Deficits and Deceit

March 4, 2005
OP-ED COLUMNIST

Deficits and Deceit
By
PAUL KRUGMAN

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?

When Mr. Greenspan made his contorted argument for tax cuts back in 2001,
his reputation made it hard for many observers to admit the obvious: he was
mainly
looking for some way to do the Bush administration a political favor. But
there's no reason to be taken in by his equally weak, contorted argument
against
reversing those cuts today.

To put Mr. Greenspan's game of fiscal three-card monte in perspective,
remember that the push for Social Security privatization is only part of the
right's
strategy for dismantling the New Deal and the Great Society. The other big
piece of that strategy is the use of tax cuts to "starve the beast."

Until the 1970's conservatives tended to be open about their disdain for
Social Security and Medicare. But honesty was bad politics, because voters
value
those programs.

So conservative intellectuals proposed a bait-and-switch strategy: First,
advocate tax cuts, using whatever tactics you think may work - supply-side
economics,
inflated budget projections, whatever. Then use the resulting deficits to
argue for slashing government spending.

And that's the story of the last four years. In 2001, President Bush and Mr.
Greenspan justified tax cuts with sunny predictions that the budget would
remain
comfortably in surplus. But Mr. Bush's advisers knew that the tax cuts would
probably cause budget problems, and welcomed the prospect.

In fact, Mr. Bush celebrated the budget's initial slide into deficit. In the
summer of 2001 he called plunging federal revenue "incredibly positive news"
because it would "put a straitjacket" on federal spending.

To keep that straitjacket on, however, those who sold tax cuts with the
assurance that they were easily affordable must convince the public that the
cuts
can't be reversed now that those assurances have proved false. And Mr.
Greenspan has once again tried to come to the president's aid, insisting
this week
that we should deal with deficits "primarily, if not wholly," by slashing
Social Security and Medicare because tax increases would "pose significant
risks
to economic growth."

Really? America prospered for half a century under a level of federal taxes
higher than the one we face today. According to the administration's own
estimates,
Mr. Bush's second term will see the lowest tax take as a percentage of
G.D.P. since the Truman administration. And don't forget that President
Clinton's
1993 tax increase ushered in an economic boom. Why, exactly, are tax
increases out of the question?

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.

E-mail: krugman@nytimes.com

Posted by Miriam V 3/4/05