The Future of American Political Economy: Deficits-and-Debts the Very Thoughtful Ezra Klein Gets One Wrong, I Think, Weblogging
Ezra Klein writes:
After ‘the end of big government liberalism’: "Republicans swear to protect Medicare and Social Security, and most recognize they can no longer hope to repeal Barack Obama’s Affordable Care Act. Democrats voted to make the George W. Bush tax rates permanent for almost all Americans. This is not a stable peace. The Democrats have mostly won the debate over what the government should do, while the Republicans have mostly won the debate over how much the government should tax. Sadly, the two sides of that equation don’t come anywhere near to adding up. The war currently raging from cliff to cliff is about bringing taxation and commitments closer to alignment. Still, it seems probable that the conflict will, eventually, resolve largely in the Democrats’ favor. Paul Ryan’s budget and Mitt Romney’s presidential campaign both proved the difficulty Republicans have in advocating fewer government benefits. For all the sound, fury and impassioned promises of huge deficit reduction, in the end both Republican leaders swore that everyone would get their benefits. The savings, we were told, would come from painless mechanisms such as competition or more flexibility for the states. It is difficult to imagine such rhetoric uprooting treasured programs — all the more so after the Republicans lost the election. Democrats aren’t much better on taxes, but they don’t need to be. Historically, it is much easier to raise taxes by a half percentage point of gross domestic product than to kick tens of millions off public health insurance.
This seems to me to get the future dynamic wrong.
The debt-to-GDP ratio is now stable for ten years in the forecast. And beyond that everything depends on health care. So we do not have a long-run deficit-and-debt problem here in the United States unless:
There is another economic collapse that greatly reduces tax revenue (10% chance);
There is a collapse in demand for U.S. Treasury securities (10% chance);
The Affordable Care Act fails to rein in health-care cost growth after 2020 (30% chance); or
We dodge bullets (1), (2), and (3), but then the Republicans once again gain power and try again to break America's public finances and bankrupt the government as they did in 1981 and 2001-3 (30% chance).
We thus have a 40% chance of dodging all four bullets--in which case we should not be concerned about deficit reduction but rather about the real problems of America: unemployment and joblessness, third-rate infrastructure, inequality and poverty, global warming, and so forth.
And if we do worry about the bullets the priorities are not cutting spending and raising taxes for the deficit's sake, but rather:
The highest priority is to successfully implement the ACA and make sure its cost-control measures work.
The second highest priority is to make sure that the Republicans do not once again seize power and try, once again, to break the American government and the American economy.
Those are the dangers that Ezra Klein's readers should be worrying about and trying to guard against. Those are the issues that he should be informing his readers about.
