Mindless and Mindful Austerity: Focus

I see that the femina spectabilis Diane Lim is a very unhappy camper:

Diane Lim: Are We About to Let All of the Baby Boomers Off the Hook? (Please, No.): “‘Deficit reduction’ and ‘fiscal responsibility’ are ‘out’…

…‘Critical investments’ and ‘shared prosperity’ are ‘in.’  Deficits are down to an economically sustainable range…. Our policymakers are no doubt relieved to take a break from having to talk about the hard stuff (spending cuts and tax increases) and getting to focus on the nice-sounding stuff (spending increases and tax cuts)…. Dismissing fiscal responsibility as a socially irresponsible idea is irresponsible…. These days if I talk about fiscal responsibility and remind people that our work has barely gotten started… I often get accused of pushing “austerity”–and that’s definitely not meant in a flattering or otherwise positive way. In fact, a common modifier of “austerity” is “stupid” or “mindless.”… Setting up the straw man of “mindless austerity” as an excuse to avoid any smart ways to improve the fiscal outlook actually will impose the worst kind of austerity: the kind that will fall squarely on our kids in an economically wasteful and morally unjust way…

In my view, if one’s calls for long-run “‘smart’ reforms of the tax and entitlement systems” are not to be “mindless”, they need to be accompanied by the following points:

  1. We believe that medical care is a special commodity–one that should be delivered to those who need it, not just those who can afford to pay for it out of their private means–and thus as health spending becomes a larger part of the economy, the proportion of GDP spent by the government on its health-care programs will grow.

  2. We recognize that defined-benefit pensions are very valuable things, and that the attempt to replace defined-benefit pensions by defined-contribution 401ks has been a disaster–plus that many of our firms are not long-lived enough to be able to offer properly-funded defined-benefit pensions–so as life expectancy increases the proportion of GDP spent by the government on Social Security ought to grow.

  3. As long as unemployment is elevated and the real interest rates on government debt are less than the growth rate of the economy, the economy is in a substantial deficient-demand equilibrium and the government ought to be spending more, investing more, and taxing less.

  4. A focus on short-term deficit reduction as opposed to long-term balancing of the 25-, 50-, or 75-year fiscal gap at zero is inappropriate and destructive.

  5. The 25-year fiscal gap is only 1.2% of GDP–a thing that could be closed by simply uncapping the FICA base and the fumes from the carbon tax that we must introduce over the next generation to get our environment on a long-run sustainable path.

  6. The sequester, especially, is simply an awful policy, and ought to be eliminated.

As I think back on things I have read from the CED… they seem rather… thin on pieces making those six points…

So: a challenge for Diane:

Have I missed important pieces of what the CED has been producing? Has it in fact been making these six points as more than ritual qualifiers that do not affect the main thrusts of its arguments?

Or has the CED been in fact mindlessly calling for austerity?

February 20, 2015

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