On two different talk shows this week, House Budget Committee Chairman Paul Ryan (R-Wis) and Nobel Prize winning economist Paul Krugman conducted a spirited, if indirect, debate on how serious the fiscal crisis is.
The two men, of course, disagree about almost everything. Ryan, the Republican Party’s vice-presidential candidate in 2012, warned we had to start grappling with our long-term debt now or face the consequences. Krugman, who often criticizes Ryan in his New York Times column, says we have plenty of time to deal with it.
Here’s Ryan on “Meet the Press” Sunday:
If we keep going down this path, we will have a debt crisis. It’s not an “if” question; it’s a “when” question. This is not a Democrat thing or a Republican thing; it’s a math thing.
A debt crisis is what they have in Europe…You cut the safety net immediately, you cut retirement benefits for people who’ve already retired, you raise taxes, slow down the economy, young people don’t have jobs. That’s the austerity that come when you have a debt crisis and when you keep stacking up trillion-dollar deficits,…it’s bringing us to this moment. Our goal is to prevent and pre-empt austerity so we get back to growth.
Here’s what Krugman said on “Morning Joe” Monday about entitlement spending:
If you take the past trends in health care spending and project them out 20 years, there will be a problem…And a lot of the proposals out there are saying because we face the threat in the future… what we need to do now is have a plan to cut benefits in the future. ..
I think we still have substantial running room…The best estimates say that we don’t have anything that looks like a catastrophic debt situation even ten years out.. .Advanced countries with stable governments…that borrow in their own currency have a lot of running room…On my list of things to worry about, the long-term deficit is probably number five, number six…
Nobel Prize-winning economist Paul Krugman talks about the US’s long-term debt on “Morning Joe.” Photo: MSNBC.
Krugman actually got some unexpected support last week in a report by economist John Makin of the conservative American Enterprise Institute:
Instead of bellowing about a disaster that never comes…, Congress should be cutting deficits through reforming entitlement programs and lowering tax rates while closing tax loopholes…Recognizing and striving to achieve the benefits of a sound fiscal policy will produce more progress on deficit reduction and debt stabilization than will empty threats of soaring interest rates and bond market collapse.
In December, the iconoclastic Makin wrote:
Though the US deficit is in the trillions of dollars, the United States is not in immediate danger of a financial crisis on the level of Greece’s because its borrowing costs are so low.
And there you have it: Low interest rates—actually negative real interest rates, because of the Federal Reserve’s easy money policies—have kept the government’s interest expenses down. That’s Krugman’s main argument for why we don’t have a crisis.
And maybe that’s true—right now. But rates won’t stay low forever, and when they start rising, interest payments will shoot up, too, and create a fiscal squeeze that will give us much less “running room,” in Krugman’s phrase.
And since as even Krugman acknowledged, we must address our estimated $60 trillion of unfunded health care liabilities at some point, why not take some steps now, when rates are low and we can forestall some of the worst consequences?
So, although Krugman is technically right in the short run, we need to take Ryan’s warnings to heart. I think his solutions are too radical, but we do have a long-term problem and it’s better to do something than nothing at all.
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The USA is not in immediate danger of a financial crisis like Greece also because the USA debts are in US dollars.
And dollars are like Doritos, the USA can, and has, made more.
The holders of USA treasury securities are probably nervous as a result.
I view Ryan as an opportunist, as his message of cut the deficits was not in play during the 8 years of Republican Bush.
Now Ryan is free to advocate for low deficits as he will not be attacking his own party.
Given he has spent almost his entire adult life in politics, Ryan knows how the game works in taxes and spending.
While viewed as an Ayn Rand devotee, he opportunistically distanced himself from Ayn Rand when it was pointed out to him she was an atheist opposed to religion.
Ryan is a political entertainer, not someone of consequence, and imagining Ryan in a faux debate with Paul Krugman is a stretch.
And Ryan’s “cut the safety net for future generations’ benefits” is probably skeptically viewed by most, as a wealth maximizing family would be better off by accepting higher benefits now, saving the surplus, and then passing the money to their family upon death.
The core problem the Ryan doesn’t address is government miss-allocation of resources in a massive military budget, handouts to corporate entities (Medicare Part D by Bush) and various programs that never seem to go away (sugar price supports to benefit wealthy Republican sugar growers in Florida).
And Ryan has no plan to downsize the parasitic financial sector that some estimate is 2 to 3 times the size it should be in the USA.
But Paul Ryan will be rewarded with a nice conservative think tank job if he loses office.
You make some good points and this blog has pointed out the contradictions in Ryan\’s positions in the past:
http://ow.ly/hlbzw
I still think he’s right that we should try to fix the debt problem BEFORE it becomes a crisis, though I don’t agree with how he’d do it.
Thanks for taking the time to comment,
HG
Krugman remembers his Keynes. Ryan’s never read him. The slow pace of this recovery allows Krugman and the rest of us to be less concerned for the moment about inflation than we are about other things. Ryan’s one-note-samba NeoCon views make him unaware of any issues other than his own: inflation, small government, monetarism… there is more going on in the Real World, out here, than just these. The hysterical edge, too, which Ryan and other NeoCons like him put on their declarations of belief discredits their arguments: Eric Hoffer warned all of us, long ago, about True Believers — how narrow they are. It is a slow recovery: we must stay steady and not derail it with hysteria and single-shot political solutions, like Ryan’s.
Jack: I agree it\’s a slow recovery but I disagree with Krugman that it\’s solely because of a lack of demand; structural changes are involved, too, in my opinion. So, I think we need to slowly grow our way out of it and put in some prudent long-run cuts in entitlement programs to remove that sword from over our heads.
Thanks for writing!
HG
I agree more with you than with Krugman about that, I suppose. Structural changes could upset a recovery–things are very nervous in some quarters about that, right now–but there is no time like the panicky present to begin on a few, at least. That was the political naivete in Keynes’s position: he thought politicians might rock boats when times are flush — but they don’t; they like to ride waves, not make them–politicians become crusaders only when times are tough and they can get a mandate for change, that is why they are forever declaring war or deploring crisis or gathering us together against some common invading enemy even if it’s just a guy on a donkey in an Afghan cave or an abstract generic like Terrorism or The Domino Theory. The challenge is belt-tightening when times are flush.
Well said, Jack, please keep reading us! HG