Krugman: Deficit Hysteria Brings Back Memories Of Iraq War Groupthink

New York Times:

These days it's hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we're told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren't stated as opinions, as views held by some analysts but disputed by others. Instead, they're reported as if they were facts, plain and simple.

Yet they aren't facts. Many economists take a much calmer view of budget deficits than anything you'll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren't -- and even the long-term outlook is much less frightening than the public is being led to believe.

Read the whole story: New York Times

Comments

[ElementalPraxis]

05:47 PM on 02/05/2010

Let me see if I've got this straight.

Bush creates record deficits handing money over to the rich ( tax cuts ), expanding wars, and increasing the defense budget... and these deficits are BAD.

Obama creates even larger record deficits handing money over to the rich ( bailing out banks and brokerages and insurance companies ), expanding wars, and increasing the defense budget... and these deficits are GOOD.

If the Left really wants to have more money for 'stimulus' ( whatever that is ), why don't they recommend doing the opposite of everything Bush did, like: immediately withdraw troops and end wars, cancel out all TARP loans in circulation ( $23 + trillion ), and decrease the defense budget?

[swift goat pet for truth]

03:53 PM on 02/05/2010

I am not worried about the deficit.
Not at all. No concern whatsoever.

Why?

Because only the Dems DO something about the deficit. The National Debt.
Clinton.
And Carter

And when the Dems DO SOMETHING about the deficit, the GOPers come along and blow it on dumbStuff.

Why bother?

[hippie chucker]

04:05 PM on 02/05/2010

Clinton managed to balance the budget, with a republican congress, after cutting capital gains, and using some Social Security money.

Oh, and he also was lucky enough to have had the small little revolutionary thing called THE INTERNET come into being under his watch, plus cellphone companies, software boom, etc.....all of which are nice and taxable and employed lots of people.

He never fixed the deficit, though. Just the budget.

[swift goat pet for truth]

04:33 PM on 02/05/2010

First, I never said Clinton fixed it. I said he did something besides raid the kitty.

Secondly, there is credible evidence the Clinton policy helped, not hindered the growth of new technology. It was not ALL luck, though I admit at least some was involved.
For example, he did not encourage shipping those jobs overseas, like the GOPers would have done. Like Bush DID.

[marley22]

03:15 PM on 02/05/2010

Remember, Krugman's in a profession that makes meteorologists look good by comparison.

[swift goat pet for truth]

03:20 PM on 02/05/2010

And meteorologists are right 85% of the time.

[DredLockRasta]

03:45 PM on 02/05/2010

And I wonder what profession are you in?

[marley22]

04:08 PM on 02/05/2010

Why?

[KeysDan]

03:13 PM on 02/05/2010

Groupthink as with the run up to the Iraq war? No, not the same. Bush advocated for the war, and the rest followed along mindlessly. Obama used deficits to save the banking system and the economy; but he let the Republicans and their media cohorts counter him. Obama never adequately explained the need for deficit spending--the economy depends on spending, and if consumers cannot, the government has to, also the deficits are due to eight years of war on two fronts, no jobs and, hence, no income tax being paid. Obama has a lot of explaining to do--but rather than getting his message out, he runs for cover with the first criticisms by the Republicans, and then latches on to their foolish policies, such as we need a spending freeze, we need to cut social security, we need to follow the Republican agenda!

[swift goat pet for truth]

03:19 PM on 02/05/2010

Does not matter if he explained it "adequately."

Most Americans do not understand Keynesian economy.

Seriously, what are Americans demanding?
Jobs.
Who is supposed to supply the jobs? Obama!
You know, the same people who a few years ago said the government can't provide jobs.

And if the govenment supposed to help supply jobs, how do are they supposed to do it without spending money?
GOPers say tax cuts. But tax cuts NEVER work . Oh, more money was taken in the year after Reagan and Bush made their tax cuts, but it was because the previous year was a recession year.
Tax revenues go up EVERY year, the GDP goes up, and those are related.

There is more.
BUT I DOUBT YOU FOLLOWED ME THIS FAR.

[hippie chucker]

04:01 PM on 02/05/2010

Yes, what we should do is raise tax rates back up to the Carter years, I suppose.
Because high tax rates are SUCH a boon to economic development......

[stargazer13]

02:48 PM on 02/05/2010

it is past the time to think now is the time to act !

changing our system now only saves us headaches in the future !!

[jmpurser]

04:10 PM on 02/05/2010

Unfortunately we don't have anyone in either party interested in actual change. Dennis Kucinich excepted of course and I have no idea why he's still in the Democratic party.

[Rope-A-Dope]

02:34 PM on 02/05/2010

Krugman is right. The biggest challenge for Krugman is to get his message into the mainstream. This is a task made more difficult by his new found status as partisan pundit. Accepting a check from CNN as an analyst comes with a 50% downgrade in credibility.

Pity...because he is right.

[consumerist]

02:24 PM on 02/05/2010

This is what I had written in response to Krugman's column today. I think we need to change the way our economic system works else...

I am as liberal and left leaning as one can get in USA. I don't see any real "job growth" in this country. The ONLY jobs available here are:

1. Signing up for the US Armed Forces as the "world policeman"
2. Eternally building bridges to nowhere
3. Becoming a retail clerk
4. Become a lobbyist for special interests, corporations, foreign governments.
5. Become a politician
6. Become a banker-gambler

We cannot employ 100 million of us for the above jobs - we can if we invade every country in the world. So, until I see a real plan for job growth, a deficit budgeting can only keep us on life support for a while and not remove the real malaise.

[Lefty Pockets]

02:29 PM on 02/05/2010

You're absolutely right on this. Life support is better than death but we need a better system.

[consumerist]

02:39 PM on 02/05/2010

I work as a middle manager in high tech in the silicon valley, never been laid off (touch wood). In a way, I have been lucky. However, not all my friends or neighbors have been that lucky. And my concern stems from that as well as from the fact that we are leaving a broken system (oligarchy of corporate chieftains) for our kids which is just not kosher.

I am not rich, nor am I religious. Can I use a salary hike? You bet. Do I need one? No. Why are the oligarchs so greedy? Why do common man throw their hard earned money gambling on Wall Street feeding the Oligarchs and their policies? We should vote with our feet and not buy stock of the companies who don't take social responsibility seriously.

[thinkRegress]

02:20 PM on 02/05/2010

This guy is so washed up and discredited it's sickening people still listen to him. We've been borrowing, spending, and printing in a vain attempt to solve our problems for DECADES and this joker keeps advocating more of the same. It's prolonging our problems and is very damaging for the country.

[Rope-A-Dope]

02:37 PM on 02/05/2010

Krugman is correct in that people back at work raises revenues and pushes down the deficit. It does not eliminate the deficit. Do you support serious REAL health care and entitlement reform? It is one of the biggest problems we face long term and 100% necessary to solving our problems.

[swift goat pet for truth]

03:07 PM on 02/05/2010

Why is it then, EVERY economist reads him.

Some disagree, most agree.

But EVERY economist reads him.

Discredited?
Why wouldn't that be.... YOU?

[gino618]

03:20 PM on 02/05/2010

Most agree?

Do you have a source for that definitive statement?

[marley22]

03:21 PM on 02/05/2010

That's an interesting study you've thrown out there about economists.
I could say EVERY economist reads the comics. Does that make it so, or any less relevant?

[gino618]

02:04 PM on 02/05/2010

Krugman 2003 during the Bush years [deficit at 3% of GDP, 10-year deficit projection $1.8 trillion]: "I'm terrified ... we're looking at a fiscal crisis that will drive interest rates sky-high ... the conclusion is inescapable ... the task is simply impossible ... the fiscal train wreck, is already under way." Or,

Krugman 2009 during the Obama years [deficit at 11% of GDP, 10-year deficit projection $9 trillion]: What's to worry? The Ozzie & Harriet era of government finance will be easy enough to bring back. Just stabilize the debt in terms of GDP and be happy!

The man is a poster-child for blatant, partisan flip-flopping - and wants to pass as an authority for reality-based economic opinion writing? Mr. Krugman if you were frightened about the economy at its point in 2003.... realistically, you should be scared to death at this point.

http://www.scrivener.net/2009/08/krugman-versus-krugman-on-deficits-and.html

[Rope-A-Dope]

02:39 PM on 02/05/2010

the differences between 2003 and 2009 are more than 6 years. it's deceptive and overly simplistic to equate his policies between the two time periods.

[gino618]

02:55 PM on 02/05/2010

Oh, I see - so what you're trying to have us believe is that in 6 years its become ok to have 4 times the amount of deficit / GDP ration and over 4 times the projected deficit in a 10-year projection?

2003 - deficits bad 2010 - MUCH LARGER deficits good?

Who are you kidding?

[swift goat pet for truth]

03:08 PM on 02/05/2010

"Krugman 2009 during the Obama years"

YearS?

[gino618]

03:16 PM on 02/05/2010

Nitpicky, aren' t you? Does that typographical gaffe make the point of his hypocrisy any less ridiculous?

[wadenelson1]

01:50 PM on 02/05/2010

Zimbabwe or Japan. Those are our only two choices.

[billjones224]

02:04 PM on 02/05/2010

Zimbabwe might be better. Quick destruction and then people can rebuild. Japan says rich stays rich and no one else gets any money for twenty five years!!

[moonwatcher]

01:46 PM on 02/05/2010

We suffered massive deficits during WWII, WWI, and the Reagan years. Sure they are a problem but we managed to eliminate them. During Reagan years, the deficit was large because of massive tax cuts. Our economy is in trouble. There is a lot of people unemployed out there and while stimulating the economy will increase the deficits, what is the alternative? massive unemployment, unrest. Where were these people who are so worried about the deficit during the Bush years when he gave large tax cuts. How many jobs have been created then? Reagan told us these tax cuts would increase business investments. I have yet to see trickle down. I agree with Krugman

[billjones224]

02:12 PM on 02/05/2010

You are a fool on all counts. Your comparisons are laughable and you simply don't understand economics. Krugman is a hypocrite!!!

[uniquelyme]

02:55 PM on 02/05/2010

You have just sooo well created a winning arguement against what Krugman says here and presented your own impressive economic credentials, NOT.

[swift goat pet for truth]

03:36 PM on 02/05/2010

why do you know specify where Krugman is wrong?

BTW, I have been looking in blogs for a couple years.
Very very few come up with good arguments why Krugman is wrong.
And that is criticisms by professionals.

[Lefty Pockets]

01:37 PM on 02/05/2010

Debt is not death. That is why just about every company and individual in the United States takes on debt at one time or another. Corporations are constantly taking on debt in order to grow their businesses. The government is no different and its completely understandable that such a large government would have such large debts in comparison to corporations and individuals. Stow the outrage and try to educate yourself on how the real economy works.

[ElementalPraxis]

01:45 PM on 02/05/2010

>>"That is why just about every company and individual in the United States takes on debt at one time or another. "

Companies and individuals make things and perform services. They have cash flows. Governments do not have cash flows. Governments are leaky buckets.They live off an IV transfusion from the people who make things and perform services. They water their own beaks with these taxes and then they sprinkle the rest over their constituencies and campaign contributors. What goes back out is always less than what comes in.

Governments redistribute wealth, they do not create it. If they could create it, they would stop taxing. This is why the rules of debt are different for governments- government can only shove responsibility for its loans onto the backs of those capable of servicing them: those who work.

A government does not borrow on its own. No bank would lend to a government standing on its own. Governments only have borrowing power because they use the collateral provided by the citizens to convince their creditors to give them loans.

[Lefty Pockets]

02:01 PM on 02/05/2010

Governments have cash flows they just don't take profits. And yes the government does make things and provide services. Thanks to investments being made right now with your tax dollars, we will finally have a high speed rail service throughout the country so that we can join all the other civilized countries. High speed rail is just one example of how governments make investments that benefit the economy, creating wealth in the long run. Governments do in fact borrow money directly from banks. They are called treasury bills and they are the linchpin of the economy.

[hippie chucker]

01:46 PM on 02/05/2010

Here's Moveon.org getting "all hysterical" about deficits from Bush, back in the day....
http://www.youtube.com/watch?v=A9WKimKIyUQ

[swift goat pet for truth]

03:38 PM on 02/05/2010

Again, the purpose of the money really DOES matter.

[Lefty Pockets]

01:31 PM on 02/05/2010

Required reading for Tea Partiers. Economic spanking delivered via Krugman always makes my day.

[hippie chucker]

01:43 PM on 02/05/2010

Yes, except that in 2010, Krugman calls the Krugman of 2004 hysterical.

http://www.abc.net.au/lateline/content/2004/s1064193.htm

[billjones224]

01:49 PM on 02/05/2010

Krugman is a hypocrite and every day he is proven to be a joke. Seems like anyone can get a Nobel now a days, look at Gore!

[ElementalPraxis]

03:07 PM on 02/05/2010

I would like to watch a debate between 2004 Krugman and 2010 Krugman.

Opening act should be Campaign Obama debating President Obama over ending the Iraq War in 2009, renegotiating NAFTA, keeping lobbyists out of his administration, using presidential statements, televising health care negotiations, and allowing the public to see all legislation for five days before a vote.

[opusprime]

01:15 PM on 02/05/2010

Keynesian clap trap.

Krugman needs to go back and retake his 5th grade math class.

You cannot escape the math of compounding interest Paul, and the fact that you do not realize this greatly diminishes your credibility.

Debt is death. It is borrowing from future production, and spending beyond your means to pay.

What happens when these foreign governments decide NOT to fund our $1.8 Trillion a year spending spree, and interest rates rise beyond our ability to repay?

Wont hold my breath waiting on that answer...

[SensesFail]

01:37 PM on 02/05/2010

It's always easy to criticize an approach and not offer an alternative, isn't it? Our economy is in bad shape right now. How would you fix it without the government borrowing and spending money?

And if you read Krugman's piece, you'll note that he is IN FAVOR of reducing borrowing (after we are out of this current economic situation): "So once the economic crisis is past, the U.S. government will have to increase its revenue and control its costs."

[billjones224]

01:44 PM on 02/05/2010

so your solution is to fix a problem by creating another problem. If I'm in a boat with a big hole in it, I could cut out another hole and use the wood to plug the first hole but did I solve any problems????? Your question is flawed to ask for a solution for the first problem. Maybe there is no solution for the first problem (sometimes you must pay the piper). No matter if there is or not, you can't create another problem on the "HOPE" it will fix the first problem.

[ElementalPraxis]

02:53 PM on 02/05/2010

There are two ways to give people more economic power.

1- Increase the power of the money they already have. Contract the money supply, allow assets purchased with unserviceable debt to reprice- this deflation adds buying power to the money we already have in circulation. This rewards the people who saved and this punishes the people who chose to exist off credit, but only initially. Once you flush all the bad lending out of the system, the economic power added to the savers through deflation will cause a rebirth of a real supply and demand system, in place of the fantasy 'borrow today, pay in ten years system'.

This is the honest way of repairing an economy with prices distorted by a bloated money supply. It rewards those who lived within their means, and delivers a well deserved wake up call to those who treated cheap loans like cheap cocaine.

2- The dishonest way to repair an economy wrecked by a bloated money supply is to reward the government that borrowed too much and the individuals who borrowed too much, by shoving even more loans at them. This rewards all the bad habits that have brought us to this point.

This is the method favored by the banks. They will gladly let the government and the American people get overextended on credit again. When it crashes again, they will own even more of America as collateral and you will be even more frozen into life as a debt slave.

[SensesFail]

01:44 PM on 02/05/2010

And are you really so naive that you think a Nobel Prize winner who graduated from MIT does not understand the concept of compounding interest? It seems that YOU do not realize that this greatly diminishes YOUR credibility.

Stop oversimplifying the problem. "We shouldn't borrow because of compounding interest." Like it's really that simple.

[ElementalPraxis]

03:22 PM on 02/05/2010

Yes, it is that simple when it comes to compounding interest. It's definitely that simple from the banks' point of view. They only give you new loans so they can keep you upright and paying compound interest, because compound interest is how they capture real assets. Once you are no longer paying down the principal and taking on new borrowing to service older interest charges, they've got you. You're in the net, but you're not yet on the boat.

[karmiczen]

01:11 PM on 02/05/2010

Why was the deficit not an issue when the surplus was being turned into a major deficit during Republican Bush years ? We were marching towards Trillion $$$$$ deficit before Obama was sworn in. This country will always be run by republicans, irrespective of which party wins the election.The Republican leadership knows how to manipulate majority of Americans, who are incapable of thinking for themselves and get their facts from the Fox news, Tea party, all the Republican leaders and other vested interest groups who want to live off the poor Americans. The Republicans have been effective in brainwashing majority of Americans into believing the Iraq war that bankrupted the country was justified, that its the corporations' right to get richer and more powerful, that the vast gap between rich poor Americans is what the average Americans deserve, that universal health coverage and access to good education is NOT good for majority of Americans. They want the masses to stay ignorant so that they can be fed whatever garbage the Republicans feed them. Republicans are no different than the hate spewing Islamic clerics, vitriolic right wing evangelists or ranting communist leaders in China and Venezuela

[gino618]

02:14 PM on 02/05/2010

It WAS an issue - moreso it WAS an issue according to.... wait for it.... PAUL KRUGMAN!


http://www.scrivener.net/2009/08/krugman-versus-krugman-on-deficits-and.html