Lifted from Robert Walmann’s…
Paul Krugman wrote:
The answer all the deficit-panic types offer is basically that we must cut future benefits. But why, exactly, is that something that must be done immediately? If you state the supposed logic, it seems to be that to avoid future benefit cuts, we must cut future benefits. I’ve asked for further clarification many times, and never gotten it.
I am not a deficit-panic type demanding immediate cuts to future benefits, so I can’t answer the question. That won’t stop me from trying. I can think of three answers.
The first is not 1) “Greece Greece I tell you.” Krugman understands this argument. In fact I am quoting him putting words in the mouth of a straw man. He once believed something like the non parody version of this. This is one of the errors he pulls out when he is accused of not admitting errors. The short reply is “Japan Japan I tell you.” The long one is to ask people to explain how the USA could run out of dollars. Greece can go bankrupt because it borrowed in Euros. California can and Argentina did default because they borrowed in dollars. The US Federal government can’t run out of dollars. The true concern isn’t for the debtor (US Treasury) but the creditors who don’t want the value of their dollar denominated assets to be inflated away.
2) We must cut benefits now, because if we don’t we won’t cut benefits later (I favor this one). It is hard to cut future social security and Medicare benefits but it is essentially impossible to cut current benefits. If the USA reaches the point where the can can’t be kicked down the road, taxes will be increased. My guess is that programs with dedicated revenue streams and trust funds will just continue if the trust fund reaches zero, with the general fund paying part of the cost. The fear of the deficit hawks is the so called bankruptcy won’t amount to anything and things will just continue until investors loose confidence in Treasury securities. Even if something is then done, it will include tax increases and probably soak the rich type tax increases. In contrast they might hope to legislate cuts in future benefits for the currently non-elderly. This means the argument cut future benefits now to avoid cutting them in the future is indefensible, because it is insincere. If the aim is to cut benefits rather than raise taxes on the rich, honesty is not the best policy. The argument that an empty trust fund will be like say Lehman going bankrupt and not like Social Security before the Greenspan commission is needed to convince people to accept distant future benefit cuts which they prefer to sharp emergency benefit cuts, but which they like less than current or future planned or emergency tax increases on high incomes.
3) Unfortunately, it might just be me first listen to me first nowwwww. If one’s expertise is in long term budget forecasting, the frank statement that one knows about a problem which doesn’t need immediate attention is a sure way to be ignored. No one likes the prospect of waiting 20 years before anyone will listen. Everyone argues we should listen to them now. But I like explanation 1) better. I think it is about taxes on the rich, because it is generally about taxes on the rich.