Great Leap Forward

Krugman is Right about Simpson-Bowles: The Buzzards Circle the Fiscal Cliff

In a powerful piece, Paul Krugman blasts Alan Simpson as an ignoramus when it comes to federal government budgets: He rightly wonders why anyone takes this nutter seriously:

“Simpson is, demonstrably, grossly ignorant on precisely the subjects on which he is treated as a guru, not understanding the finances of Social Security, the truth about life expectancy, and much more. He is also a reliably terrible forecaster, having predicted an imminent fiscal crisis — within two years — um, two years ago…. So what is it that makes Simpson the figure he is? Clearly, it’s an affinity thing: never mind his obvious lack of knowledge, his ludicrous track record, reporters trust and idolize Simpson because he’s their kind of guy.”

Precisely. The nonsense that comes out of the mouths of reporters is simply amazing. It is very hard to give them the usual benefit of the doubt. They must have been bought off, too.

I am only disappointed that Krugman did not include Simpson’s Siamese twin, Erskine Bowles. After all, the dumb and dumber National Commission on Fiscal Responsibility and Reform created by President Obama was headed by these two (presumably hand-picked by Pete Peterson). Bowles was selected to create the patina of bipartisanship necessary to gut Social Security and Medicare (the real purpose of all the deficit hysteria). It is important for the Democrats to share the blame for this mess. Indeed, since Republicans have always opposed any spending to help ordinary folk, these programs have always relied on the goodwill of Democrats. Unfortunately, the party of FDR has abandoned all principles. They serve only Wall Street, too.

See my piece from August 2011, where I laid out the purpose of the fiscal cliff:

Simpson claims that Social Security recipients are little more than new born calves, seeking to suckle the teats (he says tits, apparently confusing his cow with his wife) of our hard working cows down on Wall Street, who’d like to destroy Social Security so they could manage and lose retirement savings in the next big bubble

Now, wait a minute. About three quarters of all Social Security recipients are retirees—those who have worked hard all their lives, contributing to American production. They gave us the living standard we now enjoy. Since 1935, government has held out the promise to all workers: work hard and long and you will enjoy a decent retirement. How can we possibly compare that to suckling the teats (or tits) of 310 million cows? The other quarter of recipients are dependents—widows, children, and people with disabilities. Is the metaphor appropriate?

Social Security, Medicare, and Medicaid—the greatest remaining New Deal and Great Society programs—together comprise our most important safety net. Indeed, Social Security has contributed more than any other government program to poverty reduction, and it is the most important source of income for the majority of American seniors. It is an intergenerational promise, our most important one: if you work hard during your working years, tomorrow’s workers will take care of you in your old age. And if you should become disabled or should die, your co-workers will take care of you or your family. And if you can survive to age 65, you finally get decent health care coverage.

To be sure, such a promise is precisely that—no more, no less. We cannot hold future generations to such a promise. But we can sure as heck protect Social Security, Medicare, and Medicaid today from those who want to dismantle it.

The countdown is nearing the fore-ordained conclusion, March 1 when the automatic cuts begin to suck $600 billion out of domestic spending plus another $600 billion out of the military. With luck, the coming cuts to air traffic control and airport security won’t lead to deadly crashes, but they sure will create havoc at the airports. From the point of view of Bowles-Simpson, the more chaos, the better. All the more fuel to the Peterson flaming of Social Security. The buzzards are readying to circle the kill.

Make no mistake. The President as well as both houses of Congress are solidly aligned to gut these programs. That is what the Rube Goldberg machinery is all about.

It is time to get out the pitchforks to destroy the doomsday machine Washington is creating for us.

Last night I gave the Steinhardt Lecture at Lewis & Clark College in Oregon. The title was: “Fiscal Cliffs, Debt Limits, and Unsustainable Deficits: Can the US Really Run Out of Dollars?”. I understand that the video of the talk will soon be available. Meantime, I attach my powerpoint of the presentation. I think you already know the answer to the question posed in the title!

Portland Fiscal Cliff pdf

15 Responses to “Krugman is Right about Simpson-Bowles: The Buzzards Circle the Fiscal Cliff”

terryFebruary 23rd, 2013 at 2:50 pm

Yep krugman thinks everything is fine here in the USA. Is he unemployed? Is he hungry? Why would anyone believe what krugman or any other economist blow out their blab hole. The fact of the matter is, it doesn't take an educated bum to figure out that you can't spend more than you take in. The mumbo jumbo that any economist might give you is bull and any one who hasn't figured this out deserves to go down the tubes with the likes of the bums.

jonf34February 24th, 2013 at 2:40 am

I never thought a Demoratic President or Senate would make cuts to SSMM. If anything, I thought they would increase them. But when he appointed that catfood commission I believed it. That would have been an utterly unforced error, and Obama is not noted for that sort of thing.

Then there's the sequester. He approved it and now wants to back away from it. Hell, he even said he would veto any attempt to change it. Ah there's the rub; me thinks he just wants to replace it with cuts more to his liking, what he has always wanted: SSMM.

But the so called progressives in congress, almost to a person, are silent. Makes you wonder if Obama or any of them care a wit about their legacy. What is that anyway? We will remember, even if they conveniently forget.

lrwrayFebruary 24th, 2013 at 4:59 am

Terry: I'll try to be kind. Sometimes silence preserves doubt about one's understanding of the issues at hand. Actually, it does take some education to understand issues surrounding sovereign spending. You are in need of some.

PZFebruary 26th, 2013 at 8:41 am

Now Krugman is saying that Germany did have trouble with it's unit labour costs and it had to make an adjustment.

Specificially he says that Germany's ULC peaked at 2003. But in 2003 Germany's current account was already 2% in the positive:

After this so called adjustment balance moved to 6-7% postitive.

I know many economist think like Krugman. It would be nice to see you commenting on contemporary economic issues that occupy policy makers minds these days such as this mr. Wray.

SichFebruary 26th, 2013 at 5:48 pm

Yes, its elementary my dear, all great sovereign nations (with the ability to print their own money and issue debt denominated in their own currency) were built by governments that recognized they must spend money on frivolity and folly when their people cannot. Debt is of no concern. The only constraint being what is currently demographically impaired inflation, we need not worry about any future working generation.

jerryFebruary 26th, 2013 at 8:26 pm

"he says tits, apparently confusing his cow with his wife"

Pure gold..

With lines like that, it amazes me that WSJ or the Financial Times don't publish your blogs 🙂

evodevoFebruary 27th, 2013 at 12:53 am

"you can't spend more than you take in"

Sure you can, and you probably do … do you own a car? a house? have a mortgage? then you are, by your standards, bankrupt, right? I mean unless you paid cash for them, you are making car and/or mortgage payments, right? If the lenders were to come in today and demand their loan principal, you would be out of luck. But you AREN'T, because you took out loans and are paying them off over a period of years.
Duh. Same as the fed gubmint. They issue bonds that are sold, and they use the money, which they promise to pay back with interest in 1, 2, 5, 10 or 30 years, same as you.
Don't start with that "balanced budget" dreck.

DismayedFebruary 27th, 2013 at 2:31 pm

Your ignorance is on public display. All government spending is not frivolous. The CCC did tremendous work during the Great Depression. And there are many other government projects that created great wealth, such as rural electrification, Hoover dam, Grand Coulee Dam, the Golden Gate bridge, the Interstate Highway System, municipal water supplies. The list is long, and your ignorance is deep.

guestFebruary 27th, 2013 at 4:33 pm

Actually, you can "spend more than you take in." Everyone does it with our credit cards- I'll bet Terry does too. That's why our debt is greater than all the money we make. Government just does it on a huge scale. Remember, Reagan raised our national debt from 930 bil to 2.6 tril in his eight years. What a guy!

JsayingMarch 5th, 2013 at 11:37 am

While I agree with your premise that there are favorable ways to spend tax dollars and borrowed dollars such as the ccc and the interstate highway system which you aptly point out, where is the beef in the current administrations policy bag…no grand plans, no targeted spending just transfer payments….. One might say the spending is largely something for nothing. So where the interstate highway system was designed for the military with the unintended or intended consequence of improving the us transport system, this administrations spending is focused on those things that deliver votes not improvements for the benefit of the country. Also I might add that my grandfather was a beneficiary of the building programs during the great depression in Ohio where literally he dug ditches that were filled by another group approximately 1 mile behind him. So the question is why don't we require the same for the transfer payments that being made? We don't even pretend these are productive endeavors anymore.

JsayingMarch 5th, 2013 at 11:42 am

You are right….now let's assume my budget is just like the governments….50% financed inside 5 years and interest rates rise 400 basis points in the short term…..hmmm now those interest payments cost $800bn or nearly a jump of 600 Bn….turn that to my household debt largely financed with 30 year debt in the form of a mortgage….the rise doesn't affect me at all… budget is safe. How is the Feds…not so good…debt payments will essentially wipe out the nondescretionary part….in other words again bringing it back to your example I have the money for my mortgage but gas repairs and healthcare are all now beyond my reach….

L. Randall Wray L. Randall WrayMarch 6th, 2013 at 2:00 am

You are not sovereign currency issuer. Your point? Get your own country and create a sovereign currency and then you get to play sovereign. Kids, try this at home!

L. Randall Wray L. Randall WrayMarch 6th, 2013 at 2:02 am

Point? I guess you’ve never worked construction. You ALWAYS need to fill the holes. What, you want potholes and trenches everywhere? I’ll bet your granddad was pulling your leg, anyway, just seeing how gullible you are. If you want to see the useful projects of the WPA’s 8 million workers, just get out of your darned basement.

QuintonMay 9th, 2013 at 12:49 am

I understand Krugman continues to be annoyed that there is high unemployment in the USA – Krugman does not think "everything is fine here in the USA.