16 Sep, 2010 Reuters Blogs, Sarah Palin vs. Simon Johnson and Washington wisdom

Sarah Palin vs. Simon Johnson and Washington wisdom
by James Pethokoukis

This is the kind of thing that really burns me. Here is Simon Johnson, former chief economist at the IMF, over the at the NYTimes econ blog:

The weakness in the Palin-Gingrich position is that while they want to balance the budget, they want to do so primarily by cutting spending. This is very difficult to do, as most of the spending issues over the next 30 years are about Social Security (a little) and Medicare (a lot). …

Cutting or limiting nonmilitary discretionary spending may play well with voters, but it is simply not big enough to make much difference. If Ms. Palin and Mr. Gingrich are willing to put military spending on the table, that would help, but this is fast becoming a taboo subject for all Republicans.

Of course, Johnson is being absolutely ridiculous here. Palin has flat out endorsed Paul Ryan’s fiscal Roadmap for America, a blueprint for radically restructuring entitlements. He is also wrong that cutting defense spending is taboo among Republicans. Plenty of conservatives, at least, think there are lots of smart cuts that could be made. But Washington insiders like Johnson — and most of the people I hear give presentations at symposiums around town — think just like he does. They assume spending can’t be cut, thus taxes must be raised dramatically. So when Palin and Ryan and other true budget hawks actually say “Yes, lets revamp entitlements,” it just doesn’t penetrate their noggins. They can’t take “yes’ for an answer.

Then there’s this: Since 1980, some 30 debt-plagued nations have tried to reduce their indebtedness through such austerity measures as spending cuts and higher taxes. In practically all cases, according to a study by financial giant UBS, the increase in national debt was only slowed, not reversed, by such policy pain. … [Faster growth] is typically how successful countries in the UBS study managed to get their books in order; they grew their economies faster than they added debt. And that means keeping taxes low.