Confusing the General Fund Deficit and the Unified Deficit

I have written many times that balancing the unified budget is basically leaving the general fund deficit to be as large as those rather sizeable Social Security Trust Fund surpluses. It seems certain critics of Paul Krugman – such as Donald Luskin have never understood this simple point. Donald fails to acknowledge what Mark Thoma and Brad DeLong have written about this hit job from Ruth Marcus even as he praises her hit job. Ms. Marcus provides cherry picked quotes from Paul’s 2000 criticisms of George Bush’s phony free lunch fiscal promises and a quote from this 2001 criticism:

Ever since Mr. Bush was sworn in, however, it has been apparent that he takes some of his promises more seriously than others. And so no sooner were big tax cuts for the rich in the bag – an event followed, with breathtaking speed, by the revelation that revenue projections are in free fall – than administration officials suddenly discovered that the lockbox is a silly idea. Here’s what Mitch Daniels, director of the Office of Management and Budget, said last weekend: ”There is no box, there is no mattress. Paul O’Neill doesn’t have a hole in the backyard where this money goes. . . . What’s unfair is to mislead the American people into thinking this money’s in a box somewhere. It isn’t. That box has nothing but promissory notes in it.” … Because of those facts, merely balancing the federal budget would be a deeply irresponsible policy – because that would leave us unprepared for the demographic deluge, with no alternative once it arrives except to raise taxes and slash benefits. To ease the burden we should run large surpluses for the next decade – surpluses that will pay off the federal debt, and perhaps help purchase assets to back promised payments.

So Paul was saying back then what I just said. Balancing the unified budget will leave a huge hole in the general fund deficit, which of course, is the GOP plan to abuse Social Security reserves to give tax cuts for the rich. To suggest that Paul was saying the Social Security financing had some crisis is simply dishonest. Over at Brad’s place, one Stuart Buck claims Krugman has done a 180 using this 1996 piece as his evidence. But it might help to read what Paul said back then rather than the cherry picked quotes that Stuart takes out of context:

In this silly season politicians are once again promising that we can have it all – that we can cut taxes, spare every popular spending program from even the smallest cut and still balance the budget. Nobody really believes them; if the public is willing to indulge such fantasies, it is because it does not, when all is said and done, really take the budget deficit seriously. After all, we have run huge deficits year after year as far back as anyone except economists can remember, and the sky has not fallen. Where is the crisis? Just over the horizon, that’s where. Through a kind of sound-bite numerology, the political debate over deficits became fixated last year on the seven-year prospect; each party insists that its economic program will balance the budget in the year 2002. Neither will, but that is beside the point. Responsible adults are supposed to plan more than seven years ahead. Yet if you think even briefly about what the Federal budget will look like in 20 years, you immediately realize that we are drifting inexorably toward crisis; if you think 30 years ahead, you wonder whether the Republic can be saved.

Paul was making several simple points: (1) there is a long-run budget constraint, (2) year by year movement in the unified budget situation are not that particularly information, and (3) if we try to have it all as George W. Bush has tried for almost seven years, then we will have a serious fiscal problem in a couple of generations. Paul was not saying we have a Social Security crisis. But Stuart joins Donald Luskin and Ms. Marcus in the twisting of Paul’s words to make a very stupid argument. I’m sorry but this whole Krugman bashing thing is just pathetic as it allows rightwingers who support George W. Bush’s fiscally irresponsibility to confuse what should be a simple matter. The GOP political leadership wants the general fund crisis so they can bamboozle us into accepting backdoor employment taxes increases (cuts in Social Security benefits that greatly exceed reductions in payroll taxes) to offset the cuts in taxation of capital income. This is the CLASS WARFARE they scream about so much as they execute without such incredible dishonesty and contempt for those who would dare tell the truth.