the part of the budget that isn’t growing. Basically none of the savings are coming through entitlement reforms that will grow in the second or third decades, or through tax reforms.
It’s as if we took all the good ideas people had to help the economy and reduce the deficit and did the opposite. But because Washington myopically focuses on the number that denotes the deficit rather than the policies behind it or how well it matches the likely path of the economy, many in town are celebrating the report and declaring their work pretty much done, at least for now.
I take great comfort in the above quotes, for the following two reasons:
(1) No matter how you slice it, Krugman or Klein has to be completely full of it. It is impossible for them both to be correct on this.
(2) Ezra Klein apparently doesn’t read Paul Krugman’s blog.
UPDATE: Let me make sure you guys don’t just think this is a funny gotcha based on Krugman’s rhetorical flourish. I am not basing my post on the clearly contradictory titles of Krugman and Klein’s respective blog posts. There’s a reason I quoted both of them at length: their substantive analysis of the CBO report is totally different. Krugman is saying the good news on the deficit front is coming from ObamaCare and other sensible reforms, which the myopic budget slashers had nothing to do with. Klein, in contrast, is saying that the bad news on the deficit front is coming from short-term gimmicks that don’t rein in long-term entitlements like Medicare and Medicaid.
So to be clear, I wasn’t using a figure of speech when I said “full of it.” I mean, at least Krugman or Klein (a) didn’t bother reading the CBO report to see what was driving the revision, (b) tried to read it but made a mistake, or (c) is consciously lying.
(Note that I am not accusing Krugman of lying, or of being stupid. I am quite prepared to believe that he didn’t read the report carefully before firing off his blog post about it.)
It’s very rare for Krugman to be genuinely correct on anything… just sayin’….
Yes, but ditto Klein.
“Krugman is saying the good news on the deficit front is coming from ObamaCare ”
but krugman didnt mention obamacare in his blogpost.
Lower health care spending.
Is there necessarily a conflict between those two posts? Krugman seems to be saying “Where are the deficit celebrations from the people who have been clamoring about the deficit so much (hint Republicans)?” While Klein is saying “Leftists and Obama supporters should stop celebrating the fall in deficits and taking a victory lap.” Krugman is pointing out the hypocrisy of deficits scolds, while Klein is cautioning Democrats. Krugman obviously thinks we are reducing the deficit in generally the wrong time and way, he has said so many times before. But the deficit is also declining from cheaper health care costs, which Klein recognizes in his original post on the CBO report which he references in the post you link to (Klein says “ObamaCare has gotten a bit cheaper” and “Medicare is getting cheaper, too”.)
So, both seem to agree that the deficit in general should not be cut in the time and way that it is (Klein in that specific post, Krugman in almost all his posts), both agree that lower health care costs are a driver of the decline in the deficit (Klein in his original post referenced in this post, Krugman in his post). But each wishes to call out different parties: Krugman is attacking hypocritical deficit scolds and Klein is addressing over-proud Democrats. Is this really a conflict between the two? If anything, there is a synergy between them.
It might look like synergy to the untrained (or naive) eye, but to the rest of us, it looks like more of the same “heads-I-win-tails-you-lose” bs we’ve been hearing from that camp for several years now.
Mule Rider wrote:
It might look like synergy to the untrained (or naive) eye…
No, not at all Mule Rider. To the untrained eye, when one guy says “Why isn’t anybody celebrating that we’ve basically solved the deficit problem through lower health expenditures that had nothing to do with the short-term deficit scolds?” and another guy says, “We should stop celebrating because we haven’t solved the deficit problem, this is a short term awful fix that doesn’t address entitlements,” then that is as clear a contradiction as one could hope for outside of mathematical posts.
It takes a longtime fan and apologist for such writers to see a “synergy” in the above.
http://m.youtube.com/#/watch?v=HQfzwFloVqA&desktop_uri=%2Fwatch%3Fv%3DHQfzwFloVqA
Dr. Murphy missed his chance to post this but I got his back.
You seem to have discounted the possibility that they are both wrong. The economy is not recovering.
I agree with Ezra in as much as the entitlement problem is not fixed. But wait… to fix the entitlement problem, there’s lot of old people who worked their whole lives paying into Social Security who now have the belief that in some way the tax they paid went into something and they deserve something in return/.
In order to fix the “entitlements problem” someone has to explain to those people they got burnt. Is Ezra volunteering for that job? Because I wouldn’t want to stand up as some town hall and explain that.
Bob,
So was it Krugman or Klein who didn’t read the CBO report?
Maybe you should read the CBO report.
😉
I looked at the CBO report, and their forecasts for GDP growth look extremely front-loaded in the next three years. Almost as if they are still predicting the giant V-shaped economic recovery that had been predicted for the 2009-2011 period. I think Klein is the one who is going to be more correct here.
“I think Klein is the one who is going to be more correct here.”
Since they can’t both be right, since the passages contradict, it means that if Klien is “more correct”, that implies Krugman is wrong, and not somewhat partially kind of sort of right.
To put numbers on the GDP projections
Nominal Growth YOY:
2013=3.1%
2014=3.8%
2015=5.9%
2016=6.6%
2017=6.2%
2018=4.9%
2019=4.5%
With a flat line at about 4.2% out to 2023. You will also note that there are no recessions forecast in the next decade.
Those nominal GDP growth rates do not seem overly optimistic and it’s not clear that they don’t take into consideration a recession happening sometime during that period.
That’s nominal GDP growth of 4.9%/year over the next 7 years. From 2000 to 2012, nominal GDP grew 3.86%/year and that includes 2 recessions, one very severe.
Nominal GDP grew 3.3% in 2001 and there was a six month recession in 2001.
2001: 10,286.2
2000: 9,951.5
Nominal GDP grew 4.5%/year from 89 to 1991 and the economy was in recession from July 1990 to March 1991.
1991: 5,992.1
1989: 5,482.1
Actually, with the actual inflation in those periods, and the implied inflation in the projections provided, for example, in SS outlays or Medicare, it appears to me that the CBO is projecting real GDP growth in excess of what you saw in those periods you mentioned. And remember, the demographics were better for real GDP growth in the entire period of 1989-2007 than they will be 2013-2023. I cannot square the CBO’s projections with both history, and what we know of the coming demographic changes. I think it very, very likely that the growth projections are way too optimistic.
Of course they are. The CBO is never right on anything.
No recessions for the next decade? That’s awesome! That’s like people who assume that interest rates will remain at a 100 year low.
I think one does have to strain a little bit to get a real contradiction here. Even if you hate the guy, If you read Krugman at all, he isn’t saying the way deficit reduction has been achieved is great or a good idea. He’s saying the short-term deficit problem was never as severe as described by people he calls “deficit scolds”; he has many times acknowledged the long term problem described by Klein, although I think he would say the US doesn’t have to tackle it immediately (as opposed to unemployment). I do understand that taking the two comments in a vacuum it’s possible to wring a contradiction out of them, but I’m not sure it isn’t a little bit of a cheap shot.
And I will note, I still don’t see why they expect the surge in the period 2015-2017. Inexplicable.
With how much money the Fed is pumping into the economy I would front load as well…
“Think about the personal career incentives…”
This is too funny, from the Cheerleader in Chief.