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Paul Krugman's Flight of Fantasy on the Deficit—Again

Noted Syndicated Columnist Advocates More Government Spending, Not Less, in Order to Cure our Many Economic Woes

When then-Vice-President Dick Cheney made the astounding and confounding comment that “deficits don’t matter,” he was attacked by those on the opposite side of the aisle, and rightly so. I have not heard of any such left-wing challenges to liberal syndicated columnist Paul Krugman, who is now repeatedly making a similar argument to that put forward by “Vice,” asserting that the path to strengthening the economy and reducing the rate of unemployment is for the government to spend more, not less.

Krugman seeks to marginalize and diminish fiscal conservatives and deficit hawks by labeling them “deficit scolds,” and proudly proclaims that the country has not yet collapsed yet under the weight of trillion dollar plus annual deficits, touting that interest rates remain low, so in his view, we should continue along our merry way, living for today without giving a hoot about tomorrow, continuing to write checks with borrowed money. Krugman does not tell us that the sole reason interest rates are low is due to manipulation by the Federal Reserve Board nor does he note that interest rates cannot be kept at an artificially low level indefinitely, and that when interest rates rise, the nation’s interest obligations will become unmanageable. Low interest rates have served to remove the urgency for Congress to act to restrain federal spending.

I believe Professor Krugman could not be more wrong, but by the time realizes it, it will be too late.

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Roger January 29, 2013 at 02:11 PM
http://finance.yahoo.com/blogs/daily-ticker/u-still-suffering-depression-conditions-paul-krugman-115430871.html And, the beat goes on. Read the comments that follow as well.
DanielBosh January 29, 2013 at 11:22 PM
You harp on this so march Oren. It's one of the few things that I just completely disagree with you on. Explain why -- if deficits matter so much -- we haven't paid down the debt in almost two centuries. And explain why the only time we have paid off all our debts, in the entire history of this country, we entered what was either the worst or second worst economic depression we've ever had. Krugman's point is not that deficits never matter. There are economists who hold this view; however they aren't exactly mainstream, and Krugman has written explicitly why he disagrees with those economists. His point is that people overstate the urgency of the deficit problem. This is not new. People have been predicting debt related doomsdays since we first took on debt. And the fact of the matter is the debt has grown and grown -- with inflation -- and those doomsday scenarios have never been borne out. It's not that debt can't crash an economy, it's that we aren't anywhere near that point.
Roger January 30, 2013 at 12:54 AM
Daniel, IIR the two most significant issues of why large corporate American does not move forward with plans of expansion, development, new employment, and the like are: (1) US deficit, (2) Excessive US spending. Why do they believe these factors are important before making significant investments in the US? The current path is unsustainable. There is no way to spend our way out of the financial mess. Pouring more money into the system primarily serves to devalue the dollar, making our money worth less on the world markets. Trying to bridge the gap through programs like QE is not what large corporate American is seeking. It matters not how many prizes, degrees, and pedigrees some of these folks have hanging on their wall. Those in positions to make decisions to effect significant change in our economic crisis in 2013 are sitting tough, waiting for some answers to (1) and (2). Answers are not forthcoming, nor does it look like those in a position to do something about it are are capable, interested, or holding the political will to act. All hopes of seeing some clear path as of Dec 31, 2012 have faded. Not only does large corporate America see the problem, but apparently citizens are seeing the problem too. Without something firm as of Dec 31, Consumer Confidence took a big nosedive in January. All polls show the vast majority of citizens (~70%) believe we are on a wrong path. Krugman, et al, can write their stories, but nobody is listening.
Oren Spiegler January 30, 2013 at 01:05 AM
Daniel, your intelligent and civil comments deserve a reply. We shall agree to disagree. My informed view differs from your informed view. The phenomenon of massive debt and deficits is not something which has existed for all or most of American history and prior administrations could not have dreamed that we would today be racking up more than one trillion dollars of debt each year. Based upon the ratio of the debt to Gross Domestic Product and to the entire economy, many economists conclude that time is running out, that we are very close to emulating countries like Greece. Another problem linked to the debt and massive government spending is that entitlement expectations are created which cannot be sustained. Do you believe it is a healthy development, or even a necessary one that we have gone from one in fifty individuals receiving food stamps to one in seven, that half of them have been participants for each years or more, and can you assert that this new dependency is entirely due to the economy? I believe we will soon see which of us is right. I hope it is you.

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