How obtuse do you have to be to win a Nobel Prize in economics? I found myself asking that question once again while meandering down the Canal du Midi this morning as I perused Paul Krugman’s latest column in The New York Times, “Now and Later.” The burden of that column, if you can believe it, is that we in the West, especially in America, are not spending nearly enough money. Yes, that’s right, Comrade, the economy is depressed, in case you haven’t noticed it, and we need to stop with all this fiscal restraint we’ve been practicing and start spending some serious dough. “How hard,” asks the Times’s chief economic guru, “is that to understand?”
I confess I find it pretty hard to understand.
Mr. Krugman is just incredulous that we don’t get it. He, in his wisdom, wants us to spend, spend, spend. But “all around the world, politicians seem determined to do the reverse.” Why do you suppose that is?
Leaving aside for one moment the question whether politicians as a class have exhibited anything resembling fiscal responsibility, to say nothing of fiscal restraint, these last several years — our problem, Mr. Krugman seems to think, is that they just haven’t been profligate enough — what should we think about the larger point?
Here, as near as I can follow it, is the Krugman Clarion:
1. we’ve spent ourselves into “a severely depressed economy”;
2. As a consequence, we have high unemployment;
3. Ergo, we need to spend gobs more money now because “stinting on spending now threatens the economic recovery, and with it the hope of rising revenues.”
It floors you, right? Let me pause while you try to conjure with that line of reasoning to note that, now that the Obama administration has shoved its horrendous (and horrendously expensive) health care “reform” bill down the throats of the American people, Mr. Krugman, who loudly championed the legislation when it was on the table, now admits that “America has a long-term budget problem” (you don’t say?) and “dealing with this problem will require, first and foremost, a real effort to bring health care costs under control.” So why did Paul Krugman join the hope and change chorus in demanding the passage of what is probably the most fiscally incontinent piece of legislation in the Republic’s history? Why?
I think I know the answer to that, but it is too depressing to bring up in public. Let’s return to Paul Krugman’s main point: “Now is not the time for fiscal restraint,” he says. Well, if that is so, why is he not dancing in the streets? Over the last 18 months, as Alan Greenspan pointed out in The Wall Street Journal on Friday (“U.S. Debt and the Greece Analogy” — are you paying attention Mr. Krugman?), federal debt to the public soared from $5.5 trillion (trillion, Kemo Sabe) to $8.6 trillion. (Again, I am reminded of that bumper sticker that reads: “It’s a good thing that Obama doesn’t know what comes after ‘trillion.'”)
Mr. Greenspan is worried that U.S. policy makers have been lulled into complacency by low interest rates when, in fact, America’s ability to borrow may be severely circumscribed by its debt obligations. “Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008,” Mr. Greenspan points out. “How much borrowing leeway at current rates remains for U.S. Treasury financing remains highly uncertain.”
Uncertain, perhaps, but not exactly promising.
Paul Krugman wants us to throw caution to the winds in the hope that better times are just around the corner and will fill our coffers and end high unemployment. Alas, as Mr. Greenspan notes, “We cannot grow ourselves out of these fiscal pressures.” The available labor force in the U.S. is unlikely to provide the sort of robust growth that Paul Krugman’s sunny scenario requires. Bottom line “Our policy focus must err significantly on the side of fiscal restraint.”
Paul Krugman believes we can spend our way out of debt. Alan Greenspan thinks that, given the stupefying level of government debt and the likely prospects for economic growth, the responsible course is to scrap the neo-Keynesian fantasies and reign in government spending. Greece, Spain, Portugal, and — be it noted — California are among the entities that have lived according to Paul Krugman’s advice. Which course do you think is more likely to lead to economic revival?