Domestic Policy As Bad As The Foreign Policy

Deficits and Deceit
By PAUL KRUGMAN
New York Times
Published: March 4, 2005

Editorial Link: Here

Four years ago, Alan Greenspan urged Congress to cut taxes, asserting that the federal government was in imminent danger of paying off too much debt.

On Wednesday the Fed chairman warned Congress of the opposite fiscal danger: he asserted that there would be large budget deficits for the foreseeable future, leading to an unsustainable rise in federal debt. But he counseled against reversing the tax cuts, calling instead for cuts in Social Security, Medicare and Medicaid.

Does anyone still take Mr. Greenspan's pose as a nonpartisan font of wisdom seriously?

.....

O.K., enough about Mr. Greenspan. The real news is the growing evidence that the political theory behind the Bush tax cuts was as wrong as the economic theory.

According to starve-the-beast doctrine, right-wing politicians can use the big deficits generated by tax cuts as an excuse to slash social insurance programs. Mr. Bush's advisers thought that it would prove especially easy to sell benefit cuts in the context of Social Security privatization because the president could pretend that a plan that sharply cut benefits would actually be good for workers.

But the theory isn't working. As soon as voters heard that privatization would involve benefit cuts, support for Social Security "reform" plunged. Another sign of the theory's falsity: across the nation, Republican governors, finding that voters really want adequate public services, are talking about tax increases.
The best bet now is that Mr. Bush will manage to make the poor suffer, but fail to make a dent in the great middle-class entitlement programs.

And the consequence of the failure of the starve-the-beast theory is a looming fiscal crisis - Mr. Greenspan isn't wrong about that. The middle class won't give up programs that are essential to its financial security; the right won't give up tax cuts that it sold on false pretenses. The only question now is when foreign investors, who have financed our deficits so far, will decide to pull the plug.

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I recommend you read it all.

Pulling the plug means we could lose a war in which a shot was never fired.

Imagine if China decided to dump all the dollars they own at one time.

Imagine if those that continue to buy our debt no longer think we can make good on repayment.

Imagine those scenarios and others and then think about them happening AFTER the safety net built as a result of the last great crash is dismantled by those who put us in this situation.

If only the Red Staters paid attention in history class when the teacher covered the late 1800's to the 1930's.