Businessman and billionaire Peter G. Peterson, seen at the Clinton Global… ( Jin Lee / Bloomberg )
Wait. Stop. What are we arguing about? I hate to spoil the fun, but deficit hawks and deficit doves are actually in agreement about how this sucker should play out.
There's an old joke in academia about how the disputes there are so vicious because the stakes are so small. In the current debate about the government and the economy, the stakes are not small. But the breadth of disagreement between the two sides is smaller than anyone wishes to acknowledge.
Businessman and billionaire Peter G. Peterson is Mr. Deficit Panic. He's spending a billion of his own dollars warning people about the danger of the growing national debt. And yet, speaking about the deficit to Time magazine in December, he said, "I wouldn't enact any measures to reduce it until the economy recovers properly." In fact, he told Time that he actually favors more stimulus spending, "as long as it's well designed and paid for."
Peterson is a bit confused here. If an economic stimulus is paid for, it ceases to be a stimulus. The borrowing isn't incidental: Spending more than you've got is the whole point. But Peterson's basic scenario is this: Let the deficit grow and don't worry about it until economic recovery, then get serious about reforming entitlements and go ahead and raise taxes if you insist. The national debt is what I care about.
New York Times columnist and Princeton economics professor Paul Krugman is Mr. Don't Worry About the Debt. He believes that unemployment is a much more pressing problem, and that the stimulus at the beginning of President Obama's first term was inadequate. Even now he wants more stimulus, which means more government borrowing and a higher national debt.
Is there any limit on how long we can keep borrowing like this? Yes, Krugman says. When "the economy is robust again," it will be time to start paying down the debt. More specifically, he wrote last year that when the unemployment rate falls to 7%, it will be time to reverse course. Currently the unemployment rate is 7.8%, so we're close.
Krugman probably did not mean actually paying down the debt, since that would involve running an annual surplus, which even Krugman does not see on the horizon. But Krugman and Peterson are in agreement on the right formula: First, you run up the deficit in order to stimulate the economy, and then you reduce the deficit in order to bring the national debt into a safer range.
They just approach this solution from opposite directions. Peterson wants a balanced budget and only grudgingly acknowledges the need for stimulus. Krugman wants the stimulus and only grudgingly acknowledges that there are limits: You can't borrow forever. Nevertheless, the two men — representing opposite ends of the spectrum in this debate — agree on how we should proceed.
There is just one problem: The plan they agree on is impossible. Well, let's say close to impossible. Miracles do happen.
Step No. 1 of the Peterson-Krugman plan is working well enough. We've all done a great job of barely cutting spending, barely raising taxes, not reforming entitlements and, all told, spending about a trillion dollars a year more than we bring in. Plenty of stimulus (though stimulus hawks like Krugman wanted more).
But is there a shred of evidence that the citizenry and our political leaders are ready for Step No. 2? That's where everyone agrees to enough spending cuts and tax increases to close the budget gap. I'll believe that when I see it.
Lately, Krugman has been writing that the deficit is no longer an issue because it is melting away on its own. A report by the Center on Budget and Policy Priorities sees the debt stabilizing at 73% of GDP, provided that growth continues, there is no war or other expensive emergency and Congress comes through with the tax increases and spending cuts to which it has supposedly agreed.
That is, if absolutely nothing goes wrong and there are no big surprises. This minimally pleasant result depends on cuts that Krugman does not approve of. And 73% of GDP is a lot more than we're used to in peacetime.
Krugman and other deficit doves seem to think that the only reason anyone would be a deficit hawk at a time like this is that he or she wants to dismantle the government. They say America needs growth, and the only path to growth is through deficit spending.
Is it not at least possible, though, that some folks really mean it when we say, no, we really are concerned about the effect of the national debt on America's long-run prosperity?
Michael Kinsley, a former editorial page editor of The Times, is a Bloomberg View columnist.