some time now, Paul Krugman's critics have been waiting for his
long-term fix for the economy. Routinely, the Nobel Prize-winning
economist argues persuasively for short-term, recessionary spending. But
those concerned about inflation and deficits have wondered how the U.S.
will ever get its finances in order. On Monday, Krugman offered his solution
So America has a
long-run budget problem. Dealing with this problem will require, first
and foremost, a real effort to bring health costs under control --
without that, nothing will work. It will also require finding additional
revenues and/or spending cuts. As an economic matter, this shouldn't be
hard -- in particular, a modest value-added tax, say at a 5 percent
rate, would go a long way toward closing the gap, while leaving overall
U.S. taxes among the lowest in the advanced world.
find his fixes convincing? While some praised his emphasis on spending
now and save later, others worried about the feasibility of Krugman's long-term solutions.
- He's Exactly Right, writes Mark Thoma at Economist's View: "Starving the economy
during the recovery period risks a relapse and, further, this can cause
long-run damage. Getting the economy back to the best possible health
will require addressing our long-run budget issues, but best to wait
until the economy has recovered its health before starting it on a
- It's Too Bad Obama Has Not Advanced
Krugman's Message, writes economist Brad DeLong: "Obama was really not
helpful--he stomped all over this appropriate and true message--with his
claim that now was the time for a 'three-year non-security
discretionary spending freeze.' That phrase shows up newly-written on
the White House website about once every two days."
Skeptical, writes Kurt Brouwer at MarketWatch: "For
Krugman and the others advocating more government programs and stimulus
spending, I wonder what level of budget deficits and increasing
government debt it would take for them to say enough is enough? ...The
U.S. government cannot borrow unlimited sums. I'm sure Professor
Krugman would agree... but Krugman apparently believes trillion dollar
deficits and vast increases in government debt are necessary for years
to come in order to ward off a recession now. I'm very skeptical about
the value of much of the government stimulus spending we are seeing."
Prescription Is Politically Unfeasible, writes The Wire's own Michael Kinsley: "He cavalierly
says that all you need to solve the problem is (a) to bring health costs
under control, and (b) a five-percent value added tax. Oh, is that all?
I have no doubt that if Paul Krugman were economic dictator, we could
impose these or other solutions. In the real world (or should I say
'unreal world') of current American politics, either one of these
partial solutions is unthinkable without a catastrophic crisis to force
- I Just Can't See Congress Doing It, writes Angus, an econoblogger: "On the long-run
part of the equation, Krugman points, with apparently no sense of irony,
to out of control health costs as the killer problem. Wow. Just wow...
He says we currently need stimulus and health care cost control. Hey
Paul, the government has spent most of the last year working on those
two issues with apparently no results."
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