Krugman vs Summers – And Obama

Nov 15 2011 @ 3:27pm

Felix Salmon watched:

This debate, because it took place within a basically Keynesian, leftist worldview, was very interesting. Both Krugman and Summers spent a lot of time saying that they agreed with each other — with one big difference. They both quoted Keynes as diagnosing “magneto trouble” — the engine of the economy is broken, and it needs to be fixed. Summers has faith that, in Churchill’s phrase, “Americans can always be counted on to do the right thing, after they have exhausted all other possibilities” — the right thing, here, being to fix the magneto with expansionary fiscal and monetary policy. Krugman, by contrast, sees political gridlock as far as the eye can see, and says that it doesn’t matter how innovative or philanthropic or demographically attractive the U.S. is — if you don’t fix the magneto, the car won’t start, and America’s magneto ain’t gonna get fixed any time soon.

As David Leonhardt memorably put it, where debt and politics meet is a hard place to be. It seems to me increasingly obvious that we are collectively going to have to accept a sharp further drop in our standard of living because, at some point of mathematical certainty, the debt will become unserviceable. So our politics, as in Europe, is going to become a scramble for declining resources. A sane and responsible polity will fess up to this and propose and negotiate a fair balance of sacrifice – before the rout happens and chaos determines our choices.

The battle will not just be between rich and poor, or, rather, super-rich and faltering middle class. 131728450It will also be between young and old, which was in some ways what the elections of 2008 and 2010 were. The young won the first; the old won the second. To my mind, as readers know, the bulk of the public austerity should come in entitlement spending and defense, both of which have grown out of all proportion to the economy as a whole. But I cannot in all fairness – and yes, the word is fairness, not equality – support this without returning to the revenue levels of the Clinton years. That we can actually do this while lowering rates (because the weight of the myriad deductions in our insane tax code is so massive) is a huge dose of sugar to help the medicine go down.Which makes the GOP's refusal to do this so outrageously irresponsible, a betrayal of conservatism at its core.

But the GOP is not solely to blame. The president too, by blinking in front of his own deficit commission, is also responsible for the paralysis.

I think a lot of the criticism of this president is piffle. I think he's done an extraordinary job in foreign policy and has kept this country afloat economically in times as perilous as the 1930s. But his refusal to back a specific plan to save our finances, and to do so before the crisis deepens, in order to reverse a potentially devastating confidence collapse in Europe … this is failure of an historic kind. I understand why, politically, this is difficult. But this is a moment for transcending political constraints. This is a "Yes We Can" moment. This is why we supported him – because he seemed someone who could at times transcend politics, for the greater good.

He still can. The super-committee will almost certainly fail. Once that happens, the US will be telling the world it is less capable of grappling with its debt than Greece or Italy. Then what? If Obama seeks re-election just by not being a scary Republican, he will deserve to lose. We need him to campaign for Bowles-Simpson (or his variation thereof) and radical tax reform, and promise he will work with any Republican prepared to help finalize the deal – but that he will do it with Democrats alone if needs be. If that means ceding Medicare as an electoral advantage, so be it. We did not elect him to be a reactive defender of the Democratic machine. We elected him precisely because he said he wasn't that.

I worry that he is going to run on fear. He must run on hope – and a plan that entails risk but promise. This is the moment that will make his presidency. It is no time to think small.

(Photo: U.S. President Barack Obama speaks in the Rose Garden of the White House in Washington, D.C., U.S., on Monday, Nov. 7, 2011. Obama issued three executive orders aimed at helping veterans find jobs and pressed Congress to pass tax credits for businesses that hire former members of the military. By Andrew Harrer/Bloomberg via Getty Images)