Wednesday, March 06, 2013

There is no long-term budget problem

By Frank Moraes 

Alan Blinder is a economics and public affairs professor at Princeton. Recently, he got placed in the middle of the argument between Paul Krugman and Joe Scarborough when Scarborough claimed that Blinder was on his side. Blinder didn't like that much. Yesterday, he wrote a short article at Politico, "Morning Joe's Accuracy Deficit." He says that he and Krugman only disagree about some very minor details.

Blinder claims there are three issues regarding the budget. In the short term, we are already doing too much deficit reduction. In the medium term (ten years), we have already done about what we should do. And in the long term, things are going to be very bad indeed. He is right about all this. The problem is that, like most people (including Krugman at times), when it comes to the long term, he is being deceptive.

In his new book, After the Music Stopped, Blinder claims:

The government can cover no more than a small fraction of the projected deficits by raising taxes. Sorry, Democrats, but the Republicans are right on this one. Americans are used to federal taxes running about 18.5 percent of GDP; they will not allow them to rise to 32 percent of GDP. Never mind that a number of European countries do so; we won't.

The problem is not that these numbers are wrong. The problem is that if we don't get our health-care system under control, funding Medicare will be the least of our problems. Rising health-care costs will eventually destroy our whole economy if we don't do something to rein in costs.

There is no reason to talk about long-term budget deficits when the problem is long-term health-care costs. All the solutions to this long-term budget problem revolve around providing less health care. But even doing that will not save the government if health-care costs keep increasing much faster than inflation. What Blinder ought to say is that we don't need to think about the budget deficit at all. We need to think about health-care costs. This is not a government issue, it is an everyone issue.

(Cross-posted at Frankly Curious.)

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