Paul Krugman: The Fiscal Fizzle | NYTimes |

An Imaginary Budget and Debt Crisis

Paul Krugman

For much of the past five years readers of the political and economic news were left in little doubt that budget deficits and rising debt were the most important issue facing America. Serious people constantly issued dire warnings that the United States risked turning into another Greece any day now. President Obama appointed a special, bipartisan commission to propose solutions to the alleged fiscal crisis, and spent much of his first term trying to negotiate a Grand Bargain on the budget with Republicans.

That bargain never happened, because Republicans refused to consider any deal that raised taxes. Nonetheless, debt and deficits have faded from the news. And there’s a good reason for that disappearing act: The whole thing turns out to have been a false alarm.

I’m not sure whether most readers realize just how thoroughly the great fiscal panic has fizzled — and the deficit scolds are, of course, still scolding. They’re even trying to spin the latest long-term projections from the Congressional Budget Office — which are distinctly non-alarming — as somehow a confirmation of their earlier scare tactics. So this seems like a good time to offer an update on the debt disaster that wasn’t.

About those projections: The budget office predicts that this year’s federal deficit will be just 2.8 percent of G.D.P., down from 9.8 percent in 2009. It’s true that the fact that we’re still running a deficit means federal debt in dollar terms continues to grow — but the economy is growing too, so the budget office expects the crucial ratio of debt to G.D.P. to remain more or less flat for the next decade. [ … ]

Rima NYT Comment SmallMy comment:

So, we learned last week that not only is there no inflation, we’re nowhere near it.

This week, we learn that while we have a deficit, it’s not the deficit Republicans wanted us to believe we have, nor will it be, even in the long-term.

The little bit of a tax increase would indeed do a world of good. Before they went on recess, congressional Republicans voted on a spending bill that included all kinds reduction in funding of banking oversight and consumer affairs, and an all important clause forbidding the use of federal funds for oil paintings of government officials. What do you suppose that’s all about?

David Cay Johnston wrote in the Sacramento Bee about the states that raised taxes. Jobs are being created there, in very stark contrast to Kansas. Coincidence? I think not… See…

OK. So that’s good.

[ … ]

To read the full versions of this op-ed and my comment, click here.

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