Galbraith vs. Walker in the Fiscal Stimulus Debate

Obama adviser Jamie Galbraith is everywhere these days. His new book The Predator State is reviewed by Benjamin Friedman in the NY Review of Books. He's quoted in the NY Times today stating the obvious about the conflicts of interest of Goldman alumni working at Treasury, and he's gleefully taken the chief antagonist role in this very stimulating debate at the National Journal site.

There exists a species of DC policy thinker dedicated to the proposition that the greatest threat sto the country are its long-run obligations under Social Security and Medicare. Even in normal times, these are exaggerated claims. With Medicare, the problem is that costs are skyrocketing for the entire health care system, not just the program. And with zero changes in policy, Social Security could pay full benefits for the next 33 years, and afterwards still pay 78% of scheduled benefits. For Medicare, the task at hand is reform of the entire health care system, while for Social Security, just minor tweaks are needed, and there's no hurry. But of course these are not normal times.

On the National Journal site you have several in this crowd who, when asked "Is there room for fiscal stimulus?" all grudgingly respond in the affirmative, but then they leap across a logical Grand Canyon to say that a stimulus should be used as a pretext for cutting Social Security and Medicare. Huh? David Walker goes even farther and says it says we need to address the "super sub-prime crisis associated with the federal government's deteriorating finances."

Galbraith rightly calls Walker out for trying to hijack the language of the financial meltdown. The financial crisis has nothing to do with the long-run entitlement picture. I hope that "super sub-prime crisis" doesn't become the metaphorical safety blanket for every policy wonk arguing that his/her issue is the do-all and end-all for humanity.

In a response to Galbraith, Walker digs in even more deeply, again invoking the current financial woes and saying that he wants "to prevent a similar but larger and potentially more damaging breakdown in the federal government's own finances." This doesn't make any sense at all. There is no situation that the federal government could face with its own finances that would be "similar" to the current crisis.

The danger is that enough people might be confused by this rhetorical jujutsu into thinking that we can't afford the fiscal spending that's desperately needed to stave off the coming deep recession. I count myself firmly in Galbraith's camp on this one.