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Paul Krugman is Dead Wrong: Debt Matters
Paul Krugman, the Princeton University economics professor, Nobel Prize winner, and regular New York Times op-ed contributor says, "Debt matters, but not that much."
Not only is he off the reservation on this one, but he's completely fallen off his high horse.
In the real world, debt actually matters a lot.
In a Houston Chronicle opinion piece last week, Krugman, riding his horse - whose name might as well be Liberal Conscience - trampled conservatives under the guise of an economics lesson that derided "deficit-worriers" for wrongly seeing "America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments."
According to Krugman, that's a bad analogy and "the way our politicians think about debt is all wrong, and exaggerates the problem's size."
Decide for yourself. Either debt matters a lot, or not that much...
The World According to Paul KrugmanProfessor Krugman calls all the conversation in Washington about debt and deficits a "misplaced focus" and says all of the economic experts "on whom much of Congress relies have been repeatedly wrong about the short-run effects of budget deficits."
He derides the fears that deficits will cause interest rates to soar by pointing out that they haven't moved.
What he doesn't say is that they haven't moved because they're not free to move.
The fact is that the U.S. Federal Reserve has corralled the free market in interest rates by knocking short-term rates to almost zero through successive open market operations and extraordinary quantitative easing measures.
Mr. Krugman mocks those waiting for rates to rise and notes that while they wait "rates have dropped to historical lows."
Maybe what he doesn't realize is that the Fed's actions themselves have been nothing short of historical.
The crux of Mr. Krugman's supposition that debt doesn't matter much is based on his bashing of the popular analogy comparing America's debt problems to those of a mortgaged homeowner.
All of which Krugman claims is "a really bad analogy in at least two ways."
He says, "First, families have to pay back their debt. Governments don't - all they need to do is ensure that debt grows more slowly than their tax base."
"Second," he says, "an over-borrowed family owes the money to someone else; U.S. debt is, to a large extent, money we owe ourselves."
He goes on to say that the debt from World War II was never repaid and didn't make postwar America poorer.
In fact, the Professor points out, "the debt didn't prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation's history."
Krugman is Flat Out WrongFirst off, the homeowner analogy is excellent--not irrelevant.
Mr. Krugman is wrong when he says that homeowners have to pay back their debt. The truth is they don't have to.
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Why America Hates Congress
Everybody knows that screwing up a critical assignment at work will almost surely get you fired.
That is, unless you work as a member of the U.S. Congress.
After more than two months of bickering, the six Republicans and six Democrats on the "super committee" tasked with finding at least $1.2 trillion debt reduction savings over the next decade have thrown in the towel.
They have no debt reduction plan.
Analysts agree that despite the urgency of addressing America's fiscal issues, both sides are more interested in scoring political points than solving problems.
Meanwhile, the federal debt continues to grow. It eclipsed $15 trillion last week.
With representatives pocketing salaries of $174,000 a year despite their failures, it's no wonder U.S. citizens are down on Congress. A recent New York Times/CBS poll showed Congressional approval sinking to just 9%.
Even some members of Congress admit it.
"The politicians care more about their parties and getting reelected than they do the very real problem," Sen. Tom Coburn, R-OK, said Sunday on C-SPAN's "Newsmakers" program. "[The super committee] was Washington's answer to kicking the can down the road."
According to the law passed as part of the debt ceiling deal over the summer, failure of the super committee to come up with a debt reduction plan is supposed to result in $1.2 trillion in automatic cuts, known as "sequestration."
Half of those cuts, $600 billion, are to come from defense spending, with the other half coming from such areas as education, the environment, transportation, housing assistance and veterans' healthcare.
But just because that's what the law says doesn't mean it will happen. Congress, don't forget, can undo any laws it creates. Ideological opposites Sen. John McCain, R-AZ, and Rep. Maxine Waters, D-CA, among others, are already working on this.
It's just more evidence of a disingenuous Congress.
Pointing FingersInstead of developing a deficit reduction solution, lawmakers have tried to convince the American people that the super committee's failure is the other party's fault.
Democrats had called for a "balanced" approach of some higher taxes, mostly on the wealthy, and spending cuts. Republicans eschewed any increase in taxes, preferring instead to reach debt reduction goals entirely through spending cuts.
"The wealthiest of Americans, those who earn more than $1 million every year, have to share, too. And that line in the sand, we haven't seen any Republicans willing to cross yet," super committee co-chair Sen. Patty Murray, D-WA, said on CNN's"State of the Union."
"I don't understand the economics that says that if we raise taxes on my employer, or my boss, somehow they're going to go out and hire my unemployed brother-in-law," Rep. Jeb Hensarling, R-TX, another committee co-chair, countered on "Fox News Sunday."
Why so much rhetoric and no action?
The main reason is that the automatic cuts don't kick in until January 2013 - after the key 2012 elections. Both sides hope to pin the blame on the other side to secure election victories next November that will empower them to solve the debt problem their way.
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