September 30, 2014

Krugman agrees with the Fiscal Wake-Up Tour (not that he wants to)

In Nobel-prize winning economist and New York Times columnist Paul Krugman's column Monday, he makes an interesting point about California's budget woes that supports much of what The Concord Coalition's message has been for the last three years traveling the country on the Fiscal Wake-Up Tour. The irony is that he often protests much of what we stand for.

In writing about the political barriers to sound fiscal policy and governance in California, he expresses concern that it "foreshadows the future of the nation as a whole." He continues:

"Last week Bill Gross of Pimco, the giant bond fund, warned that the U.S. government may lose its AAA debt rating in a few years, thanks to the trillions it’s spending to rescue the economy and the banks. Is that a real possibility?

Well, in a rational world Mr. Gross’s warning would make no sense. America’s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments — and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.

But that presumes that we’ll be able, as a political matter, to act responsibly. The example of California shows that this is by no means guaranteed. And the political problems that have plagued California for years are now increasingly apparent at a national level."

The point of the Fiscal Wake-Up Tour is to express alarm about America's fiscal challenge and to convince the American people, and through them their elected representatives, of the need to act sooner rather than later. That is because the earlier we make reforms to our tax system, our health care system and Medicare, and to Social Security, the less painful such changes will be and the less economic trouble the country will have because of the increase in debt and interest payments.

Our tour is designed to get politicians to act responsibly before a crisis forces their hands and that is an occurrence that is quite rare.

So, while we might disagree with Krugman on the magnitude of the problem (I would have to see exactly how "modest" the tax increases he suggests are) we agree that our fiscal challenge is manageable, and all it would take is less dysfunctional politics. This is why we consider our tour an "optimistic" endeavor and not preaching "doom-and-gloom."

Finally, this fundamental message is often quickly dismissed by those who sometimes criticize us for being myopic and overly alarmist in our focus on deficits and debt. As we say often, The Concord Coalition has never taken a position on whether we favor a small government or a large government. We are motivated by our desire to reduce the fiscal constraints on future generations so they can enjoy the benefits of a healthy economy. The thing standing in the way of that is political dysfunction on all sides of our issues. We can't take it for granted that politicians, regardless of their governing margins, will take even modest steps to correct problems in time.

--Josh Gordon