Ordinarily, I usually avoid the cognitive dissonance of Joe Scarborough, but even a blind squirrel finds The Ferret occasionally...
I would like to believe that Paul’s “Morning Joe” routine was simply
an attempt to be provocative and bring to camera the ideological
Vaudeville act that he performs daily on his hilariously entitled New
York Times blog. This is where Krugman flails about at windmills while
professing his omnipotence daily, in between stints as a serious
economist.
By
Joe
Scarborough
America's
fiscal predicament is serious. The problem has become obvious in the last few
years, but it has been building for decades, largely the result of promises of
extensive social benefits without a corresponding willingness to pay for them.
Investors
may be growing skittish about U.S. government debt levels and the disordered
state of U.S. fiscal policymaking.
From
the beginning of 2002, when U.S. government debt was at its most recent minimum
as a share of GDP, to the end of 2012, the dollar lost 25 percent of its value,
in price-adjusted terms, against a basket of the currencies of major trading
partners. This may have been because investors fear that the only way out of
the current debt problems will be future inflation.
More
troubling for the future is that private domestic investment—the fuel for
future economic growth—shows a strong negative correlation with government debt
levels over several business cycles dating back to the late 1950s. Continuing
high debt does not bode well in this regard.
As
the biggest economy in the world, America has a lot to say about how the world
works. But the economics profession is beginning to understand that high levels
of public debt can slow economic growth, especially when gross general
government debt rises above 85 or 90 percent of GDP.
The
United States crossed that threshold in 2009, and the negative effects are
probably mostly out in the future. These will come at a bad time. The U.S.
share of global economic output has been falling since 1999—by nearly 5
percentage points as of 2011. As America's GDP share declined, so did its share
of world trade, which may reduce U.S. influence in setting the rules for
international trade.
Putting
U.S. government financing on a sustainable path will require painful
adjustments over a number of years—increased government revenue and painful
reductions in government outlays, almost certainly including outlays for
defense and international affairs. During the necessary period of fiscal
adjustment and constrained government resources, U.S. international influence
may decline yet further.
If
you believe that I am wrong and Paul Krugman is right, if you disagree that
America's debt crisis is serious today, that it is draining American soft power
globally, that it is devaluing the dollar, that it is undermining our influence
with international trading partners, that painful adjustments in government
outlays will be necessary, and that we cannot afford to wait until 2025 to
worry about Medicare and other drivers of U.S. debt, then take it up with the
RAND Corporation, whose senior economist wrote everything you have read here
other than this concluding paragraph. The debt crisis is real and waiting
another decade to fix it is not an option. Anyone who suggests it is operates
well outside the mainstream of where serious economists reside.
Later...
Paul Krugman is a frustrated man — a Cassandra whose
wise warnings are regularly ignored by fellow economists, policy experts
and political leaders alike. This past week has been especially
difficult for the Nobel Prize winner, who like Sisyphus, must continue
to push back against the ignorant fools who dismiss his debt-denying
ways as reckless.
Mr. Krugman came on “Morning Joe” and declared that Washington
needn’t worry about its long-term debt problem until the moment that
programs like Medicare begin melting down.
“If we are worried about health care costs in the year 2025, why do
we have to worry about it now?” asked The New York Times columnist. It
is a question regarding our looming entitlement crisis that is every bit
as ridiculous as a healthy 50-year-old man asking why he should bother
buying life insurance.
Paul Krugman justified this indefensible position by saying that
since Washington politicians are too stupid to walk and chew gum at the
same time, they are incapable of running short-term deficits while
worrying about long-term debt.
The Krugman solution? Simply ignore America’s long-term debt.
That reckless conclusion shocked even the hardiest of Keynesians on
the “Morning Joe” set last week. President Barack Obama’s car czar,
Steve Rattner, described Krugman’s views as dangerous. Columbia
University economist Jeffrey Sachs concurred, saying Krugman’s views
were reckless, Democratic leader Ed Rendell politely explained to our
guest that investment and debt control were not mutually exclusive, and
Council on Foreign Relations President Richard Haass dismissed this form
of debt-denial as deeply irresponsible.
Mr. Krugman responded to the flurry of criticism he received by
excoriating “in-crowd” types like “Joe Scarborough, Erskine Bowles and
Pete Peterson,” (and anyone else who disagreed with him) as members of
an incestuous clique populated by shallow simpletons who draw their
economic conclusions based on hearsay instead of rigorous study and hard
data.
Unfortunately for the self-consumed professor, his latest lurch left
has created an entirely new collection of critics that are a far cry
from the right-wing straw men that he usually sets up to knock down.
Instead, Krugman’s extreme view that Washington should ignore long-term
debt until the bottom falls out of entitlements now places him at odds
with liberal Keynesians as well as conservative Republicans.
I would like to believe that Paul’s “Morning Joe” routine was simply
an attempt to be provocative and bring to camera the ideological
Vaudeville act that he performs daily on his hilariously entitled New
York Times blog. This is where Krugman flails about at windmills while
professing his omnipotence daily, in between stints as a serious
economist.
Krugman doubled down on that act this week, posting four blogs
addressing his one “Morning Joe” segment. In those posts, he
characterized me as an angry deficit scold who accused him of being
outside the mainstream of economic thought.
That charge is only half right.
Krugman’s views on long-term
debt are, in fact, wildly outside mainstream economic thought. But he is
wrong in saying that his interview made me angry. Watch it here
and see how I was polite, engaged and entertained by the
preposterousness of his debt-denying logic. Far from being angered, I
found the interview to be one of my favorites of the year. He is welcome
back anytime.
Unfortunately, Paul Krugman and his merry band of
bloggers were not as excited by the “Morning Joe” appearance, as they
rushed to their laptops to launch a ham-fisted defense of debt denial.
Krugman’s apostles then proceeded to mischaracterize his critics and
reframe the debate.
Bloggers from The Washington Post, Business Insider and New York
Magazine all wrote posts accusing Paul Krugman’s critics of being
ignorant of basic economics. All three then proceeded to embarrass
themselves by mixing up the most basic concepts of economics by
repeatedly confusing the terms “deficits” and “debt.”
The Washington Post’s Greg Sargent at least circled back to write a
follow-up post that bothered to accurately reflect the views I have been
repeating every morning for five years now. But the same could not be
said of a fabulously misleading Business Insider post that claimed to
list 11 economists who shared Krugman’s debt-denying views. Never mind
the fact that most of the links provided actually undercut Krugman’s
reckless position and supported my view that the most pressing fiscal
crisis is not next year’s deficit but next decade’s debt.
The Business Insider link to an Alan Blinder piece was particularly
supportive of the “Morning Joe” panel’s view. Blinder, a former Fed vice
chairman and Princeton economics professor, warned of “truly horrific
problems” caused by long-term debt, health care costs and interest on
the debt. Paul Krugman’s Princeton colleague even shared my conclusion
that the coming Medicare crisis will be so great that Democrats won’t be
able to tax their way out of it.
Far from supporting Mr. Krugman’s extreme position, the link to
Professor Blinder’s New Yorker article undercuts his Princeton
colleague’s exaggerated “In-the-end-we’ll-all-be-dead” approach to U.S.
long-term debt.
After watching his debt-denying performance on “Morning Joe,” one
wonders whether Paul Krugman will be as haughty and dismissive of his
fellow Princeton economics professor as he is of all who disagree with
his marginalized position. One hopes he instead does something that Mr.
Krugman hates to do: just admit that he was wrong.
I won’t hold my breath.
