A post by Pat
Economics has been called the dismal science. Depending on the political leanings of the economist, it can be bright and happy too. Although Paul Krugman had a dismal assessment of deficits in 2004, he’s now repeating his recent “deficits saved the world” mantra.
Till Debt Does Its Part
Aug 27, 2009
So new budget projections show a cumulative deficit of $9 trillion over the next decade. According to many commentators, that’s a terrifying number, requiring drastic action — in particular, of course, canceling efforts to boost the economy and calling off health care reform.
Right now deficits are actually helping the economy. In fact, deficits here and in other major economies saved the world from a much deeper slump. The longer-term outlook is worrying, but it’s not catastrophic.
According to the White House projections, by 2019, net federal debt will be around 70 percent of G.D.P. That’s not good, but it’s within a range that has historically proved manageable for advanced countries, even those with relatively weak governments. In the early 1990s, Belgium — which is deeply divided along linguistic lines — had a net debt of 118 percent of G.D.P., while Italy — which is, well, Italy — had a net debt of 114 percent of G.D.P. Neither faced a financial crisis.
So don’t fret about this year’s deficit; we actually need to run up federal debt right now and need to keep doing it until the economy is on a solid path to recovery. And the extra debt should be manageable. If we face a potential problem, it’s not because the economy can’t handle the extra debt. Instead, it’s the politics, stupid..
Here’s what he had to say five years ago about Bush’s deficits.
Krugman calls on Bush to reign in the red
Nov 3, 2004
TONY JONES: Influential economist Paul Krugman says the US will face a severe downturn before the end of the decade unless the $500 billion fiscal debt is rectified.
You’re now warning essentially that the engine of the world economy, the United States itself, is heading for a South American style financial crisis. What’s the evidence for that?
PROFESSOR PAUL KRUGMAN, PRINCETON ECONOMIST: Well, basically we have a world-class budget deficit not just as in absolute terms of course – it’s the biggest budget deficit in the history of the world – but it’s a budget deficit that as a share of GDP is right up there.
It’s comparable to the worst we’ve ever seen in this country.
If you look at the actual fiscal situation, it’s much, much worse than it was even at its worst during the Reagan years. One way to say this is we have social security which is a retirement program which viewed on its own is running a surplus.
If you take that out of the budget then we’re running at a deficit of more than 6 per cent of GDP and that is unprecedented.
Mostly it’s because, fundamentally, the Government isn’t taking in enough money to pay for the programs and we have no strategy of dealing with it.
So, if you take a look, the only thing that sustains the US right now is the fact that people say, “Well America’s a mature, advanced country and mature, advanced countries always, you know, get their financial house in order,” but there’s not a hint that that’s on the political horizon, so I think we’re looking for a collapse of confidence some time in the not-too-distant future.
Economics is a rascally subject. It’s said to be the only field where two people who say completely opposite things can win a Noble Prize. Lots of jokes are told about economists like, “How many economists does it take to change a light bulb? Ans: seven plus or minus 10.” It’s a little hard to nail things down although they sure talk like they know something. Professor Krugman’s changing opinion on deficits isn’t a symptom of his field, it is the imperatives of his politics.
Would you agree with the proposition that you’re slowly transforming yourself, in a way, from a pure economist into also something of a political activist?
PROFESSOR PAUL KRUGMAN: Well, yeah, I mean, it’s not what I intended. But I came in writing as a journalist, writing occasional columns in the 90s, mostly about economical fears with a political tinge.
I came to the New York Times intending to do pretty much the same thing.
But then it became clear very early on that the President of the United States was irresponsible and dishonest on matters economic and it turned out that what I learned there was true of other kind of policies as well.
So, I was forced, if you like, just by the arithmetic of understanding how the budget works into a much broader critique of this really kind of scary thing that’s happening to my country.
He was talking about George W. Bush of course.
I don’t understand these people who treat matters of life and death as if they were a debate to be won by the side with the most clever argument. Please, if I ever start supporting “my team” in contradiction of hard reality, take me out and shoot me.
A problem with the new debt, aside from the huge numbers, is that it’s being borrowed from abroad (which obviously wasn’t the case in WWII). So servicing the interest on the treasury bills will mean our government’s top priority is to suck money from American taxpayers and hand it over, not to American investors, but to China. Already we’re in a situation where China could torpedo us without firing a shot. This is insane.
The one thing I liked about Economics, was that it was a science which exalted some theories and discredited others due to rigorous examination. The problemnow is that this field is full of leftist, anti-American professors who have been able to twist economics around for political ends, and one has to watch out. I will graduate with a BS degree in Economics from UW-Seattle at the end of Fall Quarter 2009 ( and I am 45 years old) and the greatest chagrin I’ve expereinced there is that even in the Economics department I have had to be careful with what I say and to whom…I would normally expect this kind of expereince out of something like Politcal Science or Women Studies-but Economics??
“A problem with the new debt, aside from the huge numbers, is that it’s being borrowed from abroad (which obviously wasn’t the case in WWII). So servicing the interest on the treasury bills will mean our government’s top priority is to suck money from American taxpayers and hand it over, not to American investors, but to China. Already we’re in a situation where China could torpedo us without firing a shot. This is insane.”
Exactly. Many of these Leftist professors understand the assumptions of Economic analysis, but treat this as “dogma”, and as such choose to disregard the “dogma” to suit their own ends. This is so even though pure Keynesianism has been discarded (e.g. In a nutshell, pure Keynesianisms the idea that stimulus spending will work beause people getting this extra money will go out and buy things automatically, when in reality they may save the money and not spend it-the idea that workers could go either for saving or spending, depending on the economic conditions they face, is now known as modified Keynesianism). Dr. Paul Krugman, like Rev. Jesse Jackson, carry titles that they use to mislead populace with which to conceal their true agenda.
Does Tammy have an email contact?
Did everyone see the clip of Caroline Kennedy’s daughter giving the crowds “the finger” from her “limo” from the funeral procession? (It’s on Free Republic)
Nice. Classy.
Here’s the link “Kennedy Relative Flips Off Crowd”
That finger was the result of a misunderstanding. She mistook a reference to “the lion of the Senate” as “the loin of the Senate”.
Pat – black and white and I read it all over, twice. Proving that Krugman debates himself in virtual reality is op-ed at its best. I like your style.
Please, people, do us all a favor and stop reading the New York Times. You silence elitists like Paul Krugman through indifference, their egos cannot handle it.