So, about that fiscal crisis — the one that would, any day now, turn US into Greece. Greece, I tell you: Never mind.
Over the past few weeks, there has been a remarkable change of position
among the deficit scolds who have dominated economic policy debate for
more than three years. It’s as if someone sent out a memo saying that
the Chicken Little act, with its repeated warnings of a U.S. debt crisis
that keeps not happening, has outlived its usefulness. Suddenly, the
argument has changed: It’s not about the crisis next month; it’s about
the long run, about not cheating our children. The deficit, we’re told,
is really a moral issue.
There’s just one problem: The new argument is as bad as the old one.
Yes, we are cheating our children, but the deficit has nothing to do
with it.
Before I get there, a few words about the sudden switch in arguments.
There
has, of course, been no explicit announcement of a change in position.
But the signs are everywhere. Pundits who spent years trying to foster a
sense of panic over the deficit have begun writing pieces lamenting the
likelihood that there won’t be a crisis, after all.
Maybe it wasn’t
that significant when President Barack Obama declared that we don’t face
any “immediate” debt crisis, but it did represent a change in tone from
his previous deficit-hawk rhetoric. And it was startling, indeed, when
John Boehner, the speaker of the House, said exactly the same thing a
few days later.
What happened? Basically, the numbers refuse to
cooperate: Interest rates remain stubbornly low, deficits are declining
and even 10-year budget projections basically show a stable fiscal
outlook rather than exploding debt.
So talk of a fiscal crisis
has subsided. Yet the deficit scolds haven’t given up on their
determination to bully the nation into slashing Social Security and
Medicare. So they have a new line: We must bring down the deficit right
away because it’s “generational warfare,” imposing a crippling burden on
the next generation.
What’s wrong with this argument? For one thing, it involves a fundamental misunderstanding of what debt does to the economy.
Contrary
to almost everything you read in the papers or see on TV, debt doesn’t
directly make our nation poorer; it’s essentially money we owe to
ourselves. Deficits would indirectly be making us poorer if they were
either leading to big trade deficits, increasing our overseas borrowing,
or crowding out investment, reducing future productive capacity. But
they aren’t: Trade deficits are down, not up, while business investment
has actually recovered fairly strongly from the slump.
And the main
reason businesses aren’t investing more is inadequate demand. They’re
sitting on lots of cash, despite soaring profits, because there’s no
reason to expand capacity when you aren’t selling enough to use the
capacity you have. In fact, you can think of deficits mainly as a way to
put some of that idle cash to use.
Yet there is, as I said, a
lot of truth to the charge that we’re cheating our children. How? By
neglecting public investment and failing to provide jobs.
You
don’t have to be a civil engineer to realize that America needs more and
better infrastructure, but the latest “report card” from the American
Society of Civil Engineers — with its tally of deficient dams, bridges,
and more, and its overall grade of D+ — still makes startling and
depressing reading. And right now, with vast numbers of unemployed
construction workers and vast amounts of cash sitting idle, would be a
great time to rebuild our infrastructure.
Yet public investment has
actually plunged since the slump began.
Or what about investing
in our young? We’re cutting back there, too, having laid off hundreds of
thousands of schoolteachers and slashed the aid that used to make
college affordable for children of less-affluent families.
Last
but not least, think of the waste of human potential caused by high
unemployment among younger Americans — for example, among recent college
graduates who can’t start their careers and will probably never make up
the lost ground.
And why are we shortchanging the future so
dramatically and inexcusably?
Blame the deficit scolds, who weep
crocodile tears over the supposed burden of debt on the next generation,
but whose constant inveighing against the risks of government
borrowing, by undercutting political support for public investment and
job creation, has done far more to cheat our children than deficits ever
did.
Fiscal policy is, indeed, a moral issue, and we should be
ashamed of what we’re doing to the next generation’s economic prospects.
But our sin involves investing too little, not borrowing too much — and
the deficit scolds, for all their claims to have our children’s
interests at heart, are actually the bad guys in this story.
By Paul Krugman
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Showing posts with label American debts. Show all posts
Showing posts with label American debts. Show all posts
Saturday, 30 March 2013
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