Paul Krugman Provides His Views On The Political Battle In Washington

Krugman believes that the war between the GOP and Democrats is a war over the preservation of the New Deal and Great Society programs.  The fiscal cliff deal left Social Security and healthcare programs intact, and the concessions made on tax policy by the administration are not significant.  He is more worried about future negotiations over the debt ceiling.  The GOP may hold the administration hostage in order to extract more concessions on entitlements.  Obama blinked the last time when the GOP threatened to maintain the debt ceiling, and they may expect him to blink again.

Some progressives disagree with Krugman's analysis.  They argue that all of the Bush tax cuts, even those for the middle class, should have been left to expire. Making most of the Bush tax cuts permanent will reduce tax revenues to the point that future cuts will be needed in social welfare programs; they will also limit the government's ability to make necessary investments in the future.  They see a future in which government will have to play a larger role in the global economy and it must be paid for with taxes.

Reasonable Republicans (there are not totally extinct) raise other issues.  They believe that Republicans are too willing to maintain social welfare programs at their current levels.  Romney backed away from Social Security and Medicare reform in the last election, and he accused Obama of wanting to cut spending on Medicare. Both parties are afraid of trying to sell entitlement reform to the public. It also seems that neither party is interested in raising taxes on the middle class.  They correctly believe that politicians prefer to provide expensive social programs, and pay for them with borrowed money instead of taxes.  That certainly was the favored approach in the Reagan and Bush administrations. Bush attempted to privatize Social Security, and that is still a Republican dream, but he could not make an effective case for privatization to the public. He also added an expensive drug benefit to Medicare prior to the 2004 election without raising taxes.  That may have helped him to win a very close election that was decided by the Supreme Court.

Almost everyone agrees that our major budget issue is the rising cost of healthcare.  Our current system is inefficient and unaffordable.  Neither party, however, has been able to make the necessary changes.  The Affordable Healthcare Act is a step in the right direction.  It extends government benefits to more people, but it does little to reduce the impact of healthcare price inflation. The ACA could pave the way to essential reforms, but Republicans will continue to use scare tactics to resist real change in the system.