Krugman is wrong/dishonest again

I haven't posted in about 15 months, and I'm pretty sure no one will see this, but I thought I'd post this here for posterity's sake, since I've already written it anyway.

The other night, my boss sent me a recent blog post by Paul Krugman and this was my response. Enjoy:


It might be nice if he were right, but unfortunately, the column is just fundamentally dishonest. Even more unfortunate is that Krugman's columns can almost all be described that way, and the NYT continues to give him a paycheck.

To start with his assertions regarding the short-run, I don't think I've ever heard any serious thinker say anything like the strawman he constructs, claiming that deficits have to have the short-run effect of raising interest rates. The effect it has to have in the short-run is forcing a choice between high interest rates and inflation. We've chosen inflation. Krugman contributes to the "fact-free" environment by conveniently leaving out of his analysis the whole QE1, QE2, ...QEn/Twist thing. The Federal Reserve has spent the last few years throwing everything they can think of at the interest rate problem to stave it off, which has led to inflation that we haven't even fully realized yet, which I consider significantly worse than high interest rates, which I'd actually welcome. We saw 23 percent inflation in just 10 years between 2000 and 2010, most of which came in the last couple years of the decade. I'll be shocked if that number doesn't land above 50 percent for this decade.

For the long-run arguments, I'm honestly shocked that he made the claim that governments don't have to pay back their debts. That's just a lie. Short of just flipping all their bond-holders the bird (which I actually advocate), governments do have to pay back their debts. He says that on the basis of the fact that governments can always just borrow money to pay back their debts, though he ignores this in his earlier analysis regarding the impact of debt on interest rates, which I'm sure he excuses by saying that he's moved on to discussing the long-run by then. Government sells, for example, 30 year bonds. They then make interest payments on those bonds at regular intervals until 30 years have passed, when they pay off the principal, which they do by selling another bond of the same value, which they then make interest payments on for another 30 years. The problem is that they never actually pay down any of the debt this way, leading to snowballing debt levels, which we're seeing now. This is the long-run disaster that he's dismissing, but it's sadly becoming an ever shorter-run problem, as we've already reached the inflection point, which is why the total outstanding federal debt has more than doubled in the last 6 years, with the bulk of that coming in just the last three years since the current administration has taken office. He claims that debt growth will never matter as long as it doesn't expand faster than the tax base but then doesn't go on to say that it's expanding dramatically more quickly than the tax base. Debt as a percentage of GDP has gone from 57 percent in 2001 to 69 percent in 2008 to passing 100 percent a couple of months ago.

I can't decide whether his second point on the long-run is a lie or just the result of his being so engrossed in his collectivist philosophy that he's become unable to grasp the concept of individuals. He says we owe it to ourselves? I'd have to ask, who is "we" and who is "us"? The fact that the money is owed to U.S. citizens is totally irrelevant to any analysis that doesn't end with "we are Borg." It also indicates that Krugman hasn't looked at the breakdown of who holds our debt in a few years, which is somewhat excusable since it's been at least that long since he's taken part in any serious economic thinking. When I was in college, we learned that foreigners held about 18 percent of public debt, just over a trillion dollars. That wasn't exactly trivial, but since then, foreign holdings have ballooned to about $4.5 trillion. About a third of total debt. To dismiss this as trivial, as Krugman does, is ridiculous.

At the end, he finally gets around to what he's be dishonestly building toward for the entire column, which is what he dishonestly builds toward in nearly every column he writes, that "it's all the fault of these damn irresponsible right-wing lunatics who don't want to raise taxes." He says all we'd need is a "modest" tax increase. (I think Atticus Finch advised Scout to take out the adjectives and she'd have the truth - sound advice for anyone reading a Krugman column, it seems.) Of course, having dismissed all other concerns regarding the debt, all he has to do is assert that taxes aren't that big of a deal and suddenly he's justified historic debt-growth that goes beyond what any reasonable person can accept. Not even Keynes advocated the lunacy that has been practiced in the last few years, but for Krugman, as long as the guy in charge has a (D) by his name, nothing is unacceptable.

I should also say that, while I'm obviously not a fan of Krugman these days, he did some very good work before he was afflicted with Bush Derangement Syndrome in the early 2000s. He's the author of two of my favorite books, "Peddling Prosperity" and an international trade textbook, and my favorite professor was a devotee of his. He'd make an interesting psychological study - he was in his late 30s, just about the age when a rock star economist might start feeling entitled to have his ideas converted directly into policy, when Bill Clinton took office. He then enjoyed 8 years of exactly that at the apex of his career before George W. Bush took office, making Greg Mankiw, a rival of his whom many consider a better economist, his top economic advisor, and no one in power really cared much what Krugman had to say anymore. It really seems to have cracked him. He responded by becoming intensely political, which he never really was before, and totally abandoning academic economics. These days, he's really not taken seriously by anyone outside of the NYT readership, and so he plays to them in everything he writes.

Here's a recent Mankiw blog post responding to readers who'd asked for his thoughts on Krugman's view.

He links to a pdf of an article he wrote in the mid-90s. It's 26 pages, but well-worth the read. He takes a more neutral view than I do on the concept of ignoring the individual and looking only at total societal utility, but other than that, it's a much smarter, more complete and more measured version of what I just wrote. If nothing else, it's worth skipping to the end to read about the prospect of a "hard landing."