William Anderson has dedicated much resources to this, and done so in a manner far more eloquently than I could. However, once again, Krugman proves that apparently PhD’s in economic are oftentimes not worth the paper they’re printed on. But come to think of it, the easy money he advocated, and what it’s done to the dollar, I gather makes that apropos!!
So, he writes
So why the sudden ubiquity of deficit scare stories? It isn’t being driven by any actual news. It has been obvious for at least a year that the U.S. government would face an extended period of large deficits, and projections of those deficits haven’t changed much since last summer. Yet the drumbeat of dire fiscal warnings has grown vastly louder.
To me — and I’m not alone in this — the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.
And fear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction.
Love the rhetorical trick here. What he does is cast anyone who is concerned about deficits into the Iraq War camp. Oh sure, he doesn’t say they’re the same necessarily, but he clearly implies such by their proximity. And he fails, or refuses, to mention that deficits were and have been an issue for quite some time.
Reagan criticized at length of the Carter deficits, then suffered the same when he ran higher ones. There was the Gramm-Rudman deficit reduction bill. Then Bill Clinton made a point to balance the budget. Then during the Bush years, deficits were a serious topic for both parties. So Mr. Krugman once again, how shall I say it, lies.
Perhaps he could have made the case that after all the years of fret over the deficits, they haven’t had the impact, etc. But instead, he chooses to rewrite history, as if deficits never occurred prior to his beloved leader, and now, suddenly, they’ve arrived.
Let’s talk for a moment about budget reality. Contrary to what you often hear, the large deficit the federal government is running right now isn’t the result of runaway spending growth. Instead, well more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, required federal bailouts of financial institutions, and been met — appropriately — with temporary measures to stimulate growth and support employment.
The point is that running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do. If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.
Yes, the deficit is entirely the result of spending. Besides the massive increases by the Bush administration, and the largest entitlement since LBJ, throw in TARP, the stimulus, and all the bailouts, plus the even greater increases in spending by this administration, and yes, it is spending.
Tax receipts fell, there is no doubt. But blaming the lack of taxation is like the obese blaming thier condition on the lack of locks on restaurant doors.
As for running deficits now and creating jobs…might as well flap your arms and jump off a rooftop to try and fly.
Why, then, all the hysteria? The answer is politics.
The main difference between last summer, when we were mostly (and appropriately) taking deficits in stride, and the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama’s image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?
I’ll grant him this: the republicans are every bit as bad as democrats. Actually, I would argue they’re worse. The democrats don’t even pretend, the republicans do, to being fiscally responsible and desiring of smaller government. So, I rate theft and hypocrisy, versus just theft, as the greater of the two.
I’ve been asked by people what my feelings towards Paul Krugman really are. In all honesty, I must confess that I don’t accept that he actually believes 1/2 of what he writes. He simply can’t. He’s a smart guy. Or maybe he’s written such nonsense for so long, he can’t remember what is what anymore.
Simple fact is that deficits do matter, especially when they double our debt in such short time. Maybe he should reread some introductory macro texts, even some of the ones he’s written. But it’s deeper than that, and he knows it.
It’s the deficits that are making real recovery impossible. The very fact that the government has propped up bad firms, prolonged malinvestments, and inflates the currency hoping to prolong the bubble, only impoverishes us and lengthens and deepens the depression. Maybe he ought to brush up on his Bastiat too.
Truth is, any economist who argues that massive deficits are a good thing simply isn’t an economist.