Voodoo Economics

Paul Krugman did not set out to become chicken little. When he started writing his economics column for the New York Times in January 2000, "everything seemed to be going right," he says. "It had seemed we'd moved into an age of fiscal responsibility." But by the time George W. Bush's campaign caught fire that spring, Krugman had discovered his great subject: the disconnect between the rhetoric of the Bush people ("No child left behind") and the reality of their policies ("Get your greedy-ass government hands off my money"). Though the president's poll numbers have soared since the 9/11 attacks and two successful military campaigns, Krugman has pummeled Bush from all sides with a persistence that would seem compulsive were it not so analytically rigorous. He can take almost any aspect of White House policymaking — tax cuts, deficits, homeland security, white — collar crime, the environment — and in 750 words lay bare the moral, intellectual or economic dishonesty of the president and his political operatives. "This is not just a recession," Krugman says. "Not just an economic challenge. We've gone off the rails." In column after column, Krugman has not only attacked the White House's seeming obsession with tax cuts but also the big lies that the administration has employed to gull the public. "You have to convince a large pool of nonwealthy voters that these policies will benefit them," he says. This fall, he puts all this bracing gloom between hard covers, in his book The Great Unravelling: Losing Our Way in the New Century. Krugman talked to Rolling Stone in his office at Princeton University's Woodrow Wilson School of International Relations, where he is a professor of economics.

Can you give us a quick rundown of your view of President Bush's economic policy?
We have a sluggish economy, which is, for all practical purposes, in recession — whatever they say officially — and the budget's just gone out of control. And so what they're proposing is a tax cut that will lock in long-run tax cuts that will help push the budget further into the red zone and do very, very little to actually pump up the economy right now.

The White House is now proposing a tax cut of about $500 billion in the next ten years. Is this a significant amount of money, in terms of government spending?
Roughly speaking, we've got a $10 trillion economy and a $2 trillion budget each year. So $500 billion over ten years is not much, with respect to either one. In some ways, that's a misleading number. You know, if you take the original Bush proposal, it's $726 billion over ten years. But if you look at the ancillary stuff like Social Security savings accounts, we're actually talking about something that will, in the end, be subtracting something like an additional one percent of GDP from government revenue.

At this point, the budget deficit is bigger than all nonmilitary discretionary spending combined. So even if you eliminated the court system — eliminated everything except for Social Security, Medicare and government pensions — you'd still have a deficit.

How does the Bush tax cut compare to the Reagan tax cuts of the 1980s?
Well, the combined Bush tax cuts — the one in 2001 and the one that he's now proposing — end up being bigger. And the thing, of course, is that we're twenty years closer to the point when we have to face the big, looming problem. The reason to worry about deficits is not what they do now but how do we cope with all of those baby boomers hitting Social Security and Medicare? If you've run up a large government debt before the baby boomers retire, and you've got overall tax revenue at a level that is insufficient to cover the cost of Social Security and Medicare, then you're setting yourself up for a fiscal crisis. And that's what we're doing.