The PJ Tatler

Krugman Goes to The Byrds

Here’s what the Nobel-prize winning economist has to say about another year with a nearly trillion-dollar deficit:

So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.

There are, of course, longer-term fiscal issues: rising health costs and an aging population will put the budget under growing pressure over the course of the 2020s. But I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now. And as I said, given the needs of the economy, the deficit is currently too small. [Emphasis added, for laughs.]

Krugman says all the big borrowing is hunky-dory because of “low borrowing costs.” But they won’t stay there.

You borrow money to buy a car or a house — large, infrequent purchases. If you put day-to-day expenses on the credit card, month after month, eventually you’re going to run into trouble. Especially if that card starts at a low introductory rate, which will shoot up after a year or three.

Well, in the last four years or so, Uncle Sam has put $6,000,000,000,000 worth of day-to-day expenses on the Visa. Interest rates are low, in no small part because the Fed is keeping them there artificially, with “Operation Twist.” Kind of like having a friend at the bank willing to put in a good word for you. Krugman dismissed fears of rising rates (“the deficit scolds have been wrong about everything so far where are the soaring interest rates we were promised?”), without mentioning Ben Bernanke’s role in preventing them from rising. Also, the dollar remains a panicked saver’s last refuge, but that could change in a heartbeat.

The other thing Krugman doesn’t tell you is that rates will rise, once the economy really recovers. When that happens, our near-zero rates will float (it is hoped) or jerk (it is feared) up historically normal levels of 5% or so. At 5% — which is still not high — our credit card payment triples to about $700,000,000,000 a year, each and every year, forever. That’s bigger than defense, bigger than Social Security, bigger than Medicare. And it’s going to happen. It’s baked in. There’s no escaping it. Because smart, award-winning men like Krugman assured us it would be OK.

That’s a seven followed by eleven zeroes — plus whatever we add to it, each and every year, forever, because Washington is addicted to debt. And Paul Krugman is the pusher.