Krugman to "debt hawks": YOU FEED ON THE THINNEST OF GRUEL

shootemwon

This morning's NY Times was just another article by Krugman debunking the crazy myth that America needs to eliminate our debt immediately or go to ? , but today's was particularly good so here it is.

http://www.nytimes.com/2010/06/21/opinion/21krugman.html?ref=columnists

Now and Later
By PAUL KRUGMAN

Spend now, while the economy remains depressed; save later, once it has recovered. How hard is that to understand?

Very hard, if the current state of political debate is any indication. All around the world, politicians seem determined to do the reverse. They’re eager to shortchange the economy when it needs help, even as they balk at dealing with long-run budget problems.

But maybe a clear explanation of the issues can change some minds. So let’s talk about the long and the short of budget deficits. I’ll focus on the U.S. position, but a similar story can be told for other nations.

At the moment, as you may have noticed, the U.S. government is running a large budget deficit. Much of this deficit, however, is the result of the ongoing economic crisis, which has depressed revenues and required extraordinary expenditures to rescue the financial system. As the crisis abates, things will improve. The Congressional Budget Office, in its analysis of President Obama’s budget proposals, predicts that economic recovery will reduce the annual budget deficit from about 10 percent of G.D.P. this year to about 4 percent of G.D.P. in 2014.

Unfortunately, that’s not enough. Even if the government’s annual borrowing were to stabilize at 4 percent of G.D.P., its total debt would continue to grow faster than its revenues. Furthermore, the budget office predicts that after bottoming out in 2014, the deficit will start rising again, largely because of rising health care costs.

So America has a long-run budget problem. Dealing with this problem will require, first and foremost, a real effort to bring health costs under control — without that, nothing will work. It will also require finding additional revenues and/or spending cuts. As an economic matter, this shouldn’t be hard — in particular, a modest value-added tax, say at a 5 percent rate, would go a long way toward closing the gap, while leaving overall U.S. taxes among the lowest in the advanced world.

But if we need to raise taxes and cut spending eventually, shouldn’t we start now? No, we shouldn’t.

Right now, we have a severely depressed economy — and that depressed economy is inflicting long-run damage. Every year that goes by with extremely high unemployment increases the chance that many of the long-term unemployed will never come back to the work force, and become a permanent underclass. Every year that there are five times as many people seeking work as there are job openings means that hundreds of thousands of Americans graduating from school are denied the chance to get started on their working lives. And with each passing month we drift closer to a Japanese-style deflationary trap.

Penny-pinching at a time like this isn’t just cruel; it endangers the nation’s future. And it doesn’t even do much to reduce our future debt burden, because stinting on spending now threatens the economic recovery, and with it the hope for rising revenues.

So now is not the time for fiscal austerity. How will we know when that time has come? The answer is that the budget deficit should become a priority when, and only when, the Federal Reserve has regained some traction over the economy, so that it can offset the negative effects of tax increases and spending cuts by reducing interest rates.

Currently, the Fed can’t do that, because the interest rates it can control are near zero, and can’t go any lower. Eventually, however, as unemployment falls — probably when it goes below 7 percent or less — the Fed will want to raise rates to head off possible inflation. At that point we can make a deal: the government starts cutting back, and the Fed holds off on rate hikes so that these cutbacks don’t tip the economy back into a slump.

But the time for such a deal is a long way off — probably two years or more. The responsible thing, then, is to spend now, while planning to save later.

As I said, many politicians seem determined to do the reverse. Many members of Congress, in particular, oppose aid to the long-term unemployed, let alone to hard-pressed state and local governments, on the grounds that we can’t afford it. In so doing, they are undermining spending at a time when we really need it, and endangering the recovery. Yet efforts to control health costs were met with cries of “death panels.”

And some of the most vocal deficit scolds in Congress are working hard to reduce taxes for the handful of lucky Americans who are heirs to multimillion-dollar estates. This would do nothing for the economy now, but it would reduce revenues by billions of dollars a year, permanently.

But some politicians must be sincere about being fiscally responsible. And to them I say, please get your timing right. Yes, we need to fix our long-run budget problems — but not by refusing to help our economy in its hour of need.

If you all wanna continue to buy into the hysteria promoted by conniving politicians and idiots like Glenn Beck, rather than consider the knowledge dropped by a guy like Krugman who is consistently on the mark, I guess I can't stop you, but just use your head for a minute.
Now ? off deficit hawks

http://www.nytimes.com/2010/06/21/opinion/21krugman.html?ref=columnists

politicalthug202

yeah I like krugman but he is bias he is a keynsian, and im pretty sure conservative austrian economist would
have a different take.

shootemwon

politicalthug202 wrote: »

yeah I like krugman but he is bias he is a keynsian, and im pretty sure conservative austrian economist would
have a different take.

? off. In this country we got a few dissenting voices like Krugman being drowned out by a sea of morons who say "ZOMG GREECE HAD A HIGH DEBT AND NOW THINGS ARE BAD THERE. OUR DEBT IS GETTING HIGHER, SO THAT MEANS THINGS WILL BE THE SAME FOR US AS WHAT HAPPENED IN GREECE". No ? basis in reality.Might as well be sayin "OMFG, GREEK PEOPLE WEAR SNEAKERS, AMERICANS WEAR SNEAKERS, IF WE KEEP WEARING SNEAKERS OUR ECONOMY WILL CONTINUE TO GET WORSE."

Yes, there are intellects out there who have an actual intelligent argument against a Keynesian approach, but they're not the ones dominating the debate, these "sky is falling" maniac deficit hawks are.

bornnraisedoffCMR

Krugman has been discredited time and time again.

lol, Krugman also was saying back in 07 there is no housing bubble. LMAO

He is a classic Keynesian i.e. DEBT MAKES US RICHER!!

The poor guy even said "China doesnt have to buy our debt, we have a Federal Reserve!" ROFL....are you serious?

shootemwon

Ok, CMR, so you don't understand Keynesian economics. Anything else you'd like to share?

getchamoneyrigh

We used Keynesian economics from FDR and that seemed to do alright for next 50 years until Reagan had to come along and cut gov't programs while giving tax-cuts to the rich. Thus, killing the middle class and actually increasing debt.

shootemwon

getchamoneyrigh wrote: »

We used Keynesian economics from FDR and that seemed to do alright for next 50 years until Reagan had to come along and cut gov't programs while giving tax-cuts to the rich. Thus, killing the middle class and actually increasing debt.

but reagan also used deficit spending to get us out of a recession
even he believed in keynesian economics

tdoto88

bornnraisedoffCMR wrote: »

Krugman has been discredited time and time again.

lol, Krugman also was saying back in 07 there is no housing bubble. LMAO

He is a classic Keynesian i.e. DEBT MAKES US RICHER!!

The poor guy even said "China doesnt have to buy our debt, we have a Federal Reserve!" ROFL....are you serious?

lmaoooooooooo i cant even take u serious after this..

Swiffness!

heh, I remember when my display name was "Paul Krugman of the IC"

CMR hated it, of course.

getchamoneyrigh

shootemwon wrote: »

but reagan also used deficit spending to get us out of a recession
even he believed in keynesian economics

Well you could call the tax cuts deficit spending I guess.

shootemwon

getchamoneyrigh wrote: »

Well you could call the tax cuts deficit spending I guess.

Sorry, ? . But point I was trying to make was that even as the economy recovered in the mid 80's under Reagan we were running deficits. Deficits have never prevented economic recoveries.

getchamoneyrigh

shootemwon wrote: »

Sorry, ? . But point I was trying to make was that even as the economy recovered in the mid 80's under Reagan we were running deficits. Deficits have never prevented economic recoveries.

I agree. Just saying that Keyesian economics relies on private business as well as a large government and public sector. Reagan basically cut regulation for private business, cut funding for government programs thus eliminating public jobs, and lowered taxes. It would seem to be that it is the opposite of Keyesian economics.

Keyesian economics led to the greatest economics expansion in history. But with the 1973 oil crisis, suddenly the conservative movement started to take hold and say that we need to cut debt, decrease regulation ect. ect. basically what they still say today. What should have been done with that crisis is MASSSIVE SPENDING on government funds for private business/programs to create alternative energy and/or more Keyesian economics.

See almost 40 years after that oil crisis, we still have not fixed the problem. Thanks conservatives!!!!

shootemwon

getchamoneyrigh wrote: »

I agree. Just saying that Keyesian economics relies on private business as well as a large government and public sector. Reagan basically cut regulation for private business, cut funding for government programs thus eliminating public jobs, and lowered taxes. It would seem to be that it is the opposite of Keyesian economics.

Keyesian economics led to the greatest economics expansion in history. But with the 1973 oil crisis, suddenly the conservative movement started to take hold and say that we need to cut debt, decrease regulation ect. ect. basically what they still say today. What should have been done with that crisis is MASSSIVE SPENDING on government funds for private business/programs to create alternative energy and/or more Keyesian economics.

See almost 40 years after that oil crisis, we still have not fixed the problem. Thanks conservatives!!!!

I guess this is when CMR is supposed to say that your post proves you know nothing about economics and then refuse to explain why that is. *waits*