Old Paul Krugman: The Debt Is No Problem! Spend More! New Paul Krugman: We Can’t Pay Off This Huge Debt!
Barack Obama and the Democrats in Congress have gone on the largest spending spree in recorded human history and all the while, Paul Krugman has not just been cheering them on, he’s been shouting “Spend more” at the top of his lungs. Don’t believe me? Then just take a look at these Krugman quotes,
It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.
How much money can the government actually spend in rescuing the economy? The answer is a lot. It’s not unlimited. A trillion here, a trillion there and soon you’re talking about real money. Vast countries with stable governments, which is us, can borrow up to 100 percent, more than that of GDP, and you work that out — we probably have $10 trillion of running room if we have to use it. I don’t want to get there, but uh, we’ve got a long ways to go.
But what about all that debt we’re incurring? That’s a bad thing, but it’s important to have some perspective. Economists normally assess the sustainability of debt by looking at the ratio of debt to G.D.P. And while $9 trillion is a huge sum, we also have a huge economy, which means that things aren’t as scary as you might think.
…Now, this assumes that the U.S. government’s credit will remain good so that it’s able to borrow at relatively low interest rates. So far, that’s still true. Despite the prospect of big deficits, the government is able to borrow money long term at an interest rate of less than 3.5 percent, which is low by historical standards. People making bets with real money don’t seem to be worried about U.S. solvency.
The numbers tell you why. 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 is there anything to worry about? Yes, but the dangers are political, not economic.
Translation: Don’t listen to these conservatives and Tea Party yahoos! We can borrow lots more money and not have any problems at all.
Well, guess what? Suddenly, Mr. “concerns about the budget deficit should be put on hold” has shifted gears:
In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt.
And that’s what is happening now: as this story in today’s Times points out, the main force behind the gratifying decline in consumer debt appears to be default rather than thrift.
So basically, we can do this cleanly or we can do this ugly. And ugly is the way we’re going.
Shorter Paul Krugman? Pay off all the money I said we should spend? That’s crazy talk!
In other words, everybody who listened to Paul Krugman? This is Animal House. You’re Flounder. This just happened to you (Excuse the language).