Paul Krugman: Very Serious Suckers

[cal04]

http://krugman.blogs.nytimes.com/2011/07/30/very-serious-suckers/?smid=tw-NytimesKrugman&seid=auto

Jonathan Chait has an excellent piece documenting the way in which what he calls the establishment, and I call Very Serious People, misjudged the way the debt ceiling thing would play out:

The failure to understand the crisis we were entering was widely shared among centrist types. When Republicans first proposed tying a debt ceiling hike to a measure to reduce the deficit, President Obama instead proposed a traditional, clean debt ceiling hike. He found this position politically untenable for many reasons, one of them being that deficit scolds insisted that using the debt ceiling to force a fiscal adjustment was a terrific idea, and that connecting the deficit debate to a potentially cataclysmic financial event was the mark of seriousness.

He then goes on to show how the usual suspects — the WaPo editorial page, the Committee for a Responsible Federal Budget, the Concord Coalition, etc. welcomed a crisis over the debt ceiling in the belief that it would lead to fiscal goodness.

(snip)
But it also showed awesome political naivete. As Chait says, the first thing you need to understand is that modern Republicans don’t care about deficits. They only pretend to care when they believe that deficit hawkery can be used to dismantle social programs; as soon as the conversation turns to taxes, or anything else that would require them and their friends to make even the smallest sacrifice, deficits don’t matter at all.


The Debt Ceiling Crisis And The Failure Of The Establishment
http://www.tnr.com/blog/jonathan-chait/92941/the-debt-ceiling-crisis-and-the-failure-the-establishment

[snagglepuss]

1. k & r nt

[girl gone mad]

2. Krugman has been a part of the problem.

He needs to finally move away from his "deficit dove" position.

[muriel_volestrangler]

3. Why is being a 'deficit dove' being part of the problem?

The deficit is remarkably affordable at the moment:

The U.S. Is Not Drowning In Debt

Yes, the federal debt has grown by nearly $3 trillion dollars in the past three years. And yes, the dollar amount of that debt is quite large (in excess of $14 trillion and headed toward $15 trillion should the ceiling be raised). But large numbers are not the problem. The U.S. has a large economy (slightly larger than that debt number). And, crucially, we have very low interest rates.

Because of those low rates, the amount the U.S. government pays to service its debt is, relative to the size of the economy, less than it was paying throughout the boom years of the 1980s and 1990s and for most of the last decade. The Congressional Budget Office estimates that net interest on the debt (which is what the government pays to service it) would be $225 billion for fiscal year 2011. The latest figures put that a bit higher, so let’s call it $250 billion. That’s about 1.6% of American output, which is lower than at any point since the 1970s – except for 2003 through 2005, when it was closer to 1.4%.

Under Ronald Reagan, the first George Bush, and Bill Clinton, payments on federal debt often got above 3% of GDP. Under Bush the second, payments were about where they are now. Yet suddenly, we are in a near collective hysteria.


If you point all this out, the response you typically get is that today’s interest rates are artificially and atypically low — and that when they skyrocket, that debt burden will become much more painful. Well, yes, but rates don’t skyrocket unless there is a collapse of market confidence. Rates may rise, and that will force hard choices in future spending or trigger the need for new sources of revenue. But only crisis triggers dramatic rate swings, and the only thing that will create that crisis is brinksmanship over the debt ceiling or levels of debt that are substantially higher than they are now.

Read more: http://moneyland.time.com/2011/07/15/the-u-s-is-not-drowning-in-debt/

Krugman's position, which you call being 'a deficit dove', is that, with the economy teetering on the brink of another recession, now is not the time to slash government spending. That will run a large risk of a starting a new recession, which puts more people out of jobs (which requires more government spending, as well as the misery it causes to the people), and causes even more uncertainty which makes it less likely people will start new business ventures that could get the jobs back. He doesn't advocate permanently running deficits. But now is the worst time possible to say "we must balance the budget".

So why do you think Krugman is part of the problem?

[Flubadubya]

4. Why? Reason numero uno...

He criticizes Obama.

Edit to clarify, my response is to the last question in your post.

[joshcryer]

5. Psst, Krugman did that before he was even President.

He was thrown under the bus then, now he's a hero.

[Flubadubya]

6. Hmm... well, in that case...

Maybe he should not have been "thrown under the bus" back then. I have almost always found his premises viable and his arguments sound.

He's never been "under my bus". Just sayin'

[muriel_volestrangler]

8. OK, well that leaves me none the wiser

I think that means your reply #4 was a bit sarcastic, yes? That you assume girl gone mad's position is 'never criticise Obama', and you're parodying it?

However, looking up the recent use of 'deficit dove', and noticing the 'MMT' that girl gone mad has in her signature, she appears to be a follower of 'modern money theory' - which holds that a sovereign government doesn't really have to worry about deficits at any time, apart, I think, from when the economy is overheating. MMT seems to say (new to me, so I may have got this wrong) that governments should always run deficits until full employment is achieved. its proponents hold that long term economic forecasts are next to useless, so there's no point in worrying about long term debt levels; and governments, if they only borrow in their own currency, can just 'print money' if the bond markets ever decide not buy new government bonds at the price the government offers them at. Which would devalue the currency, I think; so it wouldn't be all good news, since that drives up import prices.

[McCamy Taylor]

7. The Kochs have been working for 30 years to "privatize"

Social Security---meaning they want to get their hands on the money we would ordinarily deposit with the government. Thanks to Citizens United vs. FEC, the Kochs now own the House of Representative. Their little Tea Baggers were instructed to privatize Social Security, and the grateful little dears tried their hardest.

The Kochs DO NOT have an ideological hatred of the government. Stalin's totalitarian government in the USSR made then rich. Most likely they turned against Russia in an attempt to deflect criticism about being "red". The son carried on the dad's mission to clean up the family name---but at the same time he continued to make money off the government. The Kochs are poster children for corporate welfare. Any money that isn't going to them is money they want. And almost a trillion a year goes to Social Security.

The press chose to ignore the Kochs role in the budget crisis. Therefore, they assumed that the GOP would act rationally. It is not in their best interest to slash SS or Medicare nor do they need another federal gov't shutdown. But, the newbies in DC don't know squat about politics. All they know is what the Kochs tell them.

Were they naive or just willfully blind? The press has chosen to ignore the Kochs plans for our money, even though they have been quite open about it. I think maybe they are scared to tackle a rich family.

[hansberrym]

9. But interest rates are artificially low.

If you point all this out, the response you typically get is that today’s interest rates are artificially and atypically low — and that when they skyrocket, that debt burden will become much more painful. Well, yes, but rates don’t skyrocket unless there is a collapse of market confidence

That is foolishness, there are many other causes for rise in rates other than brinksmanship. If the economy of the rest of the world grows faster than ours, there will be better places to put one's money and the US will need to raise rates in order to sell new bonds to replace maturing bonds. Also if we continue to borrow ever more (with or without brinksmanship) ithat will reduces our rating. Does the author not know that the Fed is buying Treasuries now, thus artificially holding down interest rates? Does the author imagine we can play this paper printing game forever?

[Jim Lane]

10. Krugman's point is not that they won't increase, but that they won't increase SUDDENLY.

I believe that his policy prescription would be: Deal with the joblessness issue now. That will increase tax revenues, and improve the government's ability to deal with paying interest in the future. We can enjoy the benefits of the current low interest rates while we're working our way through the slump, and moving back toward full employment.