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Paul Krugman's Stunning Economics Lesson - Denial of the Obvious

Paul Krugman Preaches the Mantra of, "Don't Worry, Be Happy": The National Debt and Spending are Not Problems! Oh Yes They Are, Professor!

With due respect to the intellectual syndicated columnist Paul Krugman, his column in Saturday's Pittsburgh Post-Gazette and other essays he has written cause me to conclude that he resides in another universe.

Here are some excerpts from Krugman's "pearls of wisdom":

"The budget deficit isn't our biggest problem, by a long shot. Furthermore, it's a problem that is already, to a large degree, solved...The deficit will come down as the economy recovers...will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much... the budget outlook for the next 10 years doesn't look at all alarming...Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here's a question you almost never see seriously addressed: Why, exactly, should we believe that it's necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?...At this point, "reform" proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?...The point is that the case for urgent action now to reduce spending decades in the future is far weaker than conventional rhetoric might lead you to suspect...So, no big problem in the medium term, no strong case for worrying now about long-run budget issues....neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda..."

This is apparently the credo of, "We are doing just fine now (wrong), but if we ever run into a problem, we will deal with it then. Kick the can farther and farther down the road!"

Professor Krugman writes this as the national debt (that which is on the books) crashes through $16.4 trillion, an increase in the debt ceiling is imperative, and we have unfunded liabilities for entitlement programs that have been estimated at $86.8 trillion.

I find it chilling that this man teaches economics to impressionable students! Can he be charged with educational malpractice?

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DanielBosh January 21, 2013 at 07:57 PM
You're simply reiterating popular opinion about government deficits and debt, but popular opinion is sometimes, if not often, a distorted view of reality. In this case, as a Nobel Prize winning economist writes, I think it's safe to say that popular opinion is fairly off the mark. Popular opinion on the debt originates from the perception that the public debt is analogous to a person's revolving debt account they have on their credit card. And that's pretty accurate -- except people with revolving debt accounts won't exist forever like the government will, they're not paying the most favorable interest rate in the world on their debt like the government is, and they don't have an essentially limitless loan fund that they can draw on like the government. Those three distinctions make an enormous difference in how the government can and should manage its debt. Remember that the $16 trillion in debt has not magically appeared in Obama's term or even in modern history. It's been accruing since 1835. It's been 177 years and we haven't paid it off, and that's because we don't need to pay it off. Because of the three distinctions in the nature of the government's debt I have outlined, it is a perfectly rational and arguably beneficial debt management strategy to only pay what you could call the "minimum payment" in terms of a person's credit card account. We've been doing it for the better part of 177 years, and Krugman's point is that there is no immediate reason to stop.
DanielBosh January 21, 2013 at 08:21 PM
The only reason to start paying down the debt is if interest rates rise (people lose confidence in the government to repay its debts) or that the debt servicing payments increase faster than the the government's revenue for such a long time that the debt payments become too large a portion of the government's expenditure. Those are the conditions that existed in Greece and Spain. Those conditions simply don't exist in this country. And they aren't projected to exist for decades even if we keep fiscal policy exactly the same. The government has as you say "kicked the can" down the road on medicare and social security for the past 30 years and it has worked just fine. Since the 70s medicare has been projected to become insolvent in the next 2-10 years, but it hasn't because we've successfully adjusted policy to extend the programs lifetime time and time again. What Krugman wrote -- that structural problems with entitlement programs are best addressed as they arise -- is fully supported by the history of the programs. Please read this report of the history of the projected insolvency of medicare and realize that policy changes are what have continually pushed those projections back: http://www.fas.org/sgp/crs/misc/RS20946.pdf
greg January 21, 2013 at 10:05 PM
How about raising revenue by creating an environment that increases job creation. Take millions of people from receiving unemployment checks to receiving paychecks. Paychecks equal tax revenue and more goods and services purchased, pretty much the opposite of what we have now. Combine that with a balanced budget and cutting government waste sounds like a winning combination to me.
Oren Spiegler January 21, 2013 at 11:05 PM
You have made excellent suggestions to foment prosperity and stability, Greg. If only more of our elected officials wished to implement them. Many come into office promising to eliminate or diminish "waste, fraud, and abuse", yet it rarely happens. I do not know that we will ever see a balanced budget again in a nation which borrows forty cents of every dollar spent and which will be in utter turmoil when interest rates rise, as eventually they must. When that happens, our interest on our massive debt alone will be hundreds of billions of dollars per year.
greg January 22, 2013 at 01:19 AM
Unfortunately we get the government we deserve, well the majority of us. Our politicians are a reflection of ourselves. It is like a community wanting to run a porn shop out of town because is is beneath their community standards. If it was really beneath their standards it would lack patrons and go out of business on its own. I mean just look at the shows we watch, Jersey Shore, Honey Boo Boo, Housewives of whatever county. Is it really surprising that Santa Claus Obama got reelected? Greg
Oren Spiegler January 22, 2013 at 01:22 AM
I very much appreciate your comment about the slop which passes for entertainment today, Greg. It is a sign of depravity, a "dumbing down" of our culture.
Roger January 22, 2013 at 01:33 PM
Daniel, can we presume the toe of your shoe is very beat up?
DanielBosh January 23, 2013 at 02:08 AM
Anybody who asks if they can presume something shouldn't be take seriously. It's inherent in presuming that you haven't sought or asked for a definitive answer. Once you've asked you're no longer presuming. So the answer to your question is that no, you can longer presume that. What you meant to say is "is it fair to presume..." Remember this is the same guy who thought that going over the fiscal cliff would add to the deficit. He's a real authority on public finance.
greg January 23, 2013 at 02:36 AM
It is amazing that in our personal affairs we would never want to leave our children our debts but as a country we are OK with living it up on our children s and grandchildren s dime. How exactly are we rationalizing that?
Roger January 24, 2013 at 10:46 AM
With the vote yesterday, Game Over. Daniel, you are right, there is no need to presume. We know that Paul Krugman, plus many others, need a fund for buying new shoes.
Michele Baum January 24, 2013 at 04:40 PM
It's not like we're starting from zero. Just how are we NOT paying the bills from our parents, grandparents, and great-grandparents now? Very, very few people are "living it up." I have yet to meet a poor/disabled/otherwise social-services needing person who relishes the lifestyle. A lot of people on these boards want the government to cut spending on entitlements and cite fraud and waste. Fine. Cut them all. Let's have a means test for Social Security and Medicare recipients to start on some of that waste. Aggressively investigate and prosecute cheats big and small to cut fraud. Evaluate programs using objective, rational metrics with which to base decisions about continued funding. Move on to meaningful tax reform that proportionally shares the burden among business, industry, nonprofits, and citizens. Next step? Wake up because it's a dream.
greg January 24, 2013 at 11:10 PM
I am 54 and do not recall being left a 16 trillion plus deficit. I do remember 3% unemployment, adequate government safety nets and good paying jobs that could support a one income family. Lets not make tough decisions and fight our way back, lets have more government healthcare (it is your birthright), more Obama phones, more free contraception, more daycare for families forced to have 2 person incomes to make ends meet. As long as the Chinese will lend us money to spend like the guy who makes 50k/year and spends 80k/year lets just stay the course,

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