[Pen-l] Climate of Change

[Charles Brown <cdb1003@xxxxxxxxxxx>]

New York Times 
February 27, 2009 
OP-ED COLUMNIST 
Climate of Change 


By PAUL KRUGMAN 
Elections have consequences. President Obamaâs 
new budget represents a 
huge break, not just with the policies of the past eight years, but 
with policy trends over the past 30 years.
 If he can get anything like 
the plan he announced on Thursday through Congress, he will set 
America on a fundamentally new course. 


The budget will, among other things, come 
as a huge relief to 
Democrats who were starting to feel a bit of postpartisan depression. 
The stimulus bill that Congress passed may 
have been too weak and too 
focused on tax cuts. The administrationâs refusal to get tough on the 
banks may be deeply disappointing. But fears 
that Mr. Obama would 
sacrifice progressive priorities in his budget plans, and satisfy 
himself with fiddling around the edges of 
the tax system, have now 
been banished. 


For this budget allocates $634 billion 
over the next decade for health 
reform. Thatâs not enough to pay for universal coverage, but itâs an 
impressive start. And Mr. Obama plans to 
pay for health reform, not 
just with higher taxes on the affluent, but by putting a halt to the 
creeping privatization of Medicare, 
eliminating overpayments to 
insurance companies. 


On another front, itâs also heartening to 
see that the budget projects 
$645 billion in revenues from the sale of emission allowances. After 
years of denial and delay by its predecessor, 
the Obama administration 
is signaling that itâs ready to take on climate change. 


And these new priorities are laid out in a 
document whose clarity and 
plausibility seem almost incredible to those of us who grew accustomed 
to reading Bush-era budgets, which insulted 
our intelligence on every 
page. This is budgeting we can believe in. 


Many will ask whether Mr. Obama can actually 
pull off the deficit 
reduction he promises. Can he actually reduce the red ink from $1.75 
trillion this year to less than a third as 
much in 2013? Yes, he can. 


Right now the deficit is huge thanks to 
temporary factors (at least we 
hope theyâre temporary): a severe economic slump is depressing 
revenues and large sums have to be allocated 
both to fiscal stimulus 
and to financial rescues. 


But if and when the crisis passes, the budget
 picture should improve 
dramatically. Bear in mind that from 2005 to 2007, that is, in the 
three years before the crisis, the federal 
deficit averaged only $243 
billion a year. Now, during those years, revenues were inflated, to 
some degree, by the housing bubble. But 
itâs also true that we were 
spending more than $100 billion a year in Iraq. 


So if Mr. Obama gets us out of Iraq (without 
bogging us down in an 
equally expensive Afghan quagmire) and manages to engineer a solid 
economic recovery â two big ifs, to be sure â 
getting the deficit down 
to around $500 billion by 2013 shouldnât be at all difficult. 


But wonât the deficit be swollen by interest 
on the debt run-up over 
the next few years? Not as much as you might think. Interest rates on 
long-term government debt are less than 4 percent, 
so even a trillion 
dollars of additional debt adds less than $40 billion a year to future 
deficits. And those interest costs are fully 
reflected in the budget 
documents. 


So we have good priorities and plausible 
projections. Whatâs not to 
like about this budget? Basically, the long run outlook remains 
worrying. 


According to the Obama administrationâs budget 
projections, the ratio 
of federal debt to G.D.P., a widely used measure of the governmentâs 
financial position, will soar over the next 
few years, then more or 
less stabilize. But this stability will be achieved at a 
debt-to-G.D.P. ratio of around 60 percent. 
That wouldnât be an 
extremely high debt level by international standards, but it would be 
the deepest in debt America has been since 
the years immediately 
following World War II. And it would leave us with considerably 
reduced room for maneuver if another 
crisis comes along. 


Furthermore, the Obama budget only tells us 
about the next 10 years. 
Thatâs an improvement on Bush-era budgets, which looked only 5 years 
ahead. But Americaâs really big fiscal 
problems lurk over that budget 
horizon: sooner or later weâre going to have to come to grips with the 
forces driving up long-run spending â 
above all, the ever-rising cost 
of health care. 


And even if fundamental health care reform
 brings costs under control, 
I at least find it hard to see how the federal government can meet its 
long-term obligations without some tax increases
 on the middle class. 
Whatever politicians may say now, thereâs probably a value-added tax 
in our future. 


But I donât blame Mr. Obama for leaving some 
big questions unanswered 
in this budget. Thereâs only so much long-run thinking the political 
system can handle in the midst of a severe 
crisis; he has probably 
taken on all he can, for now. And this budget looks very, very good. 


Link: http://www.nytimes.com/2009/02/27/opinion/27krugman.html

_______________________________________________
pen-l mailing list
pen-l@xxxxxxxxxxxxxxxxxx
https://lists.csuchico.edu/mailman/listinfo/pen-l