Economy

Paul Krugman Exposes GOP's Craven Hypocrisy on Deficits—and Why It Matters More Than Ever

The budget Ryan is pushing would expand the deficit at exactly the wrong time.

Photo Credit: YouTube/Bloomberg

Paul Krugman has spilled a lot of ink explaining why deficit hawks led by apocalyptic Paul Ryan during the Obama years were dead wrong politically motivated hysterics. Now, the GOP-led Congress is fully exposing its political stripes with its new budget resolution, which would, "according to their own estimates, add $9 trillion in debt over the next decade," the columnist wrote Monday. "This sudden turnaround comes as a huge shock to absolutely nobody—at least nobody with any sense. All that posturing about the deficit was obvious flimflam, whose purpose was to hobble a Democratic president, and it was completely predictable that the pretense of being fiscally responsible would be dropped as soon as the GOP regained the White House."

But Krugman's message goes beyond the usual about the craven hypocrisy of the political right, which the GOP clearly does not give a rat's ass about. The deeper problem, according to Krugman, is that they have chosen a dangerous time to stop caring about deficits. 

While government spending was vital during the years when the economy was in free fall after the housing crisis, the era of “depression economics,” as Krugman termed it, the "Trump-Putin administration will, instead, come into power at a time when full employment has been more or less restored."

For those who doubt that assertion about employment, Krugman backs it up thusly: "The low official unemployment rate is just one indicator. What I find more compelling are two facts: Wages are finally rising reasonably fast, showing that workers have bargaining power again, and the rate at which workers are quitting their jobs, an indication of how confident they are of finding new jobs, is back to pre-crisis levels."

When there is full employment, Krugman continues:

Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and “crowds out” private investment.

Now, government borrowing can still be justified if it serves an important purpose: Interest rates are still very low, and borrowing at those low rates to invest in much-needed infrastructure is still a very good idea, both because it would raise productivity and because it would provide a bit of insurance against future downturns. But while candidate Trump talked about increasing public investment, there’s no sign at all that congressional Republicans are going to make such investment a priority.

No, they’re going to blow up the deficit mainly by cutting taxes on the wealthy. And that won’t do anything significant to boost the economy or create jobs. In fact, by crowding out investment it will somewhat reduce long-term economic growth. Meanwhile, it will make the rich richer, even as cuts in social spending make the poor poorer and undermine security for the middle class. But that, of course, is the intention.

Krugman still won't go where Republicans went and warn of catastrophe right away. But the coming challenges will call for a thoughtful response, and it's hard to argue that the people in charge now are capable of that when they've been more or less wrong about everything.

 

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