THE RETURN OF REAGANOMICS

Stating the Obvious (PAUL KRUGMAN, 5/27/03, NY Times)

Although you wouldn't know it from the rhetoric, federal taxes are already historically low as a share of G.D.P. Once the new round of cuts takes effect, federal taxes will be lower than their average during the Eisenhower administration. How, then, can the government pay for Medicare and Medicaid--which didn't exist in the 1950's--and Social Security, which will become far more expensive as the population ages? (Defense spending has fallen compared with the economy, but not that much, and it's on the rise again.)

The answer is that it can't. The government can borrow to make up the difference as long as investors remain in denial, unable to believe that the world's only superpower is turning into a banana republic. But at some point bond markets will balk--they won't lend money to a government, even that of the United States, if that government's debt is growing faster than its revenues and there is no plausible story about how the budget will eventually come under control.

At that point, either taxes will go up again, or programs that have become fundamental to the American way of life will be gutted. We can be sure that the right will do whatever it takes to preserve the Bush tax cuts--right now the administration is even skimping on homeland security to save a few dollars here and there. But balancing the books without tax increases will require deep cuts where the money is: that is, in Medicaid, Medicare and Social Security.

Yes, that was the Left's theory about the Reagan deficits, but unfortunately they unleashed twenty years of economic boom times and made it
impossible to reform anything but welfare, a lower class rather than a middle class entitlement. Likewise, the Reagan defense build-up turned us into the only credible military power--and therefore, when joined with our economy, the only truly safe investment--in the world. Posted by Orrin Judd at May 27, 2003 8:51 AM