Politics and the deficit

Fareed Zakaria details three changes that Washington could make to resolve America's long-term budget problems, but notes that they're politically unlikely:

If you take those three things -- health care, middle class entitlements and taxes -- we have effectively solved America's budget crisis. So the good news here is that we have a $14 trillion economy.

There's more than enough money to have a very substantial federal budget, moderate taxes (we are still at the low end of the industrialized world in terms of taxes as a percentage of GDP). So it really is worth thinking about how strange it is, that a fairly sensible set of discreet measures could put us back into a situation where we would be the envy of the world in terms of our fiscal condition.

The steps I outlined are economically simple and sensible and yet they're political dynamite.

Paul Krugman, meanwhile, thinks the current hand-wringing over the budget deficit and the U.S. debt overstates the problem:

But there’s no reason to panic about budget prospects for the next few years, or even for the next decade. Consider, for example, what the latest budget proposal from the Obama administration says about interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush.

Why, then, all the hysteria? The answer is politics.

The main difference between last summer, when we were mostly (and appropriately) taking deficits in stride, and the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama’s image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?

The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.