In his column last week, Paul Krugman characterized anyone warning of a U.S. debt crisis as a “kook”, “someone not to be taken seriously”, someone who subscribes to “fantasies”, a “fearmonger” engaging in “doomsaying”.
Which just goes to show why Krugman cannot be taken seriously. Let’s review, shall we?
1) Before the whole debt ceiling circus, Krugman, citing Congressional Budget Office (CBO) reports, was arguing that there was no foreseeable debt crisis for the next decade.
2) During the circus, Krugman was expressing “alarm” a the possibility of a loss of confidence in the U.S.’s ability to repay its debt, warning of “a plunging dollar and probably carnage in the stock market, too.” Such a loss of confidence would usher in “financial catastrophe”, “a huge financial crisis”. It was “a very scary prospect.”
3) After the circus, Krugman went immediately back to poo-pooing any warnings that a loss of confidence in the U.S.’s ability to repay its debt would result in a financial crisis.
But, wait, there’s more!
As I’ve already suggested, there are two remarkable things about this kind of doomsaying. One is that the doomsayers haven’t rethought their premises despite being wrong again and again — perhaps because the news media continue to treat them with immense respect. The other is that as far as I can tell nobody, and I mean nobody, in the looming-apocalypse camp has tried to explain exactly how the predicted disaster would actually work….
Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.
So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally have no idea what they’re talking about.
So here’s Krugman in 2005, explaining how it would work:
Dollar purchases by China and other foreign governments have … kept U.S. interest rates low despite the enormous government borrowing required to cover the budget deficit…. Here’s what I think will happen if and when China changes its currency policy, and those cheap loans are no longer available. U.S. interest rates will rise… [and] we’ll suddenly wonder why anyone thought financing the budget deficit was easy. In other words, we’ve developed an addiction to Chinese dollar purchases, and will suffer painful withdrawal symptoms when they come to an end.
So by his own measure, the guy is a “kook”.
But we’re not through yet!
Remember how Krugman cited the CBO to bolster his assertion that there was no debt crisis foreseeable for the next decade? Yeah, well, what the CBO actually said was that the U.S.’s projected “high and rising debt would have serious negative consequences: When interest rates rose to more normal levels, federal spending on interest payments would increase substantially…. [S]uch a large debt would increase the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.” The CBO warned, “How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to pay U.S. debt obligations, making it more difficult or more expensive for the government to borrow money…. The risk of a fiscal crisis—in which investors demanded very high interest rates to finance the government’s borrowing needs—would increase.”
Apparently, the CBO is staffed by doomsaying kooks, too.
This is all not unlike how by his own measure, Krugman treats economics not as a science but a theology, to cite another recent example of why he can’t be taken seriously.