Yeah, Krugman is a tad toward the left, but has he got a point?
For three years and more, policy debate in Washington has been dominated by warnings about the dangers of budget deficits. A few lonely economists have tried from the beginning to point out that this fixation is all wrong, that deficit spending is actually appropriate in a depressed economy. But even though the deficit scolds have been wrong about everything so far — where are the soaring interest rates we were promised? — protests that we are having the wrong conversation have consistently fallen on deaf ears.
[…]
But after peaking in 2009 at $1.4 trillion, the deficit began coming down. The Congressional Budget Office expects the deficit for fiscal 2013 (which began in October and is almost half over) to be $845 billion. That may still sound like a big number, but given the state of the economy it really isn’t.Bear in mind that the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy.
[…]
Right now, a sustainable deficit would be around $460 billion. The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The “cyclically adjusted” deficit — what the deficit would be if we were near full employment — is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion. And that’s why budget office projections show the nation’s debt position more or less stable over the next decade.So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.
Krugman would be right if you ignore history. If you think of the economy like a sine wave cycling up and down this theory would require the spending to be running near the center so we have as many years (or dollars) above the average have below. In reality the spending average is up near the top of the wave so we only have a hand-full of years where we are making any progress.
Also keep in mind, when the budget (remember when we used to have budgets?) projects a surplus, people like Krugman come out saying we should spend even more on social engineering and failed government projects.
Actually, from what I’ve heard, people like Krugman say that when you have a surplus, that is the time to pay down the deficit. People trying to buy votes are the ones who want to spend, spend, spend the surplus… regardless of political party.
As a matter of fact the last president to have a surplus (left to him by Democrat Bill Clinton) was George W. Bush, and he certainly didn’t pay down the deficit… it increased a lot while he was in office. And that’s not even counting his bogus wars.
And it was Dick Cheney who said “Deficits don’t matter”.
And Krugman is a tad toward reality, which has a well-known liberal bias. 🙂
They will only be a problem if WE let them be a problem, and if WE don’t pass legislation to bring the jobs back. Tax breaks for outsourcers must stop.
I’m not a Keynesian. However, I am familiar enough with the theory to realize the problem isn’t necessarily with Keynesian Economics. The problem is that our politicians don’t know when to stop. Assuming KE is a valid theory, Washington is supposed to stop when things are good. Our politicians don’t know how to do that. They spend like there is no tomorrow regardless of the current fiscal status.
So, like any good father, you need to takes the keys away from your teenager when they misbehave. Starve the Beast. They’ve shown they don’t have the willpower to stop when they are supposed to.
AFA why the interest rates haven’t gone up . . . have you tried to get a credit line from a bank these days? They are holding onto the money with the tightest fists seen since the GD. Once they start letting it out in circulation, you’ll see them.
And all of this assumes that running a deficit is good anyway. Deficits do nothing more than inflate the currency — a hidden tax that you have no control over.
Buchanan’s “Democracy in Deficit: The Political Legacy of Lord Keynes” outlines quite succinctly why we should expect to always see budget deficits going forward. Voters want things now, and deficit spending allow for somebody else in the future to pay for them.
The higher interest rates aren’t there because the Fed is flooding the market with funny money. Prices are steadily going higher to adjust.
To me, the Euro currency “crisis” is a major reason interest rates are low. The “crisis” created a flight-to-quality and investors bought U.S. Treasury notes and bonds. If the Eurozone improved, there would be an upward pressure on U.S. interest rates.
Another major reason for low interest rates is the Federal Reserve’s Qualitative Easing (QE1, 2, 3, …) which will keep interest rates low for years. These easings are 50% of the reason the stock market has rallied over the last year according to one analyst.
This has lowered the dollar against foreign currencies which has lead to higher oil prices and probably food prices.
Right now we are paying over $200 billion a year for interest payments. That is, we get *nothing* for $200 billion every year.
The idea that adding *any* more to a $16 trillion dollar existing debt is just fine and dandy is the ultimate in denialism.
Well, again, yes. The problem with Keynesian economics is not so much that it doesn’t work as advertized. It isn’t perfect, but it more or less does what it says it does.
The problem is that we only use the easy part, spending like drunken sailors on shore leave without ever going to sea for months at a time in between.
http://krugman-in-wonderland.blogspot.com/2013/03/the-federal-deficit-is-symptom-not.html
“…sustainable deficit…“?! What the f**k?!!!
Any other business or government with a budget deficit isn’t in business/power for very long. It’s a fact proven time after time. But it’s a fact that doesn’t seems to apply to the United States. And the reasons the U.S. is immune is due to some very underhanded reasons. Most notably, the U.S. controls the very money standard used throughout most of the world. But here’s the kicker: the U.S. is also able to authorize the printing of more money based on nothing but thin air conjecture. And the “authority” which does this isn’t even really part of the government!
In other words, if I were broke and able to get my buddy to keep supplying me with an endless supply of IOU’s that everyone else kept accepting then I too could sustain a budget deficit. It would be even better if no one knew what the real value of my buddies IOU’s were too. All I had to do was show anyone interested my neighbors room full of gold (that I happen to be renting out) – or even just tell them about it.
I don’t know who this Krugman guy is, but he sounds like just another liberal politician LAWYER who thinks he’s some kind of economics expert.
“Sustainable deficit”, HA! How about telling me there’s a sustainable DEATH! Cause there is, you know. Very sustainable.
In the late 1960s, the Federal budget was in surplus. That doesn’t happen again until the late 1990s – and for three straight years. So that’s only for 4 of the last 45 years or so that the budget was balanced, and here we are.
Don’t panic then that the budget is in deficit, instead worry about Wall Street corruption, etc.
That Krugman guy is only a Nobel Prize winning economist. I’m sure you know WAY more than him.
Yes, and Obama has the Nobel Peace Prize.
Your right! I probably DO know more than he does.
However, when it comes to math he may know just a little bit more. Like how to crunch numbers using fuzzy math which make the lies seem a little more truthful.
You might also say that Obama knows more about the law too! He also won a Nobel Prize. But I don’t think I’d believe much of what he has to say either.
“Krugman is a tad toward the left”
But by day he’s a fascist.
He’s a fascist because he is a corporate shill for the Federal Reserve Bank.
The FED is a private corporation with a license to create money out of thin air. It would be illegal for you to hack into your local bank and tack a few zeros onto the end of your account balances but when the FED does it, it’s A-OK! It does take a PhD in economics to explain why this is neither fraud nor forgery but the FED has been granted this power so that they can stabilize prices and maintain high levels of employment.
Now, this is justified if you can overlook the fact that technological progress tends to make industry more efficient and in a free market that increased efficiency coupled with competition causes prices to tend downward distributing the benefit to everyone who has money and especially those who don’t have a lot. The FED can and indeed does prevent that “Deflation” so that the benefit is not dispersed amidst the unwashed masses and thus wasted but rather transferred into the coffers of the more deserving Wall Street types. But we peons accept this because we benefit on the other end by not being subjected to rising food or gas prices. Clearly a square deal and a wise and prudent choice on the part of the government to delegate this power to the FED.
Now, as for the maintaining high levels of employment, It turns out that the Federal Government has to be the one that applies the FED’s methods to keep the unemployment numbers down. They have to “modify the accounting” so to speak and they can do this because they can redefine what unemployment is on the fly. This allows the FED and the Federal Government to honestly say that they have reduced the unemployment numbers and so the FED has not been a failure on that score if you kind of squint and look sideways at the facts.
Anyway Krugman does a much better job at explaining why this private profit and public loss system is so excellent but sadly, that does technically make him an advocate for fascism if only in a literal sense.
I’m sure he’s really a great guy.
And I’m sure the FED has some incentive to look out for your interests and not wring you out but, I can’t think of it right now.
They can’t keep interest rates artificially low forever. Someday there will be hell to pay.
Doesn’t matter. The sheeple have been trained to believe they are living in luxury and the 1% needs more money for more trickle down.
There is no room for alternate viewpoints at this time.
Under normal circumstances a nation in worse shape than Spain should have rampant inflation. The secret is we aren’t selling our bonds on the open Market because only a fool would buy the things when they pay less interest than the rate of inflation. The Fed. is buying them. If I recall correctly they now hold over 1.6 trillion in bonds and growing all of which were purchased during the reign of dear leader. How long that farce can last is anyone’s guess but our credit rating should be junk bond and the interest paid on any bonds we tried to issue should reflect that.
Why aren’t rated that low? The ratings companies are afraid of the government and nobody with a working brain would touch fed gov bonds with plunger anyway.
MISSION ACCOMPLISHED
White House Press Secretary says deficit reduction is more a Republican thing than a Democratic thing.
The “rut” the country is in – the Fed’s Quantitative Easings- which has led to record profits for the largest banks while those same banks remain very tight with lending must end. It’s also led to rises in commodity prices and the stock market and for the consumer, an inflation beyond wage increases.
Decreasing military spending is the reason the economy barely grew in 4th quarter of last year, as I understand it.
Message from Pres Obama, his budget proposal will not seek a balanced budget. So please don’t put up posts like Is the USA Bankrupt? like you did when Pres Bush was in office with $400 billion deficits.
So if deficits are not a problem, why did the President need to raise taxes? His fiscal cliff deal actually spent more money than it raised in the tax increase.