Krugman on the Misinformation Around Debt

Paul Krugman today patiently explains that short-term accumulations of federal debt simply do not create the disastrous effects claimed by those who want to prevent any progressive economic policymaking.

Perhaps most obviously, the economic ?experts? on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

And while they?ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts ? that is, you might think that if you didn?t know anything about our postmodern, fact-free politics.

This is also true for the long-term, and here Krugman dives into the fact that debt that rises more slowly than the economy doesn?t need to get paid back, and that the US owes most of its debt to itself. The cries of the crumbling of the Republic due to overhangs of debt simply are not true, yet all this perspective has gotten lost.

In fact, the key problem for US debt at the moment is that there won?t be enough of it to meet current demand. Choppy waters elsewhere have made US Treasuries, the same ones supposedly downgraded by Standard and Poor?s, perceived as the safest financial instrument in the world. Treasuries sold at a higher pace than anytime since 1995. Government could finance at a negative long-term interest rate. The markets want the government to borrow more so they can get their hands on more Treasuries. This will also likely increase economic performance, improving yields across the board.

The conversation has shifted from deficits and debt to jobs and inequality of late. But even now, despite a jobs crisis, all spending in Washington must be ?paid for,? and the deficit still draws outsized concern. When referring to a lost decade, you should also consider it in a context of lost opportunity.

Source: http://feedproxy.google.com/~r/firedoglake/fdl/~3/3Dij8jUn4k4/

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