Paul Krugman:Deficits and the Future

[cal04]

http://www.nytimes.com/2008/12/01/opinion/01krugman.html?_r=1

Right now there’s intense debate about how aggressive the United States government should be in its attempts to turn the economy around. Many economists, myself included, are calling for a very large fiscal expansion to keep the economy from going into free fall. Others, however, worry about the burden that large budget deficits will place on future generations.

But the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects.

The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.

But circumstances right now are anything but normal. Consider what would happen next year if the Obama administration gave in to the deficit hawks and scaled back its fiscal plans.

Would this lead to lower interest rates? It certainly wouldn’t lead to a reduction in short-term interest rates, which are more or less controlled by the Federal Reserve. The Fed is already keeping those rates as low as it can — virtually at zero — and won’t change that policy unless it sees signs that the economy is threatening to overheat. And that doesn’t seem like a realistic prospect any time soon.

[rockymountaindem]

1. It's so nice to have such a smart guy on our side n/t

[BoneDaddy]

11. Smart?

The guy is brilliant :)

[Cary]

2. Plain old Keynesian economics.

The Keynesian school was always superior. I don't understand how Keynesian economics got shunted aside.

Krugman is a national treasure.

[grantcart]

3. We have no choice but to grow our way out

And the only way to really grow is to move to a green economy.

[w4rma]

4. Taxes still *must* be raised on the very wealthy. The money they are hording needs to be forced back

into the economy through taxes.

[calimary]

5. Part of me wishes that THIS guy would be named Treasury Secretary, or chairman of

President Obama's Council of Economic Advisors. Krugman's a guy who should be listened to a lot more closely. He's been spot on, on all of this, for so long - and way back when it wasn't cool to be against bush policies.

[wroberts189]

9. Good idea but he says he likes the job he has. n/t

[unblock]

6. well, he's right that we should spend -- invest really -- in our future, but

he's ignoring that the critics are essentially correct, too. it's just that their timing is off.

federal borrowing won't crowd out private investment RIGHT NOW, because private investment isn't happening. in fact, it's MORE likely to happen as the government throws money into the mix.

but the massively increased debt WILL crowd out private investment LATER ON, because even if everything goes as "planned", we'll emerge from this contraction in late 2009, but having basically doubled our national debt in order to do so.

THEN we must pay the price for getting out of this mess. hopefully, with a return to properly progressive taxation to sop the excess wealth away from the concentrated few at the top.

[northernlights]

7. progressive taxation combined with

a return to high employment levels will increase tax revenues to help pay down the road for today's investment.

Personally, I get really tired of the msm and many economists comparing today's unemployment figures with those of the great depression, and saying it's not nearly so bad today since we're "only" at 7% or whatever.

They're comparing apples and oranges. We didn't have "new claims for unemployment" in the great depression. The 25% unemployment rate was everybody out of work. If you counted everybody out of work today, including some of us who fell off unemployment a few years ago, then today's unemployment would be near 15% and ready to start closing in on 25% over the next year or two.

[unblock]

8. the methodology for the actual unemployment number hasn't changed much.

they do NOT consider whether you are getting unemployment benefits when calculating the unemployment rate.

it's based on surveys. if you're actively looking for a job, able to take one, and don't have one, then you count as unemployed.

[pa28]

10. We probably don't have a choice but I will worry!

The questions on my mind are who will lend us the money and what will the limit be? When will our debt be downgraded and what new hellhole will that take the budget into? Best not to think about it probably.

Our borrowing needs in 2009 will be between 1 and 2 trillion from the existing bailout and deficit spending not counting new bailouts and efforts to spend our way out of this disaster. Foreign economists are already calling for new US debt to be issued as "Obama bonds" or debt issued by the united states in foreign currency because they lack faith in the future of the dollar.


http://www.atimes.com/atimes/Japan/JK19Dh01.html