Eduardo Porter makes the case against austerity now (when unemployment is high)—but he wants to see austerity in the future (when, presumably, full employment is achieved). In other words, Porter believes we should be Keynesians now and switch to being neoclassicals somewhere down the line.
But there’s a fundamental asymmetry in Porter’s view of austerity: in the Keynesian moments, stimulus comes from a combination of tax cuts and spending increases. But later, in the neoclassical moments, he focuses only on spending cuts.
Fortunately, there is a way to square the circle, if only our political masters could overcome their partisan animus to embrace it. The answer is to combine some stimulus in the present — via tax cuts or more public spending — with transparent, legally binding initiatives to limit spending in the future.
For instance, the administration could propose raising the retirement age a decade down the road. It could also save a lot of money by rejiggering Medicare’s cost-sharing formulas. The higher-income elderly could be made to shoulder a larger share of their health care costs in the future.
Swapping future cuts in Social Security and Medicare for more spending today will not be an easy deal. Liberal Democrats will balk at trimming the social safety net. House Republicans appear immune to any fiscal compromise.
The Obama administration has tried some of this at the margin. It proposed changing the price index used to adjust Social Security benefits, slowing their rise. It has had no success.
But a deal along these lines offers a plausible political path toward an economic policy that is not quite as self-destructive as the one we’ve got. The goal: Keynesian today, when the economy needs it, but not tomorrow.
Well, what happened to tax increases?
Because the Porters of the world take tax increases on wealthy individuals and large corporations off the table, austerity is guaranteed—either now or in the future.