Is deficit fever breaking?
by digby
Krugman has an uncharacteristically optimistic column this morning, positing that deficit fever has finally broken and that we managed to avoid killing the patient:
Why have the deficit scolds lost their grip? I’d suggest four interrelated reasons.
First, they have cried wolf too many times. They’ve spent three years warning of imminent crisis — if we don’t slash the deficit now now now, we’ll turn into Greece, Greece, I tell you. It is, for example, almost two years since Alan Simpson and Erskine Bowles declared that we should expect a fiscal crisis within, um, two years.
But that crisis keeps not happening. The still-depressed economy has kept interest rates at near-record lows despite large government borrowing, just as Keynesian economists predicted all along. So the credibility of the scolds has taken an understandable, and well-deserved, hit.
Second, both deficits and public spending as a share of G.D.P. have started to decline — again, just as those who never bought into the deficit hysteria predicted all along.
The truth is that the budget deficits of the past four years were mainly a temporary consequence of the financial crisis, which sent the economy into a tailspin — and which, therefore, led both to low tax receipts and to a rise in unemployment benefits and other government expenses. It should have been obvious that the deficit would come down as the economy recovered. But this point was hard to get across until deficit reduction started appearing in the data.
Now, I would guess that the Democratic Party apologists will take credit for being prescient and holding off austerity measures until the worst of the crisis had passed, but that will be the wrong interpretation. They were saved by the lunatic Tea Party.
And it's not over yet. We still have to overcome the pending showdowns over the sequester and the debt ceiling and ensure that our Democratic allies don't see this as their last opportunity for a while to "fix" entitlements. This desire to destroy the village in order to save it runs very deep in the psyche of the technocratic centrists, so I'm not going to feel fully secure until the crisis has fully passed.
One thing to watch out for is the new rationale that says we must cut the "entitlements" in order to spare other discretionary programs. No, we don't really have to do that. There is plenty of fat in the pentagon, growth is still sluggish and taxes are still low. This is a very wealthy country and we can afford to have a decent, humane safety net as well as needed government services. "Trade-offs" that burden average and poor citizens in order to spare the wealthy and the war machine are simply unacceptable. Just say no.
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