I realize I’m blogging a lot of my favorite Keynesian lately, but he keeps pushing the envelope. In the debt ceiling saga, the standard line of the Administration and its defenders is that Republican obstinancy will force Treasury Secretary Lew to default on government bonds, thus causing a global financial meltdown. Plenty of people (not just me but David R. Henderson and Steve Landsburg) have pushed back, saying that of course this isn’t true. The government has enough money coming in from taxes to pay off bondholders, if it wanted.
So here’s Krugman’s post today to deal with that argument:
The debt ceiling situation remains extremely foggy….And nobody knows what comes next. The immediate question is whether Treasury can, in fact, “prioritize” — pay interest on the debt while stiffing everyone else, from vendors to Social Security recipients. If they can, they might choose to do this to avoid financial meltdown.
But as I and many others have emphasized, even if this is possible, it would be a catastrophe, because the Federal government would be forced into huge spending cuts (Social Security checks and Medicare payments would surely take a hit, because there isn’t that much else). [Bold added.]
OK now let’s stop and think about what he’s saying here. Can everyone agree that Krugman is arguing that
(a) net interest to Treasury holders
(b) Social Security
constitute such a large fraction of the budget, that it would be impossible to make payments to all three categories if the Treasury is forbidden from borrowing more money? Krugman isn’t here making a political or a security argument, saying something like, “I predict Lew will stick it to Social Security and Medicare recipients, because that’s the path of least resistance” or “I predict Lew will stick it to Social Security and Medicare recipients, because otherwise we’ll be taken over by terrorists.”
Nope, Krugman is saying that once you add up those three categories, “there isn’t that much else” to cut from the budget.
Let’s see just how wrong this statement is:
So, those three categories add up to $1.538 trillion, out of total projected outlays of $3.602 trillion. In other words, they constitute only 43% of the total budget. So the other 57% of the federal budget is “isn’t that much else” in Krugman’s mind.
Last way of putting this: The projected cashflow deficit for FY2014 is $560 billion (at least back in May when CBO made its projections). Nondefense discretionary spending alone (at $572 billion) could thus cover it. Everyone got that? According to the government’s own (loaded) classification system, it could still pay all bondholders, meet all “mandatory” spending obligations (which covers Social Security, Medicare, and Medicaid), and it doesn’t need to cut a penny from defense, all within a balanced budget.
Now if Obama, Lew, Krugman, et al. want to argue, “No way should we have to cut spending, we’re wrecking the world economy to teach these Republicans who’s boss,” OK fine. But thus far they have been saying things that are simply not true.
Really: I am curious for a Krugman acolyte to defend his statement quoted above. How can he possibly claim that 57% of the budget “isn’t that much else”? This is ridiculous.