Wednesday, November 25, 2009

Krugman's Deficit Rationalization

An alcoholic is someone you don't like who drinks more than you do; a 'fun guy' is someone you like who drinks more than you do. The relativity is important to the degree 'other things' are different.

So, when Krugman notes that, in three years, our debt/GDP ratio will be comparable with other decent economies (Belgium and Italy), we have no worries! It is true that Debt/GDP does not have a strong correlation with GDP/capita, or something. Yet, like drinking too much, it's still not good to be adding 10% of your GDP to debt every year.


Anonymous said...

I do not bother to read Krugman for the chance he may something worthwhile. He is a a political hack. I encourage all to disregard him. He does not respect those who disagree with him or engage is discussion. Why deal with him under such conditions? He is like a terrorist, you don't bother negotiating with him. Walk away from him Falkenstein.

Anonymous said...

I agree with Anon@9:17am...

Also, I call this the teenager's defense. His argument amounts to "everyone is doing it". Most parents don't fall for it when used by their teen children.

I have seen the same attempt in the debate to socialize medicine -- "well, ALL the civilized countries have socialized healthcare". So what? Its not economic nor moral to take money by force from one person for the benefit of another regardless of their "need". If these bleeding hearts want to help the poor under my system (freedom) they are free to give 100% of their money to the poor and convince others to voluntarily do the same. This is actually how civilized people live together in peace.

Anonymous said...

Krugman's argument is weak. In addition he fails to note that Belgium and Italy could only sustain "decent" economies because of the existence of better economies with whom they trade. If everyone tries to run the same ratios, Krugman will have to redefine "decent" downward. His argument amounts to seeing a few people getting away with bank robbing and even making it to retirement without getting caught and thus advocating that we *all* become bank robbers because it is so lucrative. Krugman is a con man.

Anonymous said...

Riiight, that's Krugman's only explanation for his stance, other countries do it.

You guys are ridiculous.

Anonymous said...

b.s.: the argument sounds reasonably true from 30,000 feets but doesn't hold upon closer inspection:

Belgium's debt is (and was when it was contracted in the 80's) home-owned: it was the result of an internal failure to direct capital towards more productive uses, courtesy of an over protected and bloated banking system and mild level of capital controls (enforced by the taxman).

It was mainly the result of a culture/tax system strongly geared towards encouraging private savings.

Picture Asian-level saving rates albeit in a country with 2% long term real growth rate.

the money was more pushed in than sucked out. Very similar to Japan in the 90's. Very dissimilar to the US now.

Anonymous said...

If someone knows this, please make it clear: What is the size of the current structural deficit?
(a) Start off with the current ridiculously huge deficit.
(b) reduce it by the money the amount of that deficit that is from the bailout.
(c) then reduce it by the amount of that deficit that is from the stimulus package.
(d) then reduce it again by what the increase in government revenue if we were growing at, say, 3% a year.
(e) then, we might reduce it again by $100 billion a year if Iraq continues to go ok and, at some point, afganistan goes ok.
(f) then, if the economy is stable, Obama will let Bush's tax cuts lapse ... and that will be another $200 billion to $300 billion a year.
How big is the deficit that we would be left with? If we go back to "normalcy", where are we?

But What do I Know? said...

Agree with the points on Krugman being a partisan hack--with the weak defense that it is difficult to remain consistent when you need to write something provocative and/or clever in a newspaper column every day/twice a week/whatever it is.

I am curious about the "net debt" determination for Japan--haven't we all been reading stories about Japan's sovereign debt being over 200% of GDP? What is the definition of "net debt?"

Jim Glass said...

It's worth noting that Krugman has been squarely on both sides of this issue, depending on who is running up the debt.

He was "terrified" of the "looming threat to the federal government's solvency" back when debt projections were much smaller than today's, but the deficits were being spent by Republicans.

Anonymous said...

Italy's potential growth was recently estimated at 0%. Not a country to aspire to.