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Contending with Paul Krugman

I’ve been stewing about this paragraph from Paul Krugman’s recent column titled “We’re Not Greece”:

So here’s the reality: America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem, which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes. But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state -- and are trying to use crises elsewhere to frighten us into giving them what they want.

Krugman, a deficit dove, is correct to draw a distinction between cyclical and structural deficits. I’ll even concede his point that most of the current deficit is cyclical, and that the markets are not yet signaling concern about our solvency because they assume the U.S. has brighter growth prospects than, say, Europe.

What I object to is Krugman’s artificial division of the deficit debate into right-thinking people like him on one side, and scare-mongering reactionaries on the other. A lot of us deficit hawks are worried precisely because we support a generous public sector. The issue is the sustainability of high-quality public services, which depends on a private sector vigorous enough to pay its share of taxes -- and the cost-effectiveness, actual and perceived, of government interventions. In this sense, the welfare state’s most dangerous enemy is the structural deficit, not Paul Ryan. I don’t see any reason to wait for the last unemployed worker to get rehired, or for Paul Krugman’s permission, to start talking about it.

Krugman seems to believe that we have enough time and space to borrow our way back to full employment before turning to the structural deficit. I don’t have a Nobel Prize, or even a Ph.D. in economics, so I’m at a disadvantage in evaluating his assurances. But if economists Ken Rogoff and Carmen Reinhart are correct, and growth starts to suffer once national debt exceeds 90 percent of GDP, and if the Congressional Budget Office is right that we’re on course to hit that level within a decade (not counting a couple of trillion dollars worth Fannie Mae and Freddie Mac obligations, which the government has assumed but does not include in the national debt), then Krugman’s recommendation to keep borrowing for stimulus looks pretty risky. And if the last few years should have taught us anything, it's a healthy respect for financial risk of all kinds. The true measure of America’s economic predicament may be that, thanks to the structural deficit, we have to start “fiscal consolidation” before we are all the way back to full employment.

The U.S. is a lot more like Greece, and other troubled European countries, than Krugman acknowledges. We, like they, suffer from “interest group capture” of the public sector. In other words, the cost of health, education and welfare services increasingly reflects the politically-brokered pay, benefits and pensions of (often unionized) public employees. To be sure, much of this phenomenon involves state governments, but the federal government has already been obliged to spend billions bailing states out because of it. Meanwhile, the recipients of farm supports, housing subsidies, Social Security and Medicare are organized to resist even the most modest and necessary of cuts to those programs.

The experience of Greece (and Spain and Britain and Italy and, soon enough, France) is perfectly pertinent to the U.S. The more the public sector succumbs to interest-group capture, the more time, money and political conflict it takes to reform it. This is a huge economic and political issue in the United States, one that is already shaping debates in places like California and New Jersey – and that Washington cannot avoid either.

By Charles Lane  | June 7, 2010; 3:57 PM ET
Categories:  Lane  | Tags:  Charles Lane  
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Comments

When did you get your Nobel prize? I missed it.

Posted by: gfinley | June 7, 2010 4:41 PM | Report abuse

"But if economists Ken Rogoff and Carmen Reinhart are correct, and growth starts to suffer once national debt exceeds 90 percent of GDP.."


Actually, Krugman refutes this as well. He's had several posts on the subject over the last couple weeks.

Regardless, I don't think his point is that we "shouldn't talk about it," his point is we shouldn't do anything about it at this juncture, because Keynes was right & drastically cutting Gov't expenditures in the middle of a recession will exacerbate the problem.

By all means, lets discuss how to solve the systemic problems we have with the structural deficit. But we also have to recognize there is a right time to reign in government spending and a wrong time.

Posted by: bsimon1 | June 7, 2010 5:06 PM | Report abuse

To gfinley: Just a quick note, lacking a nobel prize doesn't mean you're wrong. Perhaps more to the point, Krugman's Nobel was for his work in Trade Policy, hardly cause to say his views on domestic spending are infallible.

Apart from that, the author raises an outstanding point, one emphasized by the aforementioned poster's hasty dismissal of said point: Regardless of your economic theory preferences, dismissing your opponents because of their presumed motivations and not based on their acutal argument will always be irresponsible and reflects Krugman's frequent method of lumping any economists who disagree with him into the "Ultra-Right Wing Camp." It doesn't matter how much you dislike a person or their ideology, the argument must be refuted in order to win, and Krugman seems content merely to stick with ad homonym attacks far too often.

Posted by: chadreese | June 7, 2010 5:09 PM | Report abuse

The State governments have gotten themselves into trouble by following the Republican prescription for all problems: lowering taxes. We've had 30 years to assess whether or not this works: clearly, it doesn't. The States are going to have to raise taxes, as will the federal government. We've dreamed the impossible Republican dream and now it's time to wake up!

Posted by: ZenMan1 | June 7, 2010 5:11 PM | Report abuse

gfinley--

Even Nobel Prize winners can be wrong.

If the government's deficits and debt weren't so large to begin with, then what Krugman is proposing (short-term deficits OK, we'll deal with the debt later) might be doable. But he seems to have trouble understanding that he's calling for increased deficit spending on top of already-substantial existing structural deficits and debt. And has the stimulus worked? We've added nearly $3 trillion to our national debt in two years (not counting the Fannie and Freddie obligations), for little to no job growth and little to no GDP growth. Would it have been worse without the stimulus? Maybe. On the other hand, there might have been a real recovery by now, too. We'll never know. By the end of the year, our national debt will be close to 100% of GDP. And even if more stimulus would work (which I doubt), would the politicians ever really get around to addressing the structural deficits and debt? I doubt it.

Given all of this, Krugman's position can only be explained by his believing that the debt of large sovereigns (the US, Japan, China, the EU, etc.) doesn't really matter. That they can go on selling debt to the markets and each other ad infinitum. That the numbers don't really mean anything. This is decidedly NOT how the private sector views any kind of debt, public or private.

He's wrong. And, I think, getting increasingly nervous about what the economy is saying about his worldview.

Posted by: Claudius2 | June 7, 2010 5:11 PM | Report abuse

Excellent!

Posted by: RambleOn | June 7, 2010 5:12 PM | Report abuse

To respond to bsimon1 briefly: There is good evidence to suggest that cutting government spending quickly is not all that terrible. Nearly every economist predicted a "Second Depression" following WWII in anticipation of the huge drop in government spending as we stopped using every available worker to build battleships and bombers. It didn't happen. Empiracally, there's little reason to accept the claim that cutting off government spending rapidly is always bad.
Granted, that doesn't mean it's always good, either, and I admit I don't have the expertise to differentiate when it's good or bad, but it is most certainly not a guaranteed hinderance to the economy.

Posted by: chadreese | June 7, 2010 5:13 PM | Report abuse

Everyone can save some time by reading only this part of the column and moving on to more productive pursuits:

"I don’t have a Nobel Prize, or even a Ph.D. in economics..."

And believe me, the rest of the column demonstrates this statement amply well.

Posted by: Bob22003 | June 7, 2010 5:14 PM | Report abuse

The funny thing is you mention "social welfare" items like social security, etc and drop the Public employee "union" thread. Nice job there! Next time when you say "The more the public sector succumbs to interest-group capture, the more time, money and political conflict it takes to reform it." make sure to clarify that the largest "interet groups" are not teachers unions, green peace, etc but military, banking and energy lobbyists. It is hilarious that you mention the "welfare state" but not the wars we are paying for, etc. There is a story today in the paper today about a a $249000 abandoned volleyball court and an unused $296000 go-kart track at Guantanamo. Where is your next story on that?

Posted by: cadam72 | June 7, 2010 5:17 PM | Report abuse

Thank you. It looks as though England and Germany are going to go down the route of cutting spending to address their debt issues (with tax increases in England but not Germany looking likely). I just can't see how we can do otherwise. We screwed up under Bush (and to an extent Clinton) and cut taxes while raising spending because they thought we could grow out of the debt. Now we are told to wait until we get back on our feet before we try to fix things and that more debt is the answer?

Krugman may well be right, but that route scares me. At the least we should be cutting where we can (push retirement out a few more months each year, cut defense spending by at least a couple %) and adding a bit to long-term improvements (infrastructure, R&D, etc.) in an attempt to at least start to claw our way back up...

If Obama doesn't come up with a serious proposal before the midterms it is likely I'll be voting Republican at the national level for the first time ever...

Posted by: bobtom222 | June 7, 2010 5:20 PM | Report abuse

So, it a appears that a Nobel Prize, (on the subject of foreign trade), is sufficient to convince us all that deficit spending is ok.

Even if it might be proven that more government spending automatically produces jobs and growth, deficit spending, as a matter of policy, is fundamentally dishonest. Lawmakers are taking taxpayer money to spend in myriad ways that aren't specifically authorized or approved by voters. They are further expanding the debt by financing it over time, causing a longer term burden on future taxpayers that is also not directly authorized.

On a purely ethical basis, deficit spending is wrong. In a situation of national emergency, where our defense or sustenance is immediately threatened, deficit spending might be rationalized. But only in those cases.

Governments should be required to produce surpluses before they are allowed to create debt. The taxpayers' money belongs to the taxpayers, and politicians have no business making the the public's tax burden any larger than strictly necessary.

Some will shout that this is immoral because it forces the government to cut back on entitlement spending. Making the government balance its budget is no more immoral than asking individuals to balance their checkbooks.

By allowing the government to create deficits, voters are in effect giving it a credit card or a blank check to spend freely as it wishes.

Posted by: ttj1 | June 7, 2010 5:24 PM | Report abuse

There is a lot of disingenuousness going on with the deficit hawks. Most of them were not so concerned during Bush's spending spree, on things that were rarely if ever justified, and were mostly downright disasters. Now a lot of them are just attacking Obama at a the first weak spot they found, braying about the deficit without having the responsibility of being in power and having to deal with a recession. Whether there is actually currently a crisis in entitlement spending and deficits, there's no point in making the problem worse by further reducing the spending power of the working and middle classes.

Posted by: TonyQ82 | June 7, 2010 5:24 PM | Report abuse

Nobel or no, Krugman is a strident partisan hack and hysterical Bolshevik zealot.

Posted by: thebump | June 7, 2010 5:28 PM | Report abuse

As euphemisms go, "generous public sector" is a bit rich. There is nothing remotely "generous" about a political elite that consolidates power by confiscating other people's resources and spreading them around.

Posted by: thebump | June 7, 2010 5:34 PM | Report abuse

The US may be more like Greece than Krugman acknowledges, but the US is a lot less like Greece than Mr. Lane believes (or implies here).

Perhaps the most overriding issue for Greece (and the other members of the PIIGS) is that they do not have the option to devalue their currency because they it is linked to the rest of Europe. Lacking that classical mechanism of altering other imbalances, they are basically being forced into the politically untenable and short-to-medium-term economically difficult circumstance of austerity budgets.

It's only a matter of time before some European government abandons the Euro and defaults on its debt, taking down the whole house of cards. Since when have governments ever thought in the long-term?

Posted by: micron26 | June 7, 2010 5:40 PM | Report abuse

ZenMan1 writes:

"The State governments have gotten themselves into trouble by following the Republican prescription for all problems: lowering taxes. We've had 30 years to assess whether or not this works: clearly, it doesn't. The States are going to have to raise taxes, as will the federal government. We've dreamed the impossible Republican dream and now it's time to wake up!"

But many of the states in the most trouble (CA, IL, NJ, NY) have actually RAISED their taxes in the last 30 years. I don't think your facts are right. I don't know the answer to this but I will bet that the states that raised their taxes the most in the last 30 years are also the ones in the most trouble right now.

Posted by: sceptic5 | June 7, 2010 5:49 PM | Report abuse

sceptic5 states that "many of the states in the most trouble (CA, IL, NJ, NY) have actually RAISED their taxes in the last 30 years."

Really? When? By how much?

I think sceptic5's most telling comment is" "I don't know the answer . . ." That's right, you don't. Why don't you go find out the answer, and report back?

Posted by: chipgower | June 7, 2010 5:55 PM | Report abuse

If the only people in the world who mattered were the US and the Europeans, Mr. Krugman's position might be more defendable.

In that situation, the US debt wouldn't look so bad by comparison to the EU countries.

Wasn't that pretty much how the world worked in the 1920s and 1930s that Mr. Krugman seems to relive over and over - a world economy dominated by Europe and the US?

If, however, the US wants to keep up with China, India, Brazil and other countries who are moving up the economic ladder, its not sufficient to be not as weak as the EU countries.

We have a choice: follow the BRIC countries up the ladder (which is hard)or fall down the ladder with the EU countries, which is easy.

Many Americans seem to understand the choice before us. It's an Inconvenient Truth that this understanding is dawning on the public just as the Obama/Dem Party is trying to make Americans more like Europeans.

No thank you, Mr. Krugman, we will not go gentle into that good night.

Posted by: jfv123 | June 7, 2010 5:58 PM | Report abuse

chipgower writes

sceptic5 states that "many of the states in the most trouble (CA, IL, NJ, NY) have actually RAISED their taxes in the last 30 years."

Really? When? By how much?

I think sceptic5's most telling comment is" "I don't know the answer . . ." That's right, you don't. Why don't you go find out the answer, and report back?"

try

http://www.taxfoundation.org/publications/show/25569.html

and

http://www.taxfoundation.org/publications/show/25006.html

Posted by: sceptic5 | June 7, 2010 6:11 PM | Report abuse

Kindly, sir. Just where the hell were you when Bush spent 5 TRILLION DOLLARS we did not have?

You are nothing but a hypocrite, buddy.

Posted by: kuvasz | June 7, 2010 6:19 PM | Report abuse

I agree. I don't think we have as much leaway as Mr. Krugman seems to think we have. Economists are much better at seeing where we are going in the rear view mirror then out the windsheild. We need to start doing something about spending by next year.

BTW: To those who wanted all those tax cuts to starve the beast. How is that working out? Things pan out as you thought?

Posted by: kchses1 | June 7, 2010 6:27 PM | Report abuse

So, since Bush blew through $5 trillion we didn't have, the only fair and decent thing to do is let Obama blow through $10 trillion we don't have?

Posted by: sceptic5 | June 7, 2010 6:28 PM | Report abuse

You don't need a Nobel prize. Just take a look at the amount of money it takes to service our debt. It keeps dropping year after year, even though we have more debt, because interest rates are so much lower and there is little prospect of inflation. Go way back to 1990, 3.2 trillion in debt cost us 265 billion to service, 2009 11.9 trillion in debt cost 383 billion to service (Treasury Direct is a great source). The time to talk down the deficit is when the economy is growing again and the budget is closer to balanced. That already happened once, but for some reason all we wanted then was a 300 dollar rebate check. Hope you are enjoying those two pairs of sneakers you bought.

We're the only game in town for safe soverign debt. Every other country mentioned in these comments has defaulted, has no bond market, or has had 70+% inflation in the last 25 years. We should take advantage of that right now while we need to.

Greece has a million problems the US will never face, the risk is becoming Japan.

Posted by: Dremit97 | June 7, 2010 6:40 PM | Report abuse

Just send along your articles from the Bush years - when we turned a surplus into a deficit, and we'll take you seriously. What, you just had to wait for the worst recession since 1929 to be inspired?

mike from CA

Posted by: michael5 | June 7, 2010 6:44 PM | Report abuse

Amusing column by another WaPo illiterate. It was Paul Krugman who sounded the alarm on a weekly basis warning of the impending economic crisis.

Go back to high school.

Posted by: farnaz_mansouri2 | June 7, 2010 7:03 PM | Report abuse

ZenMan1,

Regarding your statement below:

The State governments have gotten themselves into trouble by following the Republican prescription for all problems: lowering taxes. We've had 30 years to assess whether or not this works: clearly, it doesn't. The States are going to have to raise taxes, as will the federal government. We've dreamed the impossible Republican dream and now it's time to wake up!

I live in California and my taxes have only been raised -- not lowered. But the funny thing is -- the Legislature's penchant for spending keeps outstripping all of the tax hikes! Where in the world did you base your information?

Posted by: kkhebert | June 7, 2010 7:10 PM | Report abuse

Klugman has always been a political hack. His record on domestic policy, particularly during the last administration, was laughable. Obviously the WP isn't interested in the accuracy of their Opinion writers predictions. Let’s face it; the Posts' movie reviewers have a better record picking hits than this Knott-head does with economics.

Posted by: luvpool | June 7, 2010 7:11 PM | Report abuse

" I don’t have a Nobel Prize, or even a Ph.D. in economics, so I’m at a disadvantage...." but even so you can't help telling us what you don't know. This is the worst kind of commentary. Read Krugman's blog, he'll straighten you out - until then, write about what you know.

Posted by: Piermont_Steve | June 7, 2010 7:14 PM | Report abuse

Krugman's a partisan hack with zero credibilty

Most economists are not susceptible to partisanship in their work, a new scholarly study finds. But anyone who reads Paul Krugman's columns in the New York Times will hardly be surprised to learn he is a glaring exception to the study's findings.

He consistently changes his fiscal views depending on the party in power.

"Krugman has changed his tune in a significant way regarding the budget deficit when the White House has changed party," found Brett Barkley, at George Mason University. The study, published in Econ Journal Watch, a peer reviewed journal, examined statements from 17 economists from 1981 through 2009, and gauged the consistency of their stances on deficit spending and reduction during Republican and Democratic administrations.

According to the study, Krugman was the only economist of the 17 to "significantly" change his stance on the federal budget deficit for partisan reasons.

Barkley wrote,

Large budget deficits represent a burden on the future, and debt accumulation eventually poses great problems. Economists writing for the public can either highlight such truths, neglect the issue, or try to allay worries or excuse or justify large budget deficits (as anti-recession policy, for example). Economists affiliated or aligned with one of the parties may be suspected of changing their positions on budgets deficits to serve their favored party or win favor with its constituency.

Krugman "explicitly supported deficit reduction in the 1990s and early 2000s under Republican administrations," the study found, "then changed his view once Clinton entered office in 1993 and the Democrats gained control of Congress in 2006."

This study lends academic weight to a theory anyone who consistently reads Krugman's work has no doubt already postulated. In his never-ending quest to score political points for the left, Krugman has even gone so far as to contradict his own findings to bash Republican politicians.

Revealingly, the only other economist who the study found had more than a "minor" partisan bent to his work -- though his "moderate" partisanship is less severe than Krugman's -- was Alan Blinder, another liberal.

Blinder, who worked in the Clinton administration and on the presidential campaigns of Al Gore and John Kerry, "consistently supported deficit spending that resulted from Democratic policies and criticized deficit spending that resulted from Republican policy," according to the study.

Posted by: kohnfjerry | June 7, 2010 7:22 PM | Report abuse

I am not an economist nor do I have a Nobel Prize in economics so if I have to choose between believing the guy with the Nobel who studied economic and the guy who just read about it guess which columnist I am going to put my trust in when it comes to things economic? I first began to read his columns during the Bush Administration. He was one of the few columnist who saw thru the Bush Administraion's mendacity. Which regards to his politics he had me at hello.

Posted by: exbrown | June 7, 2010 7:29 PM | Report abuse

I don't have a Nobel Prize, either, even a half-Nobel like the "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel," but I'm totally ok with that because there's no such thing as "Economic Sciences." Krugman is no more qualified than am I, on the basis of his education and work, to bloviate from the Caribbean on any practical matter. His columns have the all intellectual rigor of Rigoberta Menchu. He is plainly a political polemicist, dispatching off-the-cuff snipes from a bar in Barbados. In the Bush era, deficits were as immoral for Krugman as Bush himself was, though Bush was clearly keeping a bubble inflated with his spending, having learned from his father the cost of campaigning in a recession. Now like a good partisan Krugman rallies behind Obama, defending deficit spending that will do nothing to establish a stable and sustainable economy, but just might with luck reinflate a bubble long enough to clear the 2012 Presidential election. Eventually Krugman's situational ethics are going to do a great deal of damage to the standing of the economics profession (and the NYT.)

Posted by: raskolnik | June 7, 2010 7:54 PM | Report abuse

I am not an economist either but I can spot a trend with the best of them.

Over the last 9 years I have been living in Florida, I have noticed an increasing number of New Yorkers with large state pensions moving to Florida.

What is significant about this?

Well, number one is that they are leaving a highly taxed state for a state with no state income tax. Thus, the ones left behind in NY are paying for their former residents to retire to sunshine and minimal taxes while they continue to pay the bills back home. Secondly, this means that the pensions they are receiving are being spent somewhere else when NY could obviously use the tax revenue from their former residents.

This seems to me to smack of ingratitude on their part. Sort of like, I got mine and the heck with everyboby else.

Again, I am not an economist but it would seem to me that they should have to pay taxes to the people who are providing them with a generous retirement income.

???

Posted by: jrealty | June 7, 2010 7:57 PM | Report abuse

Charles, you America-hating Traitor ...

Just stop posting.

If we listen to the same idiots like the GOP who got us in this mess and prolonged the Great Depression, we'll have 14 years of massive unemployment and little if any GDP growth.

Now go take your AEI and jump off a short Chicago econ school pier.

Posted by: WillSeattle | June 7, 2010 8:02 PM | Report abuse

I've always liked Krugman. But what we should be concerned about is the fact that when Frances Finance Minister announced to the Wall Street and on PBS that Europe wouldn't let Greece go under. the next day the speculators on Wall Street undercut her and the German finance minister. Sounds like someone was more interested in having the Euro crash than have a stable market.

Posted by: johnturkal1 | June 7, 2010 8:10 PM | Report abuse

i don't think that little tiny flower is anything to be a afraid of.

Posted by: carlbatey | June 7, 2010 8:35 PM | Report abuse

When did you get your Nobel prize? I missed it.

Posted by: gfinley | June 7, 2010 4:41 PM | Report abuse

Yeah, the Nobel Prize committee. Now there's a group with a ton of credibility.

.

Posted by: oldnova | June 7, 2010 8:44 PM | Report abuse

There is a problem with both Krugman’s argument and Lane’s counter argument. They could be wrong. My problem with Lane’s counterargument is this – and NOT to sound flippant or cavalier, but what’s a few more hundred billion dollars in the long run? Especially IF it spurs the US to greater proserpity than not spending. Really, think about the US is now well over 10 TRILLION dollars in debt, so really what is 250 billion dollars more, or even half a trillion? The problem with Krugman’s argument is that the additional spending could very well have little or no effect. So that’s potentially 250 to 500 billion dollars down the drain. IT IS no sure thing.

However, with Lane’s position is that such cuts (or tax increases) could very well lead to lower growth (for however long) than would occur under Krugman’s suggested path, it could also put the US back into what I’ll refer to as full recession mode for an undetermined period of time. This could exacerbate the near term and make working on the long term structural problems even MORE difficult.

We just don’t know. No one does. Yes, the US does have long term structural problems. Compound that with the many states with long term structural budget problems and it really is a problem. The discussion should be on what social programs should the US phase out, continue, and add. How much (if any) will Federal taxes have to be raised.
As for your point about Krugman’s focus on Libertarians, Tea Partiers & other limited Government types – who has been the most vocal? Who has been fear mongering & most angry in tone? Who has been most anti-Krugman’s sentiments.

In addition, the US is NOT Greece, there are key differences one of which has been at least up until now our relatively open immigration policy as well as tax policy to spur innovation & entrepreneurship. Whether those things continue is a good question.

Lastly, as for Krugman’s or Lane’s credentials or lack thereof, doesn’t matter to me, the problem with both of their positions is that they are both basing important policy decisions on very limited data. For Krugman it is the depression and for Lane it is basing the US dilemma on a single other country (Greece). Going off of single instances is not recommended (although what do we have to go with).

In sum, the point is given the current US economic situation and current outstanding debt, while I certainly don’t like going a dime more in debt, I do NOT have a problem with further stimulus spending and of course even IF the US were to somehow miraculously begin cutting spending (HA! Like that’s going to happen anytime soon & I assume it would be spending cuts rather than tax increases at least for now), and economic indicators began to take a turn – increased spending could resume and likely only be a little more than would have been done via Krugman the amount in comparison to what the US currently owes is a drop in the bucket.

Posted by: notamullethead | June 7, 2010 8:49 PM | Report abuse

Hang on, is Lane, the half-wit, charity case of the Washington Post, actually taking Paul Krugman, the Princeton Professor and Nobel Prize-winner to task?!?!?

Does Lane even have any credentials in Economics? If I'm not mistaken, his only qualification is that he's a neocon.

I'm going to look him up on Wikipedia. Maybe I'm wrong. Maybe he's not as dumb as he looks or writes.

Posted by: kurthunt | June 7, 2010 8:53 PM | Report abuse

So Greece was just fine - high standard of living, great health care, good retirement at a reasonable age -- they didn't thik working until you are nearly dead was really the point of life --- all was well and good for what, 50 years?

but when Greece gets caught up in the global meltdown caused by greed based crony capitalism unleashed by American conservatives, it is a filaure of the Greek model of governing? Sure they made mistakes, but on the whole they are in the right mindset, while Americans continue to alow themselves to be corporate slaves in exchange for a few trinkets.

Posted by: John1263 | June 7, 2010 9:05 PM | Report abuse

All the worst structural deficits go to pay retired people. The vast majority are not federal or state employees: they are Americans. Both parties have been larding benefits on retirees forever to try to get their votes. Any time either party tries to cut anything to the elderly the other one runs ads against them, and the cuts go away.

I do not like Mr. Krugman. He is as bad as the GOP he disdains. The Krugmans argue that we can never cut spending or else we'll go into a ditch. The GOP argues that we can never raise taxes or else we'll go into a ditch.

They both win the argument. Everyone will ultimately lose.

Posted by: steveboyington | June 7, 2010 9:39 PM | Report abuse

Please.... between Krugman and Lane, it's no contest. As old expression goes, Lane can't even carry Joe D's glove!

Posted by: Obadiah55 | June 7, 2010 9:44 PM | Report abuse

you have a lot of ifs in there Lane.

Posted by: sauerkraut | June 7, 2010 10:06 PM | Report abuse

Krugman gets things right, as when he predicted during the passage of the stimulus package that today we'd be seeing a weak economic recovery with unemployment at around 10%; it's what we'll see, he wrote, because the stimulus package was too small. He was dead on target, and he spelled it out with substantive argument in his editorials when the "Oh My God" House Republicans, cheered on by the empty-headed, suck-it-up moralizing of George Will, voted to a man against the stimulus package. So I like Krugman. His editorials are actually helpful and accurate. If he doesn't like you or what you say, I expect I'd come down on his side of the argument.

Posted by: klakey1 | June 7, 2010 10:23 PM | Report abuse

Krugman has been right about the economic crisis far more often than the average right wing ideologue. He was right that Bush Administration policy was pushing the world economy off the cliff, he was right to endorse the Bernanke/Paulsen/Geithner response to the crisis, and he's right that huge deficits now -- while hardly desirable -- are necessary while the recovery hangs on by its fingernails.

The really bad and stupid ideas about the economy aren't coming from Krugman -- or most trained economists, for that matter. The really bad advice (cut taxes, cut spending, let the world economy burn to the ground) has come from the very Republican ideologues who put the economy in the dumper to begin with.

It's not surprising that Republicans continue to hew to this idiotic ideology that would put most of us in the poorhouse. They are, after all, immune to fact and logic. They only economics they believe in is voodoo economics. Then again, most of them don't believe in evolution either.

What's a wonder is that journalists and commentators like Lane give any credence at all to them. It would have been nice if the people who brought us the Great Recession would have apologized and shut up for at least a little while. Instead they continue to blow smoke, and too many naive and intellectually lazy people are choosing to breathe it.

Posted by: tboyer33 | June 7, 2010 10:29 PM | Report abuse

Nobel Prize? Well they gave one to Jimmy Peanut Carter for being anti-American. And they gave another to Al Gore for being, well, a greenie propagandist. And then they gave one to an American President who had occupied the office for 2 months for being...well Black. And some of the Literary prize winners are great for insomiacs.

Yep, winning a nobel prize is like ... well, winning a county fair bake contest.

Posted by: wjc1va | June 7, 2010 10:31 PM | Report abuse

So Lane is a compassionate conservative and supports public expenditure? Not if you read his earlier writing. Krugman never said that there were no arguments for cutting unnecessary government expenditures (although the biggest shares go to debt service, medicare, and defence)but he opposed cuts now when the economy is precarious. Ask yourself if you really want to gamble with a double dip recesssion in order to cut future deficits, particularly since cuts may have a perverse effect on the longer term deficit. Not really a very good bet.

Posted by: ianstuart | June 7, 2010 10:40 PM | Report abuse

How about cutting the Dept of Defense budget by 50%? It would fix the deficit problem. The DOD made a mess of the Iraq and Afghan Wars. They deserve to be cut, because they are unproductive.

Posted by: showze2 | June 7, 2010 10:41 PM | Report abuse

Keynes also warned of the diminishing and destructive returns of chronically increasing debt. And we are experiencing just that type of debt enlargement, whose rise on a chart is fast becoming a parabolic curve, as is the M0 money supply.

Subdividing deficits into cyclical or structural is gimmickry design to divert attention, and to augment ones short term favorable argument. Our nightmare is no longer about deficits. They have become a staple of our dark consciousness. It's about the very near tipping point of a debt that equals 90% of our annual production, and growing fast.

Whether we add a trillion or 500 billion is becoming irrelevant. At zero percent interest on short term treasuries which represent nearly 80% of government debt financing, the greased, cracked cotter pinless lynch pin that is holding interest to the $200 billion per annum level will detach at the slightest sign of economic recovery.

Then we will understand that deficits truly no longer matter. It is the debt stupid, whether the deficts building them are structural or cyclical.

Posted by: bbwk80a1 | June 7, 2010 10:51 PM | Report abuse

NJ and California were mentioned as examples but New Jersey's problems don't really belong in the category of interest group capture. The real problem in the state is "Home Rule" NJ has 566 municipalities with many less the a square mile in size with schools, police and fire depts and governing bodies with all the legal and clerical support that goes with them. Gov Christie is attacking the wrong public employees instead to going after teachers police and firefighters he should looking to reduce the town councilors, attorneys, clerks, school boards with only one school and the administrative staff that goes with them.

Posted by: farfromdc | June 7, 2010 10:58 PM | Report abuse

Posted by gfinley

"When did you get your Nobel prize? I missed it."

Snap!!!

Posted by: jade39339 | June 7, 2010 11:02 PM | Report abuse

ZenMan1 writes:

"The State governments have gotten themselves into trouble by following the Republican prescription for all problems: lowering taxes. We've had 30 years to assess whether or not this works: clearly, it doesn't. The States are going to have to raise taxes, as will the federal government. We've dreamed the impossible Republican dream and now it's time to wake up!"

But many of the states in the most trouble (CA, IL, NJ, NY) have actually RAISED their taxes in the last 30 years. I don't think your facts are right. I don't know the answer to this but I will bet that the states that raised their taxes the most in the last 30 years are also the ones in the most trouble right now.

Posted by: sceptic5 | June 7, 2010 5:49 PM | Report abuse

----------------------------------------

I agree to a point. However, you fail to mention that we lost approx. 8 to 10 million jobs due to out sourcing to other countries.
Encouraged by the GOP government and supported by GIVING THOSE COMPANIES TAX BREAKS on top of it.

Where do you think tax revenues come from when millions of people are out of work? I am a victim of out sourcing going from a $80,000.00 a year salary to working for less than a third now?

Our ecconomy is shut down. Manufacturing jobs in China, engineering jobs in China, Customer Service jobs in Ghumba, India, IT programming jobs in India.

Now we buy what we need and have to pay for other country's labor.

All the REPUBLICAN PLAN to satisfy the 1% super rich in this country.

THANK YOU GOP

Posted by: mackiejw | June 7, 2010 11:38 PM | Report abuse

To ZenMan1 - What planet do you live on? Talk to anyone in NJ about taxes which, depending on your survey, now ranks somewhere near fourth or fifth in tax burden after years of being middle of the pack. The result of tax and spend in NJ - outrageous health and pension benefits for public employess (much of it unfunded), a yawning budget deficit, and at one point, teetering on fiscal collapse. Another result, the first net outflows of population and jobs in over a generation, thereby exacerbating the fiscal situation. All courtesy, by the way, of a Democratic legislature. Take a look at CA too. I am not saying the Reps are completelely correct, but your analysis is certainly just emotionally partisan and doesn't seem to take into account current facts.

Posted by: fwillyhess | June 7, 2010 11:49 PM | Report abuse


Krugman's Nobel was for interesting but difficult-to-verify theories about international trade. Friedrich Hayek won his for a comprehensive economic theory which accurately predicts and models boom and bust cycles.

On macro-economics, the two Nobel winners Krugman and Hayek are diametrically opposed. They cannot both be right. Krugman throws his lot in with the losing side, coached by John Maynard Keynes.

http://www.youtube.com/watch?v=d0nERTFo-Sk

Of course it is a mere coincidence that the Too Big To Fails reap enormous unearned profits from governments that go Keynesian. Right?

Posted by: jdadson | June 7, 2010 11:49 PM | Report abuse

So many falsehoods:

But if economists Ken Rogoff and Carmen Reinhart are correct, and growth starts to suffer once national debt exceeds 90 percent of GDP,

Their "case" for this is post-war America (which turned around real quickly). Read Krugman's analysis--it's simple to understand.

and if the Congressional Budget Office is right that we’re on course to hit that level within a decade (not counting a couple of trillion dollars worth Fannie Mae and Freddie Mac obligations, which the government has assumed but does not include in the national debt),

Forget the FM's. The government is essentially bankrolling Wall Street, where the total liability is in the tens of trillions. Lane seems unconcerned about reducing this liability, even though this is what created the
current crisis, not the FM's.

then Krugman’s recommendation to keep borrowing for stimulus looks pretty risky

Gee--we borrowed through Reagan, through Bush I and II, and Lane was silent (Clinton started running a surplus). This gave us 10 trillion in debt as a base (as opposed to under a trillion when Carter left office). We'd be able to respond to the current crisis infinitely better if the Reps hadn't miled the treasury for tax cuts for their rich friends.

Lane should read Krugman's blog where he breaks down where the deficits are coming from--under 10% are stimulus! Fifty percent are on lost revenue. If we got revenue back to where it was before BUsh trashed the economy, and controlled health care costs, and didn't give more tax cuts to the rich, we'd be ok.

Posted by: garbage1 | June 8, 2010 12:10 AM | Report abuse

kuvasz said:

"Kindly, sir. Just where the hell were you when Bush spent 5 TRILLION DOLLARS we did not have?
You are nothing but a hypocrite, buddy."

Well said by kuvasz. Mr. Lane and all the other right wing posters who are ranting and raving about the deficit now were nowhere to be found during the senseless deficit spending and tax cutting of the 8 Bush years. They are all hypocrites, trying to blame the Obama administration for the deficit that is mostly the creation of their men: Busch/Cheney/Rove and their gang. Historically most of the deficit in our country was created by republicans, who never walk the talk, and fixed by democrats. This will be no different.

Posted by: simon7382 | June 8, 2010 12:56 AM | Report abuse

Lane, I know Paul Krugman. You, Sir, are no Krugman. So, get off your deficit horse and join the people with common sense.

Posted by: Single_Payer | June 8, 2010 1:20 AM | Report abuse

"Interest group capture". Good point. But the interest group that has most captured our economy is the oligopolistic-monopolistic blocks of corporate power like the health care cartel, wall street cartel, corporate agriculture cartel, military industrial complex carte, ec. They are what is bleeding our middle class dry and taking our economy down with them. As is typical of Republican type analysis this point is overlooked in favor or attacking unions or any progressively oriented group.

Posted by: Nodoubt1 | June 8, 2010 1:30 AM | Report abuse

"Interest group capture". Good point. But the interest group that has most captured our economy is the oligopolistic-monopolistic blocks of corporate power like the health care cartel, wall street cartel, corporate agriculture cartel, military industrial complex carte, ec. They are what is bleeding our middle class dry and taking our economy down with them. As is typical of Republican type analysis this point is overlooked in favor or attacking unions or any progressively oriented group.

Posted by: Nodoubt1 | June 8, 2010 1:32 AM | Report abuse

I was speaking to an economist from the Fed the other day, Ph.D from University of Chicago, who claimed today's academics regard Krugman as having abandoned his credentials 10 years ago. According to this gentleman, Krugman is widely thought of as as a columnist who argues from his personal views rather than current academic research and empirical observations. He wasn't a Krugman basher so far as I could tell: he noted that he relied heavily on some of Krugman's earlier work in writing his own dissertation

Posted by: stratman1 | June 8, 2010 1:39 AM | Report abuse

Both Krugman and Lane have a point. If we had an economy focused on benefitting the middle class and not on crashing us all with wild gambles then the deficit/spending issue would be moot. Don't argue with one another. Argue with those who have rigged the economy this way.

Posted by: TomCantlon | June 8, 2010 1:51 AM | Report abuse

I believe they just want to pass more stimulus spending to their democratic voters. THAT is the only reason they keep telling us NO really we have the money. Pls, get a grip. YES America still has quite a bit of wealth to steal and redistribute but we want to keep our property. We have been hearing since 2009 how we have a weak recovery or jobless recovery.

We could have passed a stimulus to finally get some mouch needed infrastructure work done, but NOPE it went to unions,entitlements,and unemployment.

Even the jobs bills aren't jobs bill. we are literally spending millions of dollars for 500 jobs. It would be cheaper just to give us the money.

The only ones hiring are Texas and the Federal Government.

No one is owing Texas any money. It is called incentive.

Entitlements do not create incentives it creates decentives.

Posted by: RavenGodiva | June 8, 2010 5:51 AM | Report abuse

Yonkers, New York
08 June 2010

As Paul Krugman asserts, the U.S. may not be in the same situation that Greece finds itself in.

Even if that is true, it is true likewise that the United States cannot be running those hudge Federal budget deficits and ballooning the National Debt [close to 90% of GDP now] indefinitely without paying the price--and sooner rather than later.

Mr. Lane has raised some valid points in his essay here. It will be good for President Obama, his financial and economic brain trust and the Congress to take careful note of these--and start thinking, now, of ways to correct those structural problems which pose a serious threat to the nation.

Particular attention should be focused on keeping Medicare/Medicaid and Social Security solvent and viable. There is a need to finally come around to deciding to cut down the U.S. Defense Budget--now running at $700 billion a year!--to a more sustainable level.

Mariano Patalinjug

Posted by: MPatalinjug | June 8, 2010 7:17 AM | Report abuse

Yonkers, New York
08 June 2010

As Paul Krugman asserts, the U.S. may not be in the same situation that Greece finds itself in.

Even if that is true, it is true likewise that the United States cannot be running those hudge Federal budget deficits and ballooning the National Debt [close to 90% of GDP now] indefinitely without paying the price--and sooner rather than later.

Mr. Lane has raised some valid points in his essay here. It will be good for President Obama, his financial and economic brain trust and the Congress to take careful note of these--and start thinking, now, of ways to correct those structural problems which pose a serious threat to the nation.

Particular attention should be focused on keeping Medicare/Medicaid and Social Security solvent and viable. There is a need to finally come around to deciding to cut down the U.S. Defense Budget--now running at $700 billion a year!--to a more sustainable level.

Mariano Patalinjug

Posted by: MPatalinjug | June 8, 2010 7:18 AM | Report abuse

Talking of budgets: If newspapers are on such hard times, what could possibly be the excuse for paying a salary to conventional wisdom clones like Lane?

Posted by: misterjrthed | June 8, 2010 7:27 AM | Report abuse

As much as you right-wing hacks argue that welfare, unemployment insurance, social security, public education, and Medicare must be eliminated because they cost too much (and help people, a concept right-wing "christians" are reflexively opposed to), you refuse to even mention the hugely bloated defense budget, our two endless pointless wars, and the billions in corporate subsidies that go straight into the top executives bank accounts and create zero jobs. These are the programs bankrupting the U.S.A. not what the fearfully greedy call "entitlements".

Posted by: dnahatch1 | June 8, 2010 8:26 AM | Report abuse

Let's be perfectly clear about one thing. Krugman DOESN'T have a Nobel Prize either. His ersatz award is called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Notice the absence of the prefix "Nobel" before the word Prize. This wannabe pretender was established 68 years after the creation of the Nobel Foundation and AFTER a generous donation from Sweden's central bank to the foundation. Sounds a little like "quid pro quo" to me. Anyway, it gives no more credibility to the former Enron advisor than does his peddling of long-discredited Keynesian voodoo economics.

Posted by: jpost1 | June 8, 2010 9:14 AM | Report abuse

Common sense economics trumps Nobel Prize Economics all the time. The latter is about theory, and the former about the real world.

The private sector economy funds government. A strong private sector and economy provides the the government with more
funding and allows government to do more and sometimes even great things- social progress, the space government, etc.
Over taxation, over regulation, inefficiencies, overspending, and over borrowing weakens the economy and thus government revenue and funding.

It's common sense and economics from the middle ages (pre Nobel). The King can over tax the subjects but starving peasants won't grow enough food and will be too few or weak to defend the kingdom.

Good article.

Posted by: flyover22 | June 8, 2010 9:30 AM | Report abuse

Krugman is the epitome of a Nobel Prize winner and that is not a good thing.

He is an arrogant liberal and positive that he is the only one who gets it.

The Nobel is simply an award for those who espouse Socialism and Progressivism.

He was definitely interviewing for Treasury if Hillary won the election. That is worse than his day job now. We would be in a much bigger mess following his advice.

We simply cannot spend our way out of this deficit creating artificial and political jobs by increasing taxes.

Posted by: mlemac | June 8, 2010 10:39 AM | Report abuse

Thank God Krugman is only an ink-stained wretch and a faculty nincompoop. He is typical of those around Obama, an elite with no understanding of the plights of millions of unemployed Americans and their families. A sensible Administration would have put Americans back to work before shoring up the fat cats, or at least tried to do both simultaneously. The healthcare fiasco could have waited. Now we have healthcare in our future where we have health insurance but scant access to knowledgeable physicians. And a towering deficit with solvent banks which refuse to loan money to small business and private persons alike. Is this Krugman's fault? No, he is too trivial to be more than a symptom of the kind of out-of-touch jerks who are considered "important."

Posted by: sailhardy | June 8, 2010 11:52 AM | Report abuse

That Krugman, he's quite divisive with his techniques.

How about DEATH PANELS! And SOCIALISTS! And REAL AMERICANS! And BIRTH CERTIFICATES! And on and on and on...

Give me a break.

Posted by: garrykanter | June 8, 2010 12:26 PM | Report abuse

Just because a political body decided to give Krugman a prize, doesn't mean he has ANY credibility as far as I'm concerned. Remember, the Nobel prize Obama got, for doing exactly nothing.

Here's what Krugman doesn't get. Capital can flow to any spot on the globe seeking a retuirn. With the demise of the American system for growing capital, it's fleeing to other countries to earn a return. And as far as human capital is concerned, with the current round of handouts (growing welfare state), the people with money and talent are deciding to wait out Obama. Why risk Capital, when the federal government no longer support the rule of law. Witness the theft of money from the bondholders and stockholders of the auto companies. Why invest here in the US when it appears the Union THugs will be rewarded with your money. Everyone I know with money is sitting tight, waiting for the nightmare to end. And with the confusion Obama has created, the confusion ends when he is out, vis a vis Carter, or both houses of Congress are in Republican control.

So have your little debate about Krugman and try to figure out how to get more tax money. In the end it doesn't matter. The smart money has already left the country or is sitting out while this "Chicago Bully" adminstration is in power. The good news is it doesn't look like it has long to wait...

Your sitting on the sidelines waiting for the O-man to crater Investor....

Posted by: grcac | June 8, 2010 12:41 PM | Report abuse

@Dremit97

You are flat out wrong. The cost to service our debt has been growing exponentially. Your reasoning doesn't even make sense. The majority of our debt is in the form of treasury bonds that have a fixed rate. So, even if interest rates do drop in the short term the rate we are paying on our debt does not. This does not even take into account the fact that we are increasing the debt at a faster rate than the interest rate has dropped.

Posted by: BradG | June 8, 2010 12:41 PM | Report abuse

Oh and btw, Mises, Hayek and Freidman all say Krugman is wrong.

Posted by: BradG | June 8, 2010 12:53 PM | Report abuse

With all due respect, Krugman's analysis is correct. The lesson from the Great Depression is to not cut federal spending during a period of severe recession/depression. And Krugman is no "deficit dove" if you've read his columns over the last few years. He simply opposes trying to cut spending at a time in which the economy (and state budgets) depend heavily on fiscal stimulus. Krugman argues that the concerns of deficit "hawks" -- that high deficit levels will cause inflation and increased costs associated with financing the federal debt -- are valid when the economy is running at close to capacity. This is not currently the case, however, as there are zero signs of inflationary pressure. In fact, the real concern is deflation as per Japan in the lost decade. He also points out (correctly) that Greece is not able to depreciate its currency to alleviate the pressure of monetary outflows. Last I checked, the US has its own currency which (conveniently) happens to be the world's reserve currency. Once we emerge from this crisis we DO need to turn our attention toward our structural deficits, but until economic growth returns more fully, we risk cutting short the economic recovery.

Posted by: morecowbell | June 8, 2010 12:55 PM | Report abuse

@chadreese: "Nearly every economist predicted a "Second Depression" following WWII in anticipation of the huge drop in government spending as we stopped using every available worker to build battleships and bombers. It didn't happen."
It didn't happen because there was enormous pent up private demand due to wartime rationing. During the war there was full employment, good wages, and nothing to spend money on. The current situation is very different. A better comparison would be FDR's attempt to run a balanced budget in 1937, which bought on a serious recession.

@sailhardy: "Thank God Krugman is only an ink-stained wretch and a faculty nincompoop. He is typical of those around Obama, an elite with no understanding of the plights of millions of unemployed Americans and their families."
The whole point of running deficits in a recession is keep from making things even worse. When demand in the private sector falls, government spends money to take up the slack. Millions of those unemployed are getting unemployment insurance which is part of what the deficit is financing.

Posted by: sjpatejak | June 8, 2010 1:22 PM | Report abuse

Well I am an economist, though the Nobel committee seems not to be aware of that fact.

This rather arid policy tempest in a Keynesian teapot is the result of a fundamental mistake, which is to identify national income -- GDP -- as the proper goal of economic activity. When one does that, the terms of the debate are reduced to how can we get more GDP. What I propose, and what I think is blindingly clear, is that we get lots of GDP, we just don't have the right GDP. We through money at people and institutions to reward them for doing useless things. So in short, we waste a tremendous amount of money and effort.

So why do we slavishly follow Keynes' brilliant advice, and all the while we don't get richer, we get poorer?

There are vital places where Washington can promote prosperity, with assists at time to Keynes and Friedman, but there is no substitute for economic freedom. Free people to build their own prosperity instead of expecting a well-spoken Harvard lawyer decide what's best for them.

Oh, and by the way, stop invading every puny third-world nation that has the temerity to refuse to let us base our forces on their soil.

Posted by: jmcgibbons | June 8, 2010 1:47 PM | Report abuse

@sjpatejak: "It didn't happen because there was enormous pent up private demand due to wartime rationing. During the war there was full employment, good wages, and nothing to spend money on. The current situation is very different. A better comparison would be FDR's attempt to run a balanced budget in 1937, which bought on a serious recession."

Again, my point was that the Keynesian model, and Krugman's claim, suggests that anytime you dramatically reduce government spending you see a dramatic hit to the economy. The fact that there were conditions that made this not so following WWII doesn't disprove my point, it illustrates reasons why it happened, and I would strongly suggest that our economy needs a chance to recover itself instead of having the Federal government keep afloat the very industries that wrecked it in the first place-there are reasons that Keynesian economics hasn't managed to stop the cyclical nature of the economy, and it never will.
It's also highly irresponsible to act as though it was FDR's balanced budget in '37 that caused the recession. I genuinely hope you don't believe in that simplified a view of economic "cause and effect."

Posted by: chadreese | June 8, 2010 1:47 PM | Report abuse

To gfinley: Just a quick note, lacking a nobel prize doesn't mean you're wrong. Perhaps more to the point, Krugman's Nobel was for his work in Trade Policy, hardly cause to say his views on domestic spending are infallible.

========================================

Thank you for pointing out something that most of his worshipers may not know. Krugman's specialty is international trade, an area where he is brilliant. It doesn't automatically mean he is brilliant in fiscal policy or other areas of economics.

Posted by: bbface21 | June 8, 2010 2:25 PM | Report abuse

"You are flat out wrong. The cost to service our debt has been growing exponentially. Your reasoning doesn't even make sense. The majority of our debt is in the form of treasury bonds that have a fixed rate. So, even if interest rates do drop in the short term the rate we are paying on our debt does not. This does not even take into account the fact that we are increasing the debt at a faster rate than the interest rate has dropped"

I hate when people say something grows exponentially when it isn't even growing linearly. The rates dropping matter greatly since we are constantly retiring old debt and issuing new. Much of the newly issued debt is to pay off the principle from old bonds when they comes due. In 2000 a 10 year treasury yielded you a fat 6.58 annual return to start the year, now we pay off principle of that old bond by issuing a new one at slim 3.3% rate. The difference in rates is even more striking for shorter term securities. The numbers are there for anyone who wants to look.

http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield_historical_main.shtml

Of course if you just want to rant, rant on player, I'm not going to hate.

With the small amount of inflation we do have left the real rate on a 2 year bond is right around 0, if not negative. 3 month treasuries have actually gone into negative territory here and there. That is give me 100 dollars and I'll give you back 99.97 in 3 months.

Posted by: Dremit97 | June 8, 2010 3:54 PM | Report abuse

chadreese writes
"[M]y point was that the Keynesian model, and Krugman's claim, suggests that anytime you dramatically reduce government spending you see a dramatic hit to the economy. The fact that there were conditions that made this not so following WWII doesn't disprove my point, it illustrates reasons why it happened, and I would strongly suggest that our economy needs a chance to recover itself instead of having the Federal government keep afloat the very industries that wrecked it in the first place-there are reasons that Keynesian economics hasn't managed to stop the cyclical nature of the economy, and it never will."

I don't think that's Krugman's or Keynes' point. Instead, the point is that when the private sector is not keeping the economy afloat, the gov't steps in with deficit spending in order to 'prime the pump'. One reason the stimulus looks like it hasn't had a significant impact on the economy is that state & local governments have seen huge drops in revenue - and thus huge drops in spending. Fed spending has offset those drops, producing a net-neutral (roughly) impact on GDP for government spending as an aggregate (i.e. local, state & Fed).

So the point is not to never cut government spending, it is to boost fed spending during a recession in order to keep cash flowing through the economy. Without that extra stimulus, cash flow slows down & is more difficult to restart. Particularly when employment is down (i.e. high unemployment), wages are flat (going on a decade or more now) and consumer debt is harder to get (tightening credit markets), someone has to start the cycle of spending. To argue for waiting for the market to self-correct is to endorse waiting for someone else to solve the problem. Being a recession, people are generally risk averse, which means there is a very limited appetite to go out and invest in a long-shot startup, or pump money into equities. Instead, people are inclined to stand pat, to buy safe instruments like bonds, and wait for signs of life in the economy before jumping back in. Circling back, that's where gov't spending comes in: pumping cash into the economy to keep it flowing. Even if its just for a temporary census worker, those wages are going to get spent, and quickly, on food, housing, perhaps even some entertainment. As those dollars flow through the economy, maybe some small businesses will stay afloat, or large businesses will see fit to expand operations. Take that spending away, and you've got more people on the dole, fewer sales at the grocery store and gas station, and more people waiting for someone else to take a risk in the midst of a recession.

Posted by: bsimon1 | June 8, 2010 4:01 PM | Report abuse

I am not going to claim to be as smart as many of the posters here on both sides of the economic debate so I will offer an observation grounded in practical observation. The problem with the GOP solution is that they want to continue cutting taxes along with spending cuts so there will be no real increase in revenue to pay off debt and any time that a crisis happens the only solution will be more borrowing thus more debt. At the same time they refuse to consider cuts to the military - a bulk of the federal budget - so with those reduced revenues just how effective would their spending cuts be in debt reduction? Not to mention the vast burden that will be transfered to the state and local level when services are cut -- just because you don't fund it anymore does not mean that people do not need the assistance. So local level officials can opt to do nothing to fill the gap for those services and instead will have to find budget money for police, courts and jails because the people who are displaced by lost benefits, jobs and homes will not just crawl away but will turn to crime as needed to survive. I guess it will be ironic that all those new prisoners will get free healthcare -- and how are we going to pay for that??

Posted by: DawnG1 | June 8, 2010 4:54 PM | Report abuse

Yup. Krugman is right. Nice try at spin, Lane. Krugman earned the respect he has ... and the hatred of conservatives and teabaggers. I know who I will listen too regarding economics.

Posted by: free-donny | June 8, 2010 5:49 PM | Report abuse

What is about well intentioned and educated persons not grasping the major tenents such:
History repeats itself: What did not work before won't and what will work will again based on similar circumstances. Cutting off spending at the risk of inflation is like watering a dessert with watering can.
Why are people like Mr. Lane so risk adverse and choose have a selective memory as to why we got to this demise in the first place. Yes, I am a Krugman fan, I may not always agree with him but in the case of Greece and why we are not is very plausable. Lets' not forget that Greece got themselves into trouble when they were selected to host the Olympics. They were in the red before the games opened, add to that an unstable government and lack of even playing field when it comes to the euro certainly distance us from Greece. Maybe you don't like Mr. Krugman because he allows himself to think outside of ther box and ask that question that no one seems to ask anymore-"what if" and what is "Plan B"?

Posted by: rke1129 | June 8, 2010 6:06 PM | Report abuse

What is about well intentioned and educated persons not grasping the major tenents such:
History repeats itself: What did not work before won't and what will work will again based on similar circumstances. Cutting off spending at the risk of inflation is like watering a dessert with watering can.
Why are people like Mr. Lane so risk adverse and choose have a selective memory as to why we got to this demise in the first place. Yes, I am a Krugman fan, I may not always agree with him but in the case of Greece and why we are not is very plausable. Lets' not forget that Greece got themselves into trouble when they were selected to host the Olympics. They were in the red before the games opened, add to that an unstable government and lack of even playing field when it comes to the euro certainly distance us from Greece. Maybe you don't like Mr. Krugman because he allows himself to think outside of ther box and ask that question that no one seems to ask anymore-"what if" and what is "Plan B"?

Posted by: rke1129 | June 8, 2010 6:07 PM | Report abuse

I'm constantly amazed at how many people base their argument here because Krugman won the Nobel prize. Let's remember some other notable Nobel winners. Barak Obama, for something he might do in the future, Al Gore, who later we found out, fudged data, Yasser Arafat, for his peaceful intentions, except he never gave in to the point that Israel has a right to exist.

Here is a notable quote by Mr. Krugman and lets see how smart you really think he is."Fannie and Freddie had nothing to do with the explosion of high-risk lending...[T]hey didn't do any subprime lending because they can't...by law" ("Fannie, Freddie and You," July 14, 2008). No they can't but neither could the banks without them underwriting the loans.

Posted by: robert1012 | June 8, 2010 7:12 PM | Report abuse

Good lord another lightning rod of ignorance postulating for the failed policies that has gotten where we are at today, Ya betcha reduce those welfare mummys benefits, they and their kids need to eat of the dumpsters, and hey lets make sure the military has a few more rounds of billions to waste on to many admirals, generals, who have ceased to be productive, but have become a hinderance in conducting a war, see material shortages due too little truf wars in the chain of command, and that rancher out west feeding his cattle on government range killing off wolves reintroduced to help reduce the onslaught of wild pigs and other out of control consumers at bay, pun intended.
And heaven forbid that they would marginaliize Paul Krugman I mean he predicted the fall way back in 2005 and all the little trogledytes called him the vilest of names but yet 2008 arrived and where did the economy go? did I hear someone mention South of the Southren Consellations? and still going because of 30 years of republican incompetence? hey whats a generation or two for inbreed stupidity gonna cost you/

the Middle class the back bone of this economy is what? as and old Krugs Forum poster this is same septic tank renewal economics presented as something called a reasonable presentation, still with all the bells and whistles of ignorance attached, nice try lane, perhaps you'd better get off the temple steps,makes a lousy soap box.

Posted by: nightslider1 | June 8, 2010 7:14 PM | Report abuse

We've had deficits since 1776.

This is so silly. We have a fiat currency. The Federal Government will always be solvent. What matters is GDP.

It's astounding that most people still think we have a gold standard.

Posted by: widmerpool | June 10, 2010 11:36 AM | Report abuse

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