Yesterday the New York Times reported that the United States is borrowing trillions of dollars under terms that seem "too good to be true" just as a "spending explosion" on benefits programs like Medicare and Social Security is set to begin.
In a series titled "Payback Time: Debt Bomb," the Times details the magnitude of our nation's borrowing and warns of an impending and monumental reality check:
"The government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically."
Replete with charts and stupefying figures (Americans must pay off more than $1.6 trillion in debt by March 31, 2010), the piece states that there is "little doubt that the United States' long-term budget crisis is becoming too big to postpone."
Au contraire, says Times columnist and Nobel Prize-winning economist Paul Krugman, who warned about the very fear mongering about the deficit that the Times was engaged in:
"Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence."
Krugman cites a recent interview during which President Obama warned that "if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."
Krugman's response: "What? Huh?"
"The concerns Mr. Obama expressed become comprehensible if you suppose that he's getting his views, directly or indirectly, from Wall Street.
Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates -- any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar...
A better model [for our current economic plight], I'd argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy -- and saw long-term interest rates fall almost steadily. There's a good chance that officials are being terrorized by a phantom menace -- a threat that exists only in their minds.
Read Krugman's full piece here.
Likewise, economist Dean Baker, who was one of the first to recognize the housing bubble years before it burst, scoffs at the Times's over-hyped debt reporting. Baker's post -- titled, "In Just a Decade the U.S. Interest Burden Could Be as High as It Was in 1992!!!!!!!" -- notes that there is "no evidence presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills and no one cited in this article makes such a claim."
Incidentally, today's Wall Street Journal features more evidence that the Obama administration is rejecting Krugman's advice. "The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit," the Journal reports, citing administration officials.
To call Paul Krugman an economist is akin to calling Al Gore a great climatologist, especially now that the great climate hoax has been revealed:
ReplyDeletehttp://canadafreepress.com/index.php/article/17102
Krugman is a thoroughgoing Keynesian. Keynesianism is in big part responsible for the unnecessary economic decline. Keynes was refuted in real time by such greats as Mises, Hayek ( a Nobel economics prize winner who actually deserved the award) Hazlitt, but the world, like voters today, would rather believe in something for nothing.
Krugman IGNORES that to use the force of government to pick each other's pockets is futile, because those whose pockets are picked have their PRODUCTIVE efforts diminished. Savings, investment, and spending patterns are altered in favor of often if not usually NON-productive, goverNMEnt favored spending. And as anything the government touches is likely to double in cost, 2 jobs are destroyed for every one created.
The debt crisis is real. To ignore our unfunded liabilities (which make the REAL debt on the order of $300K per man woman and child, instead of the bad enough official number of $38K per person) is to put your head in the sand, something Krugman is good at. The ONLY way the debt will be paid is by way of inflation-the creation of money out of nothing. How did that work, say, in Weimar Germany or Zimbabwe?
Ken Van Doren
Wow, is this comment serious? The great climate hoax? Lets take a step back and analyze step by step.
ReplyDeleteKrugman has never promoted gov't picking people's pockets. Instead, he has argued that gov't should be bailing out the workers who actually stimulate the economy, rather than the banks who take home those bailouts in bonuses. To ignore that fact isn't only naive, but also absurd. Government involvement doesn't create productivity? What do you call the post-great depression era where there was an abundance of jobs thanks to government programs like the WEP. And we saw more growth in the economy than we have under the last few decades of reaganomics. In fact, it is these reagenesque policies of less government that have brought down the global economy and led to the current economic crisis. While you may not agree with Krugman, it only belittles your argument to ridicule and berate him. It is important to debate and add to the discussion, but lets use facts rather than rheoteric!
uh.. funny style ))
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ReplyDeleteI don't mean this in a bad way, of course! Societal concerns aside... I just hope that as memory gets cheaper, the possibility of downloading our brains onto a digital medium becomes a true reality. It's one of the things I really wish I could experience in my lifetime.
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