Why Paul Krugman has Ideological Blindness on Debt

Wednesday, May 18, 2011 - 03:00 PM

The National Debt Clock, around April 15th, 2010 (Mellydoll/flickr)

Talking heads of all stripes never can resist cherry-picking data points that show we should be very scared of an impending economic doomsday... if we don't do what they tell us we need to do. Take a look at the overall macro level, though, and you see an economy in the midst of a steady recovery.

It isn't recovering as fast as we would like it to, but as government jobs are being trimmed around the country, the private sector is creating more and more jobs. These new jobs lead to more spending (that isn't borrowed or from government benefits - which also largely comes from debt), and this sutainable growth in income leads to more sustainable demand - the real source of more jobs.

Despite the economic direction trending up, especially in the last few months, partisan zealots like liberal economist Paul Krugman say things like "key economic indicators suggest that the recovery may be sputtering", and says that the recovery we've had isn't much of one. Even if you ignore the fact that he's been singing this tune for a long time, his partisan blindness is illustrated nicely by his insistance that skyrocketing debt doesn't matter - pulling an absurdly appropriate bit of political gamesmanship from the Dick Cheney school of hackery.

He isn't even above naked lies, in claiming, in a recent piece in his column at the New York Times, that those who are trying to drum up support for balancing the budget are against any tax increases to get there. This is easily debunked when you look at proposals from several think tanks that have joined in on that debate, as well as the Fiscal Commission's recommendations, and politicians from both sides of the aisle. He knows this.

He also lies when he says he has no idea where fiscal hawks are getting the two-year mark where they think our debt problems will get significantly worse if we don't act. He knows credit rating agencies are looking at our lack of action on debt and deficit issues and are signalling it is more and more likely that they will lower our national credit rating.

A review of our credit rating will happen within those two years, and lets be honest here. If all of the work being done by a few brave politicians towards changing fiscal course ends up failing, our nation deserves to see its credit rating fall. If a business or individual saw its income drop, and its debt grow geometrically, over a sustained period of time, what do you think that would do to their rating?

Should this happen, the spiral of our debt becomes significantly more threatening, given that our debt will grow even faster than it is growing now, pushing social welfare program spending that liberals claim to staunchly support out of the budget.

It really is sad to see such intelligent man made into such a cartoon by ideological blindness. Krugman is brilliant, but when you put a partisan agenda in his hands, he's just another spin doctor, using whatever voodoo math he can come up with to support his ideologically predetermined position. He's even been caught arguing against economic points he made in the past when he wasn't so involved in political arguments.

We're lucky that there are folks, like the Gang of Six in the Senate, who are putting their necks on the line to try and avert a fiscal disaster with our national debt. If they fail, it will partially be because of people like Krugman fool them into thinking it isn't a problem we need to worry about.

Solomon Kleinsmith is a nonprofit worker, serial social entrepreneur and strident centrist independent blogger from Omaha, Nebraska. His website, Rise of the Center, is the fastest growing blog targeting centrist independents and moderates. He is currently collaborating with other centrist independent and moderate bloggers on a news aggregation and social networking site, and is always looking for ways to help the independent groundswell as more and more people become disaffected with the two major parties


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Comments [9]

Ralph from Mahopac, NY

Also S&P's threat to downgrade US Bonds is not exactly apolitical, and not eniterly based on real economics. It is more a tactic to get the US governemnt from investigating why they had AAA ratings on those "toxic" assets in the housing market up until the day they failed. If the government investigates there will be a downgrade, if not we can keep our AAA rating, blackmail plain and simple.

May. 22 2011 09:42 PM
Jack Jackson from Central New Jersey

Think tanks may be saying that the Feds need to raise revenue as well as cut spending but Grover Norquist has a pocket full of 'No Tax Raise' chits from GOP members and is willing to beat them over the head with them if they vote to increase taxes. Most Americans think a mix of tax increases and spending cuts are required. The GOP wants spending cuts only.

The government collects about $2.1T in taxes, it spends about $3.7T - much of that is countercyclical to blunt the decline caused by the '08 meltdown. Any rapid decrease in gov't spending is ASKING for a new recession but borrowing 10% of GDP must end.

Mr. Krugman had been arguing for a bigger stimulus that would actually have put Americans back to work and made us more competitive. Pick a sector - Education, Transportation, Infrastructure, Manufacturing - especially green Manufacturing...Stimulated growth in any of these areas would leave us better able to compete globally. But the GOP would have none of it because they sensed that it would sink them. The GOP would rather the country suffer than their party be made irrelevant.

Sorry, Sol, I'll leave Krugman in charge of the economics.

May. 20 2011 11:12 AM
Matt S. from NYC

"So if someone keeps predicting that the Rapture is coming next month, oops I mean this other months, oh wait... I mean, in a few months... oh darn, I really meant next year... you're right, they MIGHT be right... maybe... someday."

Ironically, this is the exact same argument that Krugman is making about inflation hawks. We have to raise interest rates to save ourselves from inflation that will doom us! However, they've also been saying this for years.

I've been reading Krugman a lot lately. Though I once, and sometimes still, consider him over the top, he's been far more on the nose than his ideological opponents of late. I don't think he has said that debt doesn't matter. You must be confusing him with Dick Cheney, who said he learned that from Reagan. I think what he said is that we have bigger fish to fry at this moment. Don't stall out our slow but steady recovery by worshipping at the altar of austerity, which is what Ireland has done and Britain is doing.

If I may analogize, you have someone in the back seat of your car with a knife wound. Getting her to the hospital might be a good idea. You've got the car in idle b/c you're afraid to accelerate. After all, gas is very expensive these days, and hey, that stabwound is already starting to heal itself.

May. 20 2011 10:09 AM
Mark from St Martin

Unfortunately Krugman is NOT an exception. Calling what these folks do ideological driven is an abuse of both the word "ideological" and "thinking".

It is actually very hard to believe that such intelligent people could be as extreme as they are. However, being intelligent doesn't mean a person also is of high "character". It's more important to people like Krugman to be on TV, publish and earn nice amounts of money to feed his ego than it is to be honest and patriotic.

Just watch MSNBC or FOX news a few nights and you can view a whole slew of these characters...sad state of affairs!!

May. 20 2011 10:06 AM
Matt S from NYC

My comment won't be as eloquent as Colby's, but I'm frankly sick of hearing the conservative argument that the big problem today is the debt or inflation fears. Talk to an average person on the street. Americans are worried about jobs, getting one, keeping one, moving up to the one they qualify for. You don't worry about paying off your credit card bill when your kitchen pantry is empty.

And if conservatives were every REALLY concerned about our debt, then why when we had a budget surplus that would have attacked the debt in a decade's time did we say "nah, that's no problem. Let's cut taxes." Did the economy need a boost? No, it was roaring just fine they told us. It was ideology and political payback, pure and simple.

You may have a few think tanks saying that yes, tax increases need to happen. But show me one conservative politician saying that, or one prominent think tank in their circles.

May. 20 2011 09:46 AM
Solomon Kleinsmith from Omaha, NE

"To your last point about continued trends, I would go back to the unemployment claims I mentioned."

We know why unemployment went up... people are coming back into the job market who gave up looking. That's a good sign.

"There is more job hiring than there was a year ago. Right now the rate is moving ahead (slightly) of population growth."

There is more job growth than in the last SEVERAL years... but again, that isn't the important trend. The important trend is that the amount of job growth is increasing.

"But we were also, by all accounts, supposed to be steaming ahead in a full-scale recovery right now."

Says who? The conditions to this recovery are different than past recoveries, namely that jobs that used to be created in the U.S. in past recoveries are being spread out in Asia too. I don't remember very many people saying we'd have anything like a quick recovery...

"Take a look back at recent job reports, and I think having a health skepticism towards the idea that we've turned that corner is absolutely justified."

I agree, but that doesn't have anything to do with Krugman. He's not a skeptic, he's a doomsayer.

"I think saying that Krugman's been "wrong" because he hasn't been right yet is a specious argument."

So if someone keeps predicting that the Rapture is coming next month, oops I mean this other months, oh wait... I mean, in a few months... oh darn, I really meant next year... you're right, they MIGHT be right... maybe... someday.

It's a non statement. Of course we'll see another recession someday. We also might not, and we are most likely to keep along the trend, until a game changer comes along, and Krugman hasn't used the debt ceiling as his argument for a potential double dip, he's said the economy is shaky for other reasons.

And boy are you wrong on our debt being seen as the best place to put money... more and more people are spreading their money out now than ever.

All the other stuff doesn't have anything to do with what I've said.

May. 19 2011 04:07 PM
Colby Hamilton from Brooklyn, NY

To your last point about continued trends, I would go back to the unemployment claims I mentioned.

Yes, growth is happening--we aren't in a recession anymore. There is more job hiring than there was a year ago. Right now the rate is moving ahead (slightly) of population growth.

But we were also, by all accounts, supposed to be steaming ahead in a full-scale recovery right now. Take a look back at recent job reports, and I think having a health skepticism towards the idea that we've turned that corner is absolutely justified.

I mean, when you have Geithner (middle name Franz?! Just found that out) saying that not raising the debt ceiling could trigger a double-dip recession--one of the people who told us about that roaring recession recovery we would to be in now--I think saying that Krugman's been "wrong" because he hasn't been right yet is a specious argument.

I'll agree that entitlement reform is crucial, but there's only one issue with entitlement reform: Medicare spending. Social security is in OK shape, and would be better if its coffers would stop being raided. Medicare, on the other hand, has been twisted and is going to run into major problems soon. This is partly due to things like the semi-privatized Part D plan. The Ryan plan would do more damage than what's already on the table, at the price tag of a cool $34 TRILLION or more. You want to fix entitlement spending, start with things like Part D.

Again, there is no one out there ACTUALLY considering downgrading the US forecast. Why? Because despite all the problems we have, we're still the best bet, fiscally, out there. Doing plain dumb things like not raising the debt ceiling in the short term, gutting the social safety net, continued curtailing of federal spending, and a continual transference of wealth upwards are the things that will--and to--challenge our long-term stability by propping up a truly unsustainable imbalance.

These are the issues; that clock in midtown? Not so much.

May. 19 2011 02:21 PM
Solomon Kleinsmith from Omaha, NE

I didn't say anything about private sector jobs being any more productive than public sector... a job is a job. I said that a job being paid for with money that isn't borrowed is more sustainable and better for the economy.

The Simpson Bowles proposal is still the only remotely reasonable and passable outline of a plan that has come about yet. Not trimming the growth of entitlement programs is just as foolish fiscally as not raising taxes.

That is what I said... that if we don't do anything to make our debt outlook look better, S&P will look at this again in a year and a half or so, and why wouldn't they lower our credit rating? It's not rocket science, they've done it for other countries that were as foolish with their finances, why wouldn't they do it to us?

And yes, they aren't the only ones. They're just the elephant in the room.

And no, Krugman has been wrong several times, most notably in his constant predictions that we're just around the corner from a double dip recession. We've turned that corner several times, and yet our economy continues to recover.

You're right that the current rate of job growth isn't fast enough, but it's the trends that need to be looked at, not just a narrow window of time. The last few months show faster growth than the few months before that, and the same a few months before that. We're not just growing, we're growing faster. If that trend continues, which it appears to be doing, we are moving in the direction of actual job growth, not just keeping up with population growth, which we are finally to the point of doing recently.

May. 19 2011 01:40 PM
Colby Hamilton from Brooklyn, NY

Speaking of cherry picking: What's interesting is how little retort to Krugman's--and other economists who have similar views--claims are actually unveiled here. So let's take a look:

- Private sector jobs: sure, the private sector is creating jobs. No one's arguing that. I'm not going to address the idea here that private sector jobs are somehow more economically productive than public sector jobs, because that just doesn't make fundamental economic sense. The point here is the rate private sector jobs are returning: with the current rate of growth, it's going to be years and years before we come close to pre-recession levels. That's a very real problem for the millions of people not working right now.

- Economy sputtering: did you see the data on jobless claims? We're back to Nov 2010 levels. The only place doing really well right now is Wall Street. Meanwhile, wages and hours worked continue to be suppressed. Any argument that actual workers, in actual America, are, on the whole, not seeing signs of limited, spotty improvement, as well as retreats in some areas, is just not dealing with reality.

- Tax increases: Sampson-Bowles commission might have made some gestures towards this, but show me a single Republican plan that includes tax increases on upper-income earners (who, if their money is in the stock market, are probably doing better than 99.9 percent of Americans).

- Debt: are you talking about Standard and Poor here? Who did nothing, in reality, other than say they were concerned? Or the long term government bond market remaining one of the best in the world? Please identify an actual credit rating agency or market that is signalling that they're really going to be downgrading our credit status--you can't, because there isn't one. The truth is there is no debt problem; there is an income problem, caused by the collapse of the housing bubble that kicked off our recession.

From here I'm not sure what your point is other than to suggest economists that don't agree with you are stupid. Which isn't much of a point. Krugman's predictions have so far been pretty spot on; I'm going to have to take his word over yours.

May. 19 2011 01:15 PM

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