Krugman v. Scarborough – The Missing Piece
Princeton economist Paul Krugman was on MSNBC’s “Morning Joe” for about 20 minutes on Monday, talking macro stuff. Later that day, host and former GOP congressman Joe Scarborough published this post mortem: Paul Krugman vs. The World. If you listen to the Krugman segment and then read Scarborough’s treatment of it, you’ll find that Joe consistently misrepresented what Krugman said. But I’m not going to go point-by-point on this. I just want to highlight the key point in Krugman’s argument that everybody else on the panel missed.
When pols talk about entitlement reform, they’re talking largely about Social Security and Medicare. And nobody, on either side, is willing to cut benefits that go to today’s seniors. The result of this political cowardice is that we’re not talking about cutting any spending today. We’re talking about making cuts to future benefits, to the spending of these programs 10+ years out.
Krugman’s point, which he didn’t make well on Morning Joe, is this: if the decision is to cut program benefits starting in 2025, it doesn’t matter if that decision is made today, or in 2015, or in 2020, or in 2025. Not only are we not forced to make that decision today, there’s no benefit to making that decision today. Sure, it’s a decision that will have to be made, eventually, but the urgency is manufactured. The only way this could matter today is if we were talking about cutting benefits today. We’re not.
In fact, if you want to get into incentives, it might hurt the economy to make that decision today. When future retirees are told that their benefits will be lower than they’re expecting, they will change the level of wealth they anticipate needing for retirement, and will modify their behavior now to hit that new figure. Consumption will decline and saving will increase, which would slow short-term GDP growth.
By contrast, we have historically high labor under-utilization. Unemployment’s high and under-employment’s higher. We have a critical need to get the economy moving faster right now. And the longer we dilly-dally talking about things that don’t matter at all today, the more damage we allow to happen to people across the economy today.
Krugman’s right. Again. When will they learn?