by John Hawkins | August 2, 2010 4:52 am
The man who may be the most famous liberal columnist in America, the New York Times’ Paul Krugman, is an advocate of completely unrestrained spending. His attitude, which seems to be shared by the Democratic leadership in D.C., is that America can spend an unlimited amount of money with no serious consequences, that we should do so in order to pump up the economy, and then at some undefined later point, somebody else will have to restrain spending. Incidentally, this was not Paul Krugman’s attitude early on in the Bush Administration. The Paul Krugman from back then sounded a great deal more concerned about fiscal conservatism than the Paul Krugman of today does.
Setting aside the fact that the evidence government spending can drive economic growth in this country is sparse indeed — and that the debt crisis in Europe that’s already hitting Greece and could easily hit us in a few years — at what point do we say we simply admit that we don’t have the money to pursue this liberal economic pipedream any more? Put another way, America has spent far too much, for far too long, and because of that, even if Krugman’s desire to borrow and spend our way to prosperity worked (which it doesn’t), we’re so deep in the red that the cure would be worse than the disease.
Incidentally, lest you think, “Borrow and spend our way to prosperity” isn’t a fair representation of Krugman’s liberal position, here are some of his quotations on the subject:
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. — Paul Krugman
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. — Paul Krugman
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. — Paul Krugman
Shorter Krugman: Obama should borrow all he can, spend all he can, and it’ll all work out for the best.
Yet, it’s worth asking: What makes Paul Krugman believe Congress can control spending? Other than a brief respite during the Clinton years, when Republicans in Congress clamped down and forced a balanced budget, Congress has done a very poor job of living within its means — and keep in mind, we’re no longer just talking about balancing the budget, we’re talking about paying off our massive debt.
It’s fair to note that the Republican Party did a poor job of controlling spending under Bush and is only interested in it now because the Tea Party is twisting their arms. Of course, it’s also just as fair to note that Democrats, even Blue Dog Democrats, have been consistently hostile to spending cuts in every area outside of national defense. That’s why we have a 13 trillion dollardebt — because our government doesn’t have the ability to control its spending. Assuming that they’ll magically be able to do so is like planning that an alcoholic who’s so far gone he’s licking beer out of ashtrays will be stone cold sober when you need him to drive you home. Heck, Barack Obama even admits that he’s planning on running huge deficits for as far as the eye can see; so how can anyone believe we’re going to get spending under control any time soon?
But, what are we hearing about our current level of spending? That it’s unsustainable:
Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. — CBO Director Doug Elmendorf
An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon. Perceptions of a large U.S. borrowing capacity are misleading.
…The current federal debt explosion is being driven by an inability to stem new spending initiatives. Having appropriated hundreds of billions of dollars on new programs in the last year and a half, it is very difficult for Congress to deny an additional one or two billion dollars for programs that significant constituencies perceive as urgent. The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees.
We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force, if history is any guide, will not be able to consistently increase output per hour by more than 3% annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments. (We must avoid persistent borrowing from abroad. We cannot count on foreigners to finance our current account deficit indefinitely.)
…Fortunately, the very severity of the pending crisis and growing analogies to Greece set the stage for a serious response. That response needs to recognize that the range of error of long-term U.S. budget forecasts (especially of Medicare) is, in historic perspective, exceptionally wide. Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis. Our policy focus must therefore err significantly on the side of restraint. — Alan Greenspan
The Fed chief made his most urgent call yet to get the nation’s fiscal house in order. His plea came in prepared remarks to the first meeting of President Barack Obama’s commission to tackle the soaring deficit.
“The path forward contains many difficult trade-offs and choices, but postponing those choices and failing to put the nation’s finances on a sustainable long-run trajectory would ultimately do great damage to our economy,” Bernanke said.
…Bernanke also warned that policymakers shouldn’t think that growing the economy – and thus tax revenues – will remedy the situation. “Unfortunately, we cannot grow our way out of this problem,” Bernanke said. “No credible forecast suggests that future rates of growth of the U.S. economy will be sufficient to close these deficits without significant changes to our fiscal policies.”
Bernanke said the federal budget currently appears set to stay on an “unsustainable path.” Hard choices must be made by policymakers sooner, rather than later, to fix this, the Fed chief said.
“No laws are more basic than the laws of arithmetic. For fiscal sustainability, whatever level of spending is chosen, revenues must be sufficient to sustain that spending in the long run,” Bernanke said. — Ben Bernanke
Folks, this country has been spending more money than it can afford for a long, long time and since Obama’s gotten into office, the government has become even more utterly reckless with our tax dollars. As bad as that is, if people like Paul Krugman have their way, the government will engage in a level of spending so extravagant it would make a pimp look like a Sunday school teacher. How can we, in good conscience, run up spending today that American citizens will still be trying to pay for generations from now? It’s not only bad fiscal policy; it’s immoral to sell future generations of Americans into debt slavery that way.
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