01 Oct 2009

It’s Only Money

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Krugman has left cap and trade for the moment to deal with government budget deficits. The man is fearless; look at his nonchalance in this post when he writes: “Finding 1 percent of GDP in higher taxes and/or spending cuts shouldn’t be that hard — and won’t be, if America has a sane political scene by 2019.”

Let’s not even use the 2019 numbers since the economy will be bigger and it might be unfair to Krugman. Using the 2008 numbers, 1% of GDP works out to $142 billion. Krugman is saying that a permanent mix of spending cuts and/or tax hikes on an annual basis of $142 billion “shouldn’t be that hard”? And forget the currently “insane” political scene–when would that kind of budget cutting and/or tax hiking have been not-that-hard?

Remember kids, this is an annual figure. When you see stuff talking about the cost of health reform etc., those are usually ten-year projections. So to reduce the budget deficit by a percentage point of GDP, without altering spending, would imply a “$1.4 trillion tax hike over ten years” in the way these things are usually scored, even if the economy didn’t grow. Once you allow for its growth, the number obviously would be that much bigger.

It really is amazing how desensitized we’ve all become to these gargantuan numbers.

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