Low Morale in Berkeley

Brad DeLong’s morale is low. I am not surprised. Mine would be too if I had to waste my time writing 5,000 words trying to explain with tortuous reasoning why the latest Congressional Budget Office report on the Long-Term Budget Outlook – showing debt in public hands rising from 73% of GDP to (in his preferred scenario) 190% of GDP – by 2038 is somehow good news.

My morale would also be low I be if, like DeLong, I had just been publicly humiliated by being named as one of the claque of like-minded bloggers who play a sinister game of tag with [Paul Krugman], endorsing his attacks and adding vitriol of their own”.

Unwittingly, DeLong has proved the truth of one of my three central charges against Krugman and his cronies. They are dishonest.

An honest writer would surely link to my two blog posts (see below) responding to his earlier attacks. An honest writer would not cynically dream up a crackpot conspiracy theory about the absolutely standard correction that was made to my Wall Street Journal piece last weekend. And an honest writer would definitely not write: “People like Niall Ferguson backed up George W. Bush’s claims in 2001 that what America really needed was tax cuts.”

Really? I wonder who these “people like Niall Ferguson” were. They cannot have been very like me, because my position was – sadly for the reputation of DeLong – exactly the opposite.

In The Cash Nexus: Money and Power in the Modern World (written before Bush’s election, but published in 2001), I had argued as follows:

When “generational accounts” are constructed they clearly show that in most developed countries today fiscal policy is indeed “enabl[ing] members of current generations to die in a state of insolvency by leaving debts to their descendants”. … . If Germany were to rely exclusively on across-the-board tax hikes, then tax rates at all levels of government (federal, regional and local) and of all types (value added, payroll, corporate income, personal income, excise, sales, property, estate, and gift) would have to rise overnight by over 9 per cent. The equivalent figure for the US is nearly 11 per cent …
It goes without saying that tax increases are seldom politically popular. What about the alternative, namely a reduction in government transfers (the source, after all, of much of the recent growth in spending and borrowing)? Figure 19 shows that five of the nineteen countries would need to cut all government transfers by more than a fifth to achieve generational balance: Austria, Finland, Japan, the Netherlands and the United States. …
Among other things, this exposes as illusory the budget surpluses realised and blithely projected in the United States since 1997. While presidential candidates debate how to spend these supposed surpluses, the generational accounts of the US remain among the worst in the world: worse, according to the measures used here, than those of Italy. Only if official projections of growth prove to be too pessimistic will the American position improve. (pp. 209f.)

After the terrorist attacks of September 2011, I argued consistently that the United States was not in a position to make a success of its imperial undertakings in Afghanistan and Iraq. My critique of Bush’s fiscal policy can be found in numerous articles from that period, as well as in my book Colossus: The Fall of America’s Empire:

… the arithmetic of generational accounting implies a distributive reckoning at some point in the future. The government sooner or later has to reduce it spending commitments or increase its tax revenues. Regrettably, the Bush administration’s approach to the latent federal fiscal crisis seems so far to have been a variation on Lenin’s old slogan: “The worse the better.” Faced with mounting deficits, the President and his men elected to push three major tax cuts through Congress. Government spokesmen have sometimes defended these measures as a stimulus to economic activity – a version of the ‘voodoo economics’ once upon a time derided by the President’s father. There are good reasons to be skeptical about this, however, not least because the principal beneficiaries of these tax cuts are wealthy individuals. (p. 272, emphasis added)

DeLong attempts to bamboozle naïve readers of his blog with specious calculations, such as:

  1. The present value of the current debt plus all spending on entitlements plus appropriations growing at the pace authorized by current law is 21.5% of GDP over that period.
  2. The present value of revenues plus the debt that can be allowed as of 2038 in order to avoid any deterioration in the debt-to-GDP ratio is 20.7% of GDP.
  3. The difference between them--the difference between projected outlays and projected revenues--is the "fiscal gap": 0.8% of GDP.

As readers of my books know, however, I have long sided with Laurence Kotlikoff on this. Present-value calculations that exclude the unfunded liabilities of Medicare, Medicaid and Social Security and cover a time-period that arbitrarily stops in 2038 are fraudulent accounting worthy of Enron. The correct procedure, as I pointed out in both the books cited above, is to calculate the present value of all the projected revenues and liabilities of the federal government over an infinite time horizon.

Kotlikoff’s work shows that, in reality, the fiscal position of the federal government is, in fact, both disastrous and deteriorating. Here is how I summarize his latest findings in my most recent book, The Great Degeneration:

The best available estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the US Treasury. Notice that these figures, too, are incomplete, since they omit the unfunded liabilities of state and local governments, which are estimated to be around $ 38 trillion. … To illustrate the magnitude of the American problem, the economist Laurence Kotlikoff calculates that to eliminate the federal government’s fiscal gap would require an immediate 64 per cent increase in all federal taxes or an immediate 40 per cent cut in all federal expenditures. (pp. 42f.)

DeLong has form. In the past, I was able to elicit an apology from him – admittedly only a private one – after he wildly called for disciplinary action against me at Harvard for writing a piece critical of President Obama, a call he has disingenuously “deleted” on his blog. He shares with Paul Krugman not only intellectual dishonesty, but also incivility (“Fire His Ass From Newsweek Now”).

But now he has some more apologizing to do. It is clear that, like Krugman, the compulsive blogger DeLong no longer reads many books. We can therefore expect a relatively swift apology from him for this latest, flagrant misrepresentation of my work.

 

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