Skip to comments.Krugman: Yes, We Have To Fix The Deficit Eventually–But Not Now
Posted on 01/30/2013 5:30:22 AM PST by ExxonPatrolUs
Nobel Prize-winning economist Paul Krugman has argued clearly and consistently over the past five years that U.S. government spending is critical to our economic recovery and that cutting spending now to reduce the deficit would be a disastrous mistake.
For taking this position, Krugman has been castigated by those who blame the depression on fiscal irresponsibility and runaway government spending. The way to fix the economy, those folks argue, is to immediately slash government spending, reduce the deficit, and restore "confidence" among the country's business leaders.
In the early years of the recovery, there was widespread support for the latter view. But in the past few years, as countries like the UK and Greece have tried the "austerity" remedy, it has become clear that this only compounds the problem. By reducing government spending, country's reduce employment and GDP. And by reducing employment and GDP, they also reduce tax revenue, which increases the deficit. So they have to cut more spending. And so on.
Meanwhile, the outcome that such "deficit hawks" keep worrying about--skyrocketing interest rates as our creditors conclude that our spending is out of control--has yet to materialize. We continue to be able to borrow at extraordinarily low rates of interest. And our government spending, though considerably higher than our government tax revenue (thus the budget deficit), is still relatively low as a percent of GDP when compared to that of other developed country.
Importantly, Paul Krugman does not think we can ignore our budget deficit forever. He agrees that the so-called "entitlement" programs--especially Medicare and Medicaid--are on a growth path that will eventually cause serious problems if they are left unaddressed.
(Excerpt) Read more at m.yahoo.com ...
“U.S. government spending is critical to our economic recovery and that cutting spending now to reduce the deficit would be a disastrous mistake.”
Krugman’s wrong here. The debt levels now are almost at record highs, and are the highest since 1946. Spending cuts are inevitable and will be coming. Krugman or no.
When has Krugman ever been right about anything?
Ooh don’t worry Paul, I’m sure you’re right. “Eventually” the deficit will fix itself because no one will be foolish enough to lend the government any more money. When just about all government services (aka handouts) come to a sudden stop? One of the reasons I want high capacity magazines.
These people are behaving like sharks on a feeding frenzy.
There is NO excuse or justification for this kind of indiscriminate disregard for citizens’ Constitutionally guaranteed rights!
The article is deceptive, but with the common assumption that the only alternative to massive overspending is socialist austerity, citing Greece and Italy as examples, and to make matters worse, austerity as designed by the people who fouled up in the first place.
Instead, they should be looking at two other examples, Iceland, which absolutely and popularly rejected giving any protection or support to failed banks and financial institutions, and is now strongly recovering (except for the corrupt bankers who are looking at prison time); and individual US states, who both conducted their own, quiet “austerity” (not on the socialist model) and are strongly recovering.
But what about the US?
The CATO Institute is a firm believer in the free market, though they are a bit radical about it. Yet they point out that, were it not for government protection, monopolistic and oligopoly corporations would self destruct because of market forces.
So why does America now have just a small handful of gigantic banks and financial houses? Would it be so disastrous that, because of their own bad investments, they had to suffer for it?
While they, of course, insist that it would be “disastrous” to the US economy, Iceland has clearly proven otherwise. In fact, were they to be busted up, one way or another, it would likely be a huge boost to our economy.
Likewise, socialist austerity is truly awful, because they assume that it must be *equal* to “be fair”. The truth is that when a patient has cancer that must be removed, the surgeon removes the cancer, *not* removing “just half” of the cancer, and equal amount of healthy tissue, to “be fair”. Which would be stupid.
The austerity done by the states is not socialist, but very rational and practical. If there are programs that are inefficient, they are *eliminated*, not just reduced along with programs that are efficient. Totally unfair, but it works.
Likewise, these states are firm believers in the Laffer curve, and that business and individual success makes an economy better. Not government, but *less* government. Less taxes makes for bigger revenues. Jobs instead of welfare. Individual initiative instead of bureaucratic regulation.
The path is clear for recovery. Only “reactionary leftists” are keeping us from taking it.
It is jaw droppingly stupid to advocate for more government borrowing when we are $16.5 Trillion in the hole. If spending worked we would not have an employment problem, we would have achieved Nirvana long, long ago.
Now, I'm just a lowly senior engineer/analyst and not a highly intelligent Nobel Prize winner like yourself and President Obama (remind me again what he did to earn that prize?), but nevertheless I have to ask: Are you out of your mind? If we don't get this out-of-control spending under control, we are going to loose this country that I love. But what do I know - I'm not an award-winning economist.
Let someone else fix the deficit, right Paul? Barry is too busy taking us down the pathway to communism.
Krugman is a dolt, to be sure, but I know a couple of folks who follow his words like the Gospel. Then again, these same folks liken FDR to being a divine messenger.
Eventually is better than “we owe it to ourselves” and “in the longrun we’re all dead,” I guess.
Wait, the argument is that cutting spending reduces employment and GDP, and therefore tax revenue? But whatever “production” was being added to the economy wasn’t deserving if the name, obviously, so scratch that. Secondly, employment us neither here nor there, as government employees don’t pay taxes. Or not income taxes, anyway. Yeah, I said it. Taxes paid on income from government salaries are merely a ridiculously roundabout accounting system for their salaries being that much lower. Cutting their salaries cannot lead to deficits due to the missing taxes on said salaries, which aren’t actually taxes at all, because the salaries have to be smaller than the “taxes” paid on them.
One point I will allow is that consumption could possibly go down. The money saved on employees’ salaries won’t be going to wherever they went when there were employees to spend it. It is somewhere else, supposedly in the hands of people from whom it need nit be taxed to pay for the now missing government employees. Usually this would tend to go toward capital formation, if not on present consumption. Perhaps, like here, over there the miserly moneyed class isn’t throwing good after bad on boondoggles despite how low central banks fix the price of money.
This is a bad thing to Keynesians, for them if money exists it must be spent! That’s money’s very purpose! “Saving” is a swear word. Hate to break it to them, but maybe it’s better that it’s not going toward immediate consumption, if that’s what’s happening. Economies do not grow on cunsumption, nevermind what our stupid contemporary minds tell us.
By the way, have the UK and Greece actually instituted “austerity measures,” really? I kinda doubt it. If they have and government’s share has gone out of GDP, well, I’ll let you in on a little secret: the way we hold up “GDP” and how we measure supposed economic health is BS.
The "Noble Peace" prize is irrelevant and so is the term, "economists."
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