Pethokoukis

Krugman vs. … Krugman on doomsday cults and the national debt

Paul Krugman's Strange Ireland Prediction

Photo Credit: Prolineserver (CC BY 2.0)

New York Times columnist Paul Krugman uses the passing of the Mayan date of apocalypse as a news hook to attack debt hawks, such Erskine Bowles and Alan Simpson, as ”cultists” who keep predicting fiscal disaster is just around the corner:

Regular readers know that I and other economists argued from the beginning that these dire warnings of fiscal catastrophe were all wrong, that budget deficits won’t cause soaring interest rates as long as the economy is depressed — and that the biggest risk to the economy is that we might try to slash the deficit too soon. …

The key thing we need to understand, however, is that the prophets of fiscal disaster, no matter how respectable they may seem, are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner, and they will hold to their belief no matter how many corners we turn without encountering that crisis. … But they’ve been hugely, absurdly wrong for years on end, and it’s time to stop taking them seriously.

But until Barack Obama was elected and started running up trillion-dollar deficits, Krugman was a member of that doomsday cult. Back in 2003, for instance, Krugman compared the federal government to a gigantic insurance company — one with a side business providing national defense — that recklessly conducted its accounting on a cash basis. He favorably quoted a Treasury official calling the situation “an accident waiting to  happen.”

The columnist was so alarmed over the fiscal impact of the Bush tax cuts and the coming Iraq war — he said he was “terrified” — that he even shifted his home loan from a variable-rate to a fixed-rate mortgage. The Great Reckoning had begun! Krugman:

The accident — the fiscal train wreck — is already under way. How will the train wreck play itself out? … But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

And as that temptation becomes obvious, interest rates will soar. It won’t happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.

I think that the main thing keeping long-term interest rates low right now is cognitive dissonance. Even though the business community is starting to get scared — the ultra-establishment Committee for Economic Development now warns that ”a fiscal crisis threatens our future standard of living” — investors still can’t believe that the leaders of the United States are acting like the rulers of a banana republic. But I’ve done the math, and reached my own conclusions — and I’ve locked in my rate.

Talk about cognitive dissonance. Or maybe it’s intentional obtuseness. Or maybe just pure partisanship. Bush deficits bad. Obama deficits no problemo.

That, even though the Bush deficits averaged $250 billion a year, and the Obama deficits have averaged $1.3 trillion a year.

That, even though under Obama’s own 2013 budget, his two terms would add $8 trillion to the national debt vs. $2 trillion for Bush’s eight years.

That. even though we are now a decade closer to the time when Medicare really starts adding to the red ink, as this Obama White House chart shows:

I think a scene from the film “Moonstruck” provides a good way of thinking about the national debt. Plumbing contractor Cosmo Castorini enlightens a yuppie couple in need of a bathroom remodeling: “Look, there are three kinds of pipe. There’s aluminum, which is garbage. And you can see where that’s gotten you. Then there’s bronze, which is pretty good, unless something goes wrong. And something always goes wrong. Then there’s copper, which is the only pipe I use.


Right now, the U.S. debt probably isn’t a huge, immediate problem, given a) the size of the debt as a share of output, b) the economy’s nominal growth rate, c) government interest costs – though some research shows it may already be slowing growth.

Unless something goes wrong. An accident waiting to happen.

What if we have another financial crisis? The past one doubled our debt/GDP ratio. And every year that goes by that we don’t address our entitlement crisis adds trillions to the fiscal cost of any eventual solution. That is literally taking more money each year from our children to finance our consumption today.

Krugman — somewhere in there — must surely realize that. Again, cognitive dissonance or intentional obtuseness?

23 thoughts on “Krugman vs. … Krugman on doomsday cults and the national debt

  1. “But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.”

    Krugman’s prediction came true. The problem is that now that it has, what are we going to do? Kill Medicare to solve the problem created by foisting two unpaid and unbudgeted wars on us? Starve the needy when Bush engineered a massive wealth transfer from the least of these to those who already had the most?

    I don’t think so, Jim.

    This being the supposed eve of the Birth of your Lord and Saviour, let me commend to you that you reflect on the morality of punishing the old and the poor, for policies that only aided those who least had the least need of it.

    • This argument is so lame:

      “[W]hat are we going to do? Kill Medicare to solve the problem created by foisting two unpaid and unbudgeted wars on us? Starve the needy when Bush engineered a massive wealth transfer from the least of these to those who already had the most?”

      Here are a couple of facts MadMaxKrugman wants you to overlook:

      1) The TOTAL cost of e Iraq and Afghanistan campaigns, to date, are $1.4Trillion over TEN YEARS. That’s a paltry $140 Billion/year, or nearly insignificant when it comes to our overall “balance sheet” (if you could call it that).

      2) Revenues to the Treasury from 2003-2007 INCREASED right up until the housing collapse. (Sorry MMK, empirical evidence is what it is.).

      Whether it was widgets or war, $140 Billion/year just can’t do all of this damage, and revenues to the Treasury INCREASED over the period MMK wants to reference. What he, and what all Progressive/Marxists do, is just keep re-repeating the same lie over and over again.

      So, I’ll put it simple terms: My buddy MMK (MadMaxKrugman) has to ignore the solid, empirical evidence which proves that, a Mr. Pethokoukis so succinctly put it, “Real business nonresidential fixed investment (RBNRFI) is what actually drives the economy”, and that “Both real GDP and employment growth are a direct function of RBNRFI.”

      More importantly to the likes of MMK, is that these nutwings are not really interested in finding the diminishing point of returns on taxation that will bring the greatest income to the treasury. They first and foremost want wealth redistribution, REGARDLESS of the effect it has on tax revenues.

      • “1) The TOTAL cost of e Iraq and Afghanistan campaigns, to date, are $1.4Trillion over TEN YEARS. That’s a paltry $140 Billion/year, or nearly insignificant when it comes to our overall “balance sheet” (if you could call it that).”

        This, of course, comes from the same people who think killing off Big Bird will balance the budget. A “paltry” $140 billion a year? LOL!! That’s pretty generous with other people’s money.

        Not to mention the lives of thousands of our kids both wars have ruined…..

        But hey: praise Jesus.

      • “Whether it was widgets or war, $140 Billion/year just can’t do all of this damage, and revenues to the Treasury INCREASED over the period MMK wants to reference. What he, and what all Progressive/Marxists do, is just keep re-repeating the same lie over and over again.”

        They DIDN’T increase, and this was already debunked on another thread. Secondly, this is resorting to the same time-honored horsecrap, which in Latin is called “ergo hoc, ergo propter hoc.” You simply can’t prove anu causality in these things, because they can’t possibly be viewed in isolation in a multi trillion dollar economy that gets buffeted this way and that by dozens of individual factors.

        It’s nonsense, and people should stop kidding themselves with this crap.

        Know what the biggest fear the AEI has over these tax increases comining up? They’re not worried about the economy or jobs.

        Their biggest fear is it WON’T HAVE ANY EFFECT, and that will blow out the Vulgate of Horsecrap they’ve been parroting for decades and expose them as frauds.

        Of course, we have the empirical evidence for that already, and they’ll be sure come up with another lame excuse (Obama had the invention of the personal gyrocopter, which created millions of jobs and a bubble in the gyrocopter industry) but this time, I don’t think anyone will buy into it.

        • They didn’t? Debunked on some lame-headed “thread”?

          2003 – $1.782 Trillion
          2004 – $1.88
          2005 – $2.15
          2006 – $2.41
          2007 – $2.57 (Pelosi/Reid begin Keyesian mischief, Bush agrees)
          2008 – $2.52

          Checkout the continuing decline here:

          http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

          I say again; “More importantly to the likes of MMK, is that these nutwings are not really interested in finding the diminishing point of returns on taxation that will bring the greatest income to the treasury. They first and foremost want wealth redistribution, REGARDLESS of the effect it has on tax revenues.”

          • Sir, do you realize you are deluding no one but yourself by looking at raw dollars?

            You people live in a cesspit of self-imposed mendacity. On one thread, an author claims that the middle class will get hit by a harder “percentage” if the Bush tax cuts expire, pointing out that, “of course” the rich will gain more in dollars.

            Here, because turning the logic in reverse suits your prejudices, we now turn to using dollars instead of percentages.

            However, if we use percentages, you’re a loser:

            http://voices.washingtonpost.com/postpartisan/2010/08/cherry-picking_season.html

            In the meantime, the conceit continues: coming out of the shock of 9/11, revenues “grow,” but concurrently, Bush is spending like a crackhead, as he throws himself into two failed wars, one of which, had absolutely NOTHING to do with terrorism, and has created a Shi’ite alliance allowing Iranian influence in Iraq.

            The joke continues: “revenue” keeps going up, but while you were transfixed on entitlements even before Bush launched his costly Medicare gambit, Mr. Greenspan is strangely out of the picture.

            You keep telling yourself stories, sonny. You don’t know d*ck about economics, taxation, or much of anything else.

            You’re a “believer.” An easily manipulated rube.

      • “2) Revenues to the Treasury from 2003-2007 INCREASED right up until the housing collapse. (Sorry MMK, empirical evidence is what it is.). ”

        Who gives a rat’s @ss about the revenues, while THEY WEREN’T KEEPING UP WITH OUTFLOWS AND THE DEFICIT WAS GROWING AT THE SAME TIME?

        By the way, pal. You’re right about the war outlays not being the whole enchilada- the TAX CUTS accounted for about double those.

        Real economic geniuses on these forums…..

        • Missing from ALL your positions is subject of entitlement spending. Never is it a subject you bring up, because at the end of the day, you don’t really care about the relationship between overall income vs. spending. Nothing defines you more as an economic illiterate. For example:

          This theory that “tax cuts must be paid for” rests on the notion that all of the money earned by the citizens and by business, first and foremost belongs to the government. (You just said so in your last sentence above). Whatever portion the wage earner or corporation is allowed to keep, regardless of income or class level, therefore must be some form of spending. And, because you’ve exceeded some imaginary level of “enough” economic success and you happen to be in an upper income tax bracket, your untaxed dollars are more than mere spending, they’re an outright gift from the government.

          This is at the center of the Progressive policy agenda – to redistribute, rather than create, wealth. That makes you a Socialist, Max.

          You’re not my Pal, MMK. You are a parasite. And I don’t aim to persuade those like you, I aim to defeat you.

          • “Missing from ALL your positions is subject of entitlement spending. Never is it a subject you bring up, because at the end of the day, you don’t really care about the relationship between overall income vs. spending. Nothing defines you more as an economic illiterate. For example:”

            You’re deflecting, buddy boy. The whole point of your post was that the tax cuts “boosted revenue” (which is horsecrap) but as I have pointed out to those who come to this forum claiming to be the king of economic theory, it’s not too bright to cut by a dollar and then rejoice in a 75 cent “boost.”

            You never mentioned entitlements. And frankly, no one gives a damn because no one really wants to lose them. They MUCH rather prefer to tax.

            And that MEASLY $1.4 trillion in war spending that Bush didn’t EVEN BOTHER TO BUDGET FOR, much less allocate a penny to pay for it! A drop in the bucket for today’s “fiscal conservative!”

            Oh, and the tax cuts? A measly $3 trillion, which is nothing to a great economic theologian like yourself!

            God, are you people pathetic…

            http://www.washingtonpost.com/blogs/fact-checker/post/obamas-claim-that-90-percent-of-the-current-deficit-is-due-to-bush-policies/2012/09/26/e9bfbcd0-077e-11e2-a10c-fa5a255a9258_blog.html

          • “And I don’t aim to persuade those like you, I aim to defeat you.”

            Yeah, you sure showed me on that one!

            Has Romney conceded yet? :)

  2. Housing was in pretty good shape in the mid-00s until something went wrong. Tech stocks were in pretty good shape in the late 90s until something went wrong (Bob Shiller was the primary “cult leader” who warned in both cases). The S&L industry was in pretty good shape in the early 80s until something went wrong. The EU was in pretty good shape not long ago until something went wrong.
    Odd, isn’t it, how when something goes wrong it’s usually about excessive debt accumulation? And that at each juncture the consensus is “this time is different”?
    You attribute too much to Krugman. He hasn’t been an economist for a long time. He simply chose another profession as mouthpiece for the editorial board that employs him. It’s a much better living than most economists have. I don’t blame him.

    • I just love how the unwashed and unread “Right Wing” of this country spews ignorance. He is more credentialed than any AEI hack. Times 10. And unlike Hubbard, who takes corporate money and THEN produces his “theories,” Krugman does not.

      Krugman earned his B.A. in economics from Yale University summa cum laude in 1974 and his PhD from the Massachusetts Institute of Technology (MIT) in 1977 with thesis titled Essays on flexible exchange rates. While at MIT he was part of a small group of MIT students sent to work for the Central Bank of Portugal for three months in the summer of 1976, in the chaotic aftermath of the Carnation Revolution.[31] Krugman later praised his PhD thesis advisor, Rudiger Dornbusch, as “one of the great economics teachers of all time”, and that he “had the knack of inspiring students to pick up his enthusiasm and technique, but find their own paths”.[32]

      In 1978, Krugman presented a number of ideas to Dornbusch, who flagged as interesting the idea of a monopolistically competitive trade model. Encouraged, Krugman worked on it, and later wrote, “[I] knew within a few hours that I had the key to my whole career in hand”.[31] In that same year, Krugman wrote The Theory of Interstellar Trade, a tongue-in-cheek essay on computing interest rates on goods in transit near the speed of light. He says he wrote it to cheer himself up when he was “an oppressed assistant professor”.[33]

      Krugman joined the faculty of MIT in 1979. From 1982 to 1983, Krugman spent a year working at the Reagan White House as a staff member of the Council of Economic Advisers. He rejoined MIT as a full professor in 1984. Krugman has also taught at Stanford, Yale, and the London School of Economics.[34]

      In 2000, Krugman joined Princeton University as Professor of Economics and International Affairs. He is also currently Centenary Professor at the London School of Economics, and a member of the Group of Thirty international economic body.[8] He has been a research associate at the National Bureau of Economic Research since 1979.[35] Krugman was President of the Eastern Economic Association in 2010.[36]

      A May, 2011 Hamilton College analysis of 26 politicians, journalists, and media commentators who made predictions in major newspaper columns or television news shows from September 2007 to December 2008 found that Krugman was the most accurate. Only nine of the prognosticators predicted more accurately than chance, two were significantly less accurate, and the remaining 14 were no better or worse than a coin flip. Krugman was correct in 15 out of 17 predictions, compared to 9 out of 11 for the next most accurate media figure, Maureen Dowd. Krugman’s result was found to be statistically significant at the p<0.001 level.[103]

      His first columns in 2000 addressed business and economic issues, but as the 2000 US presidential campaign progressed, Krugman increasingly focused on George W. Bush's policy proposals. According to Krugman, this was partly due to "the silence of the media – those 'liberal media' conservatives complain about…."[118] Krugman accused Bush of repeatedly misrepresenting his proposals, and criticized the proposals themselves.[118] After Bush's election, and his perseverance with his proposed tax cut in the midst of the slump (which Krugman argued would do little to help the economy but substantially raise the fiscal deficit), Krugman's columns grew angrier and more focused on the administration. As Alan Blinder put it in 2002, "There's been a kind of missionary quality to his writing since then … He's trying to stop something now, using the power of the pen."

      The entire staff of AEI couldn't hold Krugman's jockstrap.

      • Most libs are intoxicated with Krugman’s soaring rhetoric, and ignore his particularly poor track record of accurately predicting economic trends. I find his record, both as an economist and a political commentator, to be replete with errors, distortions, blatant revisionism, and terrible advice. Go back and read some of his stuff from the early 2000′s. Either he hedged his predictions (like he did on the housing bubble) or he was just flat out wrong.
        He was an economic advisor to Reagan, but was quickly dismissed after this debacle:

        http://old.nationalreview.com/nrof_luskin/kts200406170833.asp

        He thought that the September 11th terror attack could even do some economic good.

        http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html

        This is how a Keynesian thinks. Destroy stuff, and we get stimulated by replacing it. A Zero sum game. Like cash for clunkers… He’s a Keynesian, which explains why he’s adored by the redistributionists, and why he’s ALWAYS wrong on economic predictions and policy.

        On housing bubble:

        “To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”. – Paul Krugman, August 2nd, 2002.

        http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

        Then, just two weeks later, Krugman “warns” his readers about, you guessed it, a “housing bubble”.

        http://www.nytimes.com/2002/08/16/opinion/16KRUG.html

        And on and on and on…. No one serious takes him seriously.

      • I’m sure you’re right Max. I’m sure Krugman is 10x the authority of anyone from AEI, or anywhere else in print, blog, tv or radio for that matter. Which helps to explain why he won’t debate any of them. Ever. Or wait, it doesn’t explain it at all.

        You are a king doosh, sir.
        -Shaggy

        • I never said he was the “King” of anything, but yeah, compared to the paid stooges of AEI, he’s head and shoulders above all of them.

          That is such a low bar to pass, however, it’s not even an accomplishment.

        • “Which helps to explain why he won’t debate any of them.”

          Krugman has done plenty of debates. He merely washed his hands of CNBC because Kernan is such a flaming idiot. Most of us in the business do not take CNBC seriously.

    • This mentioning of Enron is totally lame. You’re not telling me his employment there has anything to do with Enron’s corruption, are you?

      Please say so. We can all use a laugh.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>