Saturday, September 03, 2011

Policy Blackmail Now GOP SOP

Paul Krugman's column Thursday had this about fiscal responsibility and emergency spending and Eric Cantor et al.:
But today’s G.O.P. has decided to bypass all that and go for a quicker route. Never mind getting enough votes to pass legislation; it gets what it wants by threatening to hurt America if its demands aren’t met. That’s what happened with the debt-ceiling fight, and now it’s what’s happening over disaster aid. In effect, Mr. Cantor and his allies are threatening to take hurricane victims hostage, using their suffering as a bargaining chip.

Of course, Mr. Cantor would have you believe that he’s just trying to be fiscally responsible. But that’s no more than a cover story.

Should disaster aid, as a matter of sound public finance, be offset by immediate cuts in other spending? No. The time-honored principle, backed by economists right and left, is that temporary bursts of spending — which usually arise when there’s a war to fight, but can also arise from other causes, including financial crises and natural disasters — are a good reason to run temporary budget deficits. Rather than imposing sharp cuts in other spending or sharply raising taxes, governments can and should spread the burden over time, borrowing now and repaying gradually via a combination of lower spending and higher taxes.

But can the U.S. government borrow to pay for disaster aid? Isn’t the government broke? Yes, it can, and, no, it isn’t. America has a long-run deficit problem, which should be met with long-run budget measures. But it’s having no problem at all borrowing to pay for current expenses. Moreover, it’s able to borrow funds at extremely low interest rates. Notably, right now the interest rate on the benchmark 10-year U.S. government bond is only slightly more than half what it was in 2004 when Mr. Cantor felt that it wasn’t necessary to pay for disaster relief.

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