During CAP’s conference yesterday on when and how to begin addressing the country’s long-term deficits, Nobel Prize-winning economist Paul Krugman explained that “this is a really bad time to enage in fiscal retrenchment; it’s a bad time on almost every dimension.”
But eventually deficits will have to be brought to some sort of sustainable level, which will require action on multiple fronts — health care reform, tax increases, and spending cuts. And according to Krugman, these are easy steps to take economically. The problem, he said during an interview with The Wonk Room, is that we have a political system in which you can’t talk about tax increases “without it being political suicide”:
If we can do health care reform that really does bend the curve downward — I hate that phrase, but — health care reform that really does limit the growth in health care cost, then what’s left is a problem that we can deal with with fairly moderate policy. Things that would be politically impossible right now, but economically aren’t hard at all.
We could probably make do with a few percentage points of GDP in revenue, which we could get partly from the sale of emissions licenses, maybe some additional taxes, find some cuts in military spending, find some way to not just bend the curve but actually bring some real efficiencies in health care. It’s not really hard to give the economic numbers and make the whole thing work.
You would end up still with the U.S. having lower taxes than almost all other OECD countries. And you’d end up with our social programs enhanced, not reduced, because we’d have universal health care coverage and some other improvements in the social safety net, and we would be good for the foreseeable future. All of this hinges on being able to actually talk about tax increases, even modest ones, without it being political suicide. It requires that you be able to talk about spending health dollars wisely and not have people start screaming about death panels.
On his blog yesterday, Krugman referenced the “victims of politics” under the Reagan administration, who saw a surge in household debt that “can largely be attributed to financial deregulation.” When asked what the victims of politics would look like if today’s problems go unaddressed, Krugman said that inaction would lead to another economic bubble that “will just leave the eastern seaboard of the United States a smoking ruin”:
Krugman’s point about tax increases not crippling the U.S. economy is well taken. The U.S. currently has the “fifth lowest taxes as a share of GDP among economically developed nations,” and even if we tried to balance the budget entirely on tax increases (which no one is trying to do), “the United States would still be in the bottom 10 out of 30.”