The Peculiar Madness of Paul Krugman
The debt deal unhinged the left.
No, the Tea Parties did not win, as the left has been saying. The spending "cuts" only limit the additional growth of government, and they are too small and too distant to be worth celebrating. But the left is correct about one thing: they lost, because the debt deal established the idea that there would be no more tax increases and no big new spending programs. And the left does not exactly have a record of being gracious political losers.
As usual, no one was more unhinged than Paul Krugman. To be sure, his New York Times colleague Joe Nocera established a new apex of civil political discourse when he denounced Republicans as jihadist terrorists. But that's just a lot of angry venting and empty invective. By contrast, Krugman brings to this debate a peculiar kind of madness. What was really unhinged was the substance of his response, the solution that he thinks the nation needs to follow.
In a blistering column, Krugman lashed out at the Obama administration, declaring that "we are not now and have never been on the road to recovery" and that "the economic policy of the past two years" "isn't working."
Yet he was attacking Obama, not for pushing through too much "stimulus" spending, nor for printing too much money, nor for piling up too much debt--but for doing too little of these things. He argues for an even bigger stimulus, for government to "support the economy in its time of need" and to be the sole source of growth. He snarls: where else is growth going to come from? And yes, for him, that's supposed to be a rhetorical question.
This is not, by itself, Krugman's peculiar madness. The peculiar madness of Paul Krugman is that he presents all of this as if it were sensible and self-evidently true and requires no argument. He presents it as if the only thing preventing others from seeing the truth is blind political obstructionism (for the Republicans) or cowardice (for the Democrats).
The insanity comes from the context in which Krugman was writing. He was responding, not just to the debt deal, but to Thursday's sharp correction in the stock market. The correction capped off a week of bad economic news and was widely seen as pricing into the market the looming prospect of a double dip recession. The big conclusion everyone has been drawing from this is precisely the failure of government stimulus, both the public-works fiscal stimulus Krugman is talking about, and the money-printing monetary stimulus of "quantitative easing."
Now, maybe we're all deluded. Maybe everyone else is wrong and Krugman is right. But one gets no sense from his column that he believes he has to make that argument, that other people need to be convinced.
Consider the thinking process any rational person would have to go through to accept Krugman's prescription for the economy. Given his long-expressed opinion that the first Obama stimulus was far too small, we would have to accept an additional--what, at least a trillion dollars?--in government spending, and more beyond that if that next shot of stimulus doesn't work. Which means: we would have to move the nation rapidly closer to unserviceable Greek-style levels of debt.
Remember that with the raising of the debt ceiling, the federal government's debt immediately rose to 100% of GDP, a dangerous threshold. But the more ominous measure is publicly held debt. The total US debt includes about $4.6 trillion dollars in "internal debt," IOUs written from one part of the government to another part of the government, such as the bonds that make up the Social Security Trust Fund. But when the government loans money to itself, it can do so on very favorable terms--on terms dictated by Congress, in fact. Looked at from the outside, such loans count as both a liability and an asset, cancelling each other out. So the more interesting measure of debt is external debt, money that the government owes to the public and to foreign investors.
By this measure, the debt is rising even more rapidly. Jack Wakeland sent me a quick calculation of what the debt deal means for publicly held debt.
Reading that the new debt limit coming out of the "debt reduction deal" is $16.8 trillion, I got my pen out and jotted down some numbers:
2nd Quarter 2011 GDP: $15.00 trillion/yr.
Current national debt: $14.3 trillion
(self-cancelling) internal debt: $4.6 trillion
Net debt: $9.7 trillion
65% of GDP
Of the $4.6 trillion in internal debt, about $2.6 trillion is the Social Security 'trust fund' (which is 'invested in' U.S. treasury bonds) and about $0.3 trillion is the Medicare 'trust fund.' There are lots of other 'trust funds' beyond these (e.g., the Highway 'fund') The thing all of these trust funds have in common is that their balances are falling.
If I assume that the rate of deficit spending is about $1.6 or $1.7 trillion/yr., we'll reach the new $16.8 trillion debt limit right around inauguration day, January 20, 2013. If the economy grows at about 2%/yr. between now and inauguration day (assuming no new recession), it will be operating at $15.45 trillion/yr.
That means the debt to GDP ratio will have deteriorated dramatically:
1st Quarter 2013 GDP: $15.45 trillion/yr.
Current national debt: $16.8 trillion
(self-cancelling) internal debt: $4.4 trillion
Net debt: $12.4 trillion
80% of GDP
Only in Washington could a plan to increase the national debt from 65% to 80% of GDP in less than a year and a half be called a "debt reduction" deal.
If that's what is happening under the "austerity" that horrifies Krugman, consider what his proposal would do to these debt levels. It would increase the ratio of publicly held debt to GDP by another 10 to 15 percent, carrying us straight to the same levels that have driven Greece, Italy, and Spain to the brink of default (or in the case of Greece, over it). So what he is proposing is that we can spend our way to growth, if we just have the courage to throw the country to the brink of bankruptcy in one enormous throw of the dice.
You would think a proposal like Krugman's would call for a little modesty, for a recognition of the enormity of his task and the legitimate skepticism he has to overcome. But he makes no effort to reasonably lay out his case, take counter-arguments seriously, and address his proposal's enormous risks. Instead, it's all just bluster and name-calling and contemptuous attitude, as if that is supposed to intimidate us into compliance.
Krugman is an extreme case, but he illuminates the furious bitterness we are now seeing from the left-leaning elites. They keep telling us to transform our lives in ways that have obvious risks, shortcomings, and negative consequences--such as, for example, eliminating fossil fuels and powering everything with windmills and solar panels. And if anyone asks questions or objects, we are immediately dismissed as "intellectual primitives who reject modern economics." That's from Jacob Weisberg, just to show that Krugman isn't the only one suffering from this kind of madness.
The self-designated intellectual "elites," particularly the academic elites, repeat the conventional wisdom they have learned inside their ivory towers, refusing to countenance questions and objections, all while screaming loudly about how much more reasonable they are than everyone else. Weisberg laments that "there's no point trying to explain complicated matters to the American people," but like Krugman, he gives no indication that he is even trying. His job, judging from his writing, is not to explain and convince but to harangue and browbeat. The truths have already been handed down from Harvard, and we are expected to accept them on the authority of the elites who were trained there.
That's why I describe this as a form of madness. Who thinks this is going to work? Who thinks this is a way to convince anyone of anything? What country have they been living in, that they think they can push forward their agenda based on nothing more than elite authority?
How can they plume themselves on their "scientific" thoughtfulness and rationality, when they haven't done the basic work of sitting down and figuring out how to make a convincing argument? Well, maybe that question answers itself. As is so often the case, the boastfulness is supposed to compensate for the actual failure to deliver the goods.
There is one line from Paul Krugman's recent column that rings absolutely true: "To turn this disaster around, a lot of people are going to have to admit, to themselves at least, that they've been wrong and need to change their priorities, right away." That is excellent advice, and one wonders when Krugman and his colleagues will take it.