Reply #27: Voodoo Economics

[Octafish]

SYNOPSIS: Rolling Stone's Will Dana interviews Paul Krugman on the Bush administration's economic policy

SNIP...

DANA: The White House is now proposing a tax cut of about $500 billion in the next ten years. Is this a significant amount of money, in terms of government spending?

KRUGMAN: Roughly speaking, we've got a $10 trillion economy and a $2 trillion budget each year. So $500 billion over ten years is not much, with respect to either one. In some ways, that's a misleading number. You know, if you take the original Bush proposal, it's $726 billion over ten years. But if you look at the ancillary stuff like Social Security savings accounts, we're actually talking about something that will, in the end, be subtracting something like an additional one percent of GDP from government revenue. At this point, the budget deficit is bigger than all nonmilitary discretionary spending combined. So even if you eliminated the court system — eliminated everything except for Social Security, Medicare and government pensions — you'd still have a deficit.

DANA: How does the Bush tax cut compare to the Reagan tax cuts of the 1980s?

KRUGMAN: Well, the combined Bush tax cuts — the one in 2001 and the one that he's now proposing — end up being bigger. And the thing, of course, is that we're twenty years closer to the point when we have to face the big, looming problem. The reason to worry about deficits is not what they do now but how do we cope with all of those baby boomers hitting Social Security and Medicare? If you've run up a large government debt before the baby boomers retire, and you've got overall tax revenue at a level that is insufficient to cover the cost of Social Security and Medicare, then you're setting yourself up for a fiscal crisis. And that's what we're doing.

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