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Paul Krugman: Super Committee Failure is a Good Thing

Monday, November 28, 2011

Recap from It's A Free Country

Paul Krugman says we need to leave Social Security and Medicare alone, raise taxes on the wealthiest Americans, and get over our fear of government spending—which is why he's happy that the deficit reduction super committee didn't make a deal.

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Paul Krugman reviewed the failure of the Super Committee to reach a deal, the ongoing crisis in Europe and the future of the euro, and more from the world of politics and economics.

Celebrating the super committee's demise

Most Americans lamented the collapse of the congressional deficit reduction super committee, which failed to agree on $1.2 trillion in savings and/or revenue. But Paul Krugman cheered, saying "Failure is Good". Better to have no deal than one that that compromise may have wrought.

It almost certainly would have led to spending cuts way too soon...It would have been a deal basically between right-wing Democrats and very right-wing Republicans. Any deal that might have come out would have been more about dismantling Social Security and Medicare than really about dealing with long-run deficits.

Raise taxes—why not?

Baffling to Krugman, however, is that certain policies most popular with American voters are DOA on Capitol Hill. No changes to Social Security and Medicare, higher taxes for the wealthiest Americans—these options poll high with the public, but many inside the beltway don't consider them sensible.

And why not? Krugman asks.

Why exactly is it unreasonable to think higher taxes should play some role in our budget solution? One trillion dollars [in higher tax revenue] over ten years is not all that much money relative to the size of the U.S. economy. High-income people have done incredibly well these past few decades; why shouldn't they bear some of the burden of balancing the budget?

An insurance company with an army

For those who would rather shrink entitlements than raise revenue, Krugman prescribes a closer look at what the U.S. government is and what it does. He characterizes it as "an insurance company with an army."

It spends on Social Security, Medicare, Medicaid, and defense. So if you say, 'Cut government spending,' you're talking about dismantling Social Security or Medicare...It's a really scary thing that so much of our political system has now resurrected ideas that were proved wrong 75 years ago and thinks they represent great wisdom.

Krugman: myth that government can't create jobs

According to Krugman, the big idea proven wrong 75 years ago was this: government spending can't create jobs. The opposite is true, Krugman argues, pointing to the New Deal programs and infrastructure investments of the Depression era, and an economic recovery that was founded on higher taxes and greater spending.

But if this remedy is so obvious, then why is the "spending ≠ jobs" formula back in vogue among voters and politicians? Krugman says it's about what people see as the political consequences of admitting that the government can do anything good.

Even though evidence is overwhelming that in times when the economy is depressed government can in fact create jobs, there's always been a side that cannot accept that. Because if you accept that, then you believe that maybe government can do good there, and maybe it can do good in other places as well, and therefore maybe actually taxing rich people and using some of that money for social purposes is a good idea.

Reading the euro zone tea leaves

The euro zone disaster may undermine Krugman's argument at home. Generally perceived by Americans as a collection of nations with high taxes and high levels of social spending, that the euro zone seems on the verge of collapse gives new ammunition to those who favor austerity.

Krugman says that's the wrong way to look at the crisis. He holds up Sweden as an example: they have a famously lavish social safety net, and yet the interest rate on Swedish bonds remains at 1.6 percent. The economy isn't crumbling, interest rates aren't spiking like they have in Italy and Greece, and the government isn't having the same kind of trouble selling its bonds that Germany just started to have. The difference? Sweden has its own currency.

If you look at who's in trouble, it's not at all correlated with who has big welfare states, and very strongly correlated either with being part of the euro zone or having unrealistic, hard line austerity-driven leadership.

Comments [22]

Reduced Unemployment will improve the budget from Of course, Government can create jobs! WPA


Reducing unemployment will substantially improve the budget situation. It would automatically reduce spending by providing the best social program ever - EMPLOYMENT, would stimulate the economy and would increase revenue.

Here's the key part :

OF COURSE GOVERNMENT CAN CREATE JOBS!

It did so quite successfully in the last depression, creating millions of jobs in a couple of months. These were jobs that built and created long term value - many of its works are still in use today - enriching communities and the general public - to this day.

Thomas Frank wrote a brilliant article in the current issue of Harper's on this topic.

In it he basically observes :

1) Wealth is basically on strike. They are not doing their share creating work and new businesses in the U.S..

2) The government should step in to BUST UP this CAPITAL STRIKE. (Much the way Reagan did to the Air traffic controllers in the 1980s).

Markets DO fail - and often. When they do government should step in to help the 99% not just the 1%.

3) Government doesn't need to beg and bribe the wealthy into creating jobs. Rather, a FAR MORE EFFICIENT way to do so would be to directly TAX ON-STRIKE
WEALTH and use the money to DIRECTLY HIRE millions of unemployed people to do constructive needed tasks to improve our communities - a new WPA.
Most of the unemployed could have been hired for less than the cost of the Bush tax cuts and/or the stimulus.

Perhaps its time to stop sucking up to the very people who caused our nation's crisis
and take direct action to fix our problems.
The 1 % will be unhappy - so what - it's their turn.

Nov. 28 2011 11:41 AM
MG from manhattan

I might add that the maintenance and nurturing of an underclass, weather it be a racial minority, gender or ethnic group etc is a construct that the velvet rope crowd perpetuates not because it is a necessary evil, but just because they enjoy the control and privileges that being in a position of economic power generates. How else can a Donald Trump strut around with such an inflated ego if there were not a hoard of desperate wealth leeches hoping to receive some of the trickle down from his abundance

Nov. 28 2011 10:55 AM
Scott Robinson from NYC

Just a quick look at Krugman! from OWS Halloween agit-prop. A true hero.

http://vimeo.com/32788617

Nov. 28 2011 10:46 AM
Ash in Chelsea

For me, the root of the problem is this:

1. People with money want to keep their money.

2. They don't care one bit what happens to their unfortunate brothers who don't have money (thus, their disdain for government, often the only source of help for the poor and disenfranchised).

3. Their mantra that "I did it so you can do it" is simple, hollow, selfish BS.

4. They started building fences and other security mechanisms -- many economic -- in the 1970s and 1980s to protect their wealth and keep those poor losers out.

5. Period.

Nov. 28 2011 10:34 AM
khadija from brooklyn

As much as I admire Nobel Krugman, he reminds me very much of my 1st Algebra teacher, when I was 14. Brilliant, too brilliant for our minds; too bored to teach in "real-speak"; several of my schoolmates and myself got lost though we loved math; we caught up, eventually, several decades later, and understood " Fermat's Enigma" & "A Brilliant Mind".. I smile, yet again, at a friend having called me a Black Hole; I thought it was an insult... Oh well, I'm slow on the uptake, sometimes.

Nov. 28 2011 10:31 AM
fuva from Harlemworld

Barney Frank had a lot of ties to the financial industry too.

Nov. 28 2011 10:29 AM
Joe Corrao

well that was imformative

Nov. 28 2011 10:29 AM
MJ from Westchester

Is Paul Krugman familiar with the book "Wealth and Our Commonwealth" by Collins and Gates? If yes, even though it focuses on the estate tax issue, does it have relevance to what is going on today?

Thanks,
MJ

Nov. 28 2011 10:28 AM
MG from Manhattan

The inability of the right to see economic facts is because they have two blinders on. One is the blinder of an agenda that seeks to restore an aristocracy and debt peonage and the other is that they have never forgiven the federal government for insuring the rights and citizenship of minorities. Remember, for hundreds of years there was a class of people that actually believed that slavery made economic sense. They will never see economics intelligently. What I am interested in finding out more about is how can the Fed keep up with an economy that is continually expanding and contracting in terms of valuations of exactly how much money and value there is out there in the wild.

Nov. 28 2011 10:26 AM
Gary Shaffer from Brooklyn

How about secession? As Krugman points out, we're dealing with two very different world views. Let the Republicans go their own way. The blue United States of Canada can have universal health care, real science, real economics, gun control, and a progressive tax system.

Nov. 28 2011 10:26 AM
Stephen from Queens NY

Love your show & Prof Grugman. Can you tell me if the $401K system really work for most Americans or just make WS rich.

Nov. 28 2011 10:25 AM
CL from NYC

Finally a guest talking about the economy who is actually qualified to do so. Krugman's politics don't please everyone, of course, but his plainspoken explanations of basic economic matters are unexceptionable.

Nov. 28 2011 10:24 AM
John A.

I hope all this attention on Norquist is the lever that pulls up that stump; Or, allows weak Republicans to throw off that ugly PAC.

Nov. 28 2011 10:23 AM
Antonio from Bayside

Loved "Conscience of a Liberal..."

Does Mr. Krugman think we can finally have a third party from the OWS movement.
Maybe in the vain of Bernie Sanders, Kucinich, Howard Dean?

Nov. 28 2011 10:22 AM
fuva from Harlemworld

"...people just don't understand...". This sums up our problems. Disinformation, unawareness.

Nov. 28 2011 10:21 AM

Thank the powers that Brian Lehrer has someone on who actually knows something about economics — unlike _all_ NPR reporters, or WNYC's Bob Hennelly, or _all_ of the hacks at AEI or Hoover or George Mason University.

As Krugman recently noted, conservatives are 110% thrilled to endorse Military Keynesianism. NO conservative will endorse anything but _increases_ in military spending. Why? They say it creates jobs. So conservatives DO think that government spending creates jobs when it's spending on war.

Nov. 28 2011 10:17 AM
khadija from brooklyn

I'm stupid, therefore my zero cent worth comment: Freeze, rescind, retro-actively all Congress members' salaries, pensions, freebies, discretionary goodies until they earn their supper! WORK! instead of having "lunch" @ the Palms etc... Geez!

Nov. 28 2011 10:17 AM
Marco from new york

How does making common-sense changes to Medicare and Social Security dismantle these programs? Why should these programs not be means tested? Government spending is increasing too rapidly, mollifying elderly voters is not a solution.

Nov. 28 2011 10:15 AM
David from West Hempstead

Dr. Krugman,

Do the Federal Reserve's recent actions, i.e. "the twist" make sense if we are, as your writing has suggested, in or sliding towards a liquidity trap?

Love your work, thanks so much.

Nov. 28 2011 10:12 AM
Joe Corrao

shrink government

Nov. 28 2011 10:10 AM
Susan from nyc

Solving the debt crisis really is not hard. What is needed is the following:
1. Eliminate ALL deductions (that means mortgage, charity, child, state and local tax, business loopholes, etc.) If Congress really thinks something is worth supporting, they will have to appropriate funds for it openly and defend the decision. After all, every deduction someone gets means everyone else pays more, since government must still be funded.
2. Institute a single, progressive income tax that covers ALL income--there is no reason to tax income one does not work for (i.e., capital gains) at a lower rate than income one puts in time and effort to earn. Set these rates to actually cover our obligations. Now that the Supreme Court has recognized corporations as persons with equal free speech rights, tax them at the same rates as persons.
3. Disallow any political contributions from non-constituents--representative government can only function if those in office actually represent those who elected them rather than those with deep pockets. Set representative pay and privileges at the mean for their constituents.

The current system breeds distrust and contempt, as our purported representatives ignore their constituents in favor of their corporate paymasters, obscuring their bought-and-paid-for favors with endless, incomprehensible layers of taxes and deductions. If the Democrats and Republicans can't (or won't) act in our interest, we will vote for a third party, one with a moral compass.

Nov. 28 2011 10:03 AM
Peter from Durham, NC (formerly Sunset Park)

About 6 months ago, the Justice Department shut down the large online poker sites in the United States making is almost impossible for US players to play real money poker online. Professional poker players lobbied the Super Committee to legalize online poker. Their argument was that poker players are pretty much the only group in the US saying “regulate us and tax us.” Why would the government and Super Committee ignore such an easy, steady stream of tax revenue? Is this indicative of much larger problems which include powerful lobbies (in this case, the casino lobby) preventing the country from facing our economic problems?

Nov. 28 2011 08:13 AM

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