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Debt crisis? What debt crisis?

Economist Paul Krugman ARGUES that most of the political rhetoric about the so-called fiscal cliff is wrong:

We are not having a debt crisis.

It’s important to make this point, because I keep seeing articles about the “fiscal cliff” that do, in fact, describe it — often in the headline — as a debt crisis. But it isn’t. The U.S. government is having no trouble borrowing to cover its deficit. In fact, its borrowing costs are near historic lows. And even the confrontation over the debt ceiling that looms a few months from now if we do somehow manage to avoid going over the fiscal cliff isn’t really about debt.

No, what we’re having is a political crisis, born of the fact that one of our two great political parties has reached the end of a 30-year road. The modern Republican Party’s grand, radical agenda lies in ruins — but the party doesn’t know how to deal with that failure, and it retains enough power to do immense damage as it strikes out in frustration.

(Snip)

Since the 1970s, the Republican Party has fallen increasingly under the influence of radical ideologues, whose goal is nothing less than the elimination of the welfare state — that is, the whole legacy of the New Deal and the Great Society. From the beginning, however, these ideologues have had a big problem: The programs they want to kill are very popular. Americans may nod their heads when you attack big government in the abstract, but they strongly support Social Security, Medicare, and even Medicaid. So what’s a radical to do?

The answer, for a long time, has involved two strategies. One is “starve the beast,” the idea of using tax cuts to reduce government revenue, then using the resulting lack of funds to force cuts in popular social programs. Whenever you see some Republican politician piously denouncing federal red ink, always remember that, for decades, the G.O.P. has seen budget deficits as a feature, not a bug.

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20 Comments

  1. Luke Fredrickson

    Give him the Nobel twice!

  2. I would love to know what Krugman thinks is too much debt.

    How high does the deficit have to go before low costs of borrowing doesn’t really matter?

    How high does the deficit have to go before the amount of yearly interest we pay prohibits us from investing in the future?

    How high does the deficit have to go before other countries own a too large percentage of America?

    How does does the deficit have to go before it becomes obvious that you can’t realistically tax society enough to pay it off?

    The answer, of course, is that we’re already there.

  3. Luke Fredrickson

    Krugman has answered these questions ad nauseum, Nef.

    In short, our monetary policy must stimulate economic growth so that tax revenues (not rates) rise enough to reduce the govt. debt. Clinton did it, if you recall.

    Republican austerity policy is akin to skipping work to save on gas today, without caring about how you’ll get a paycheck next week.

  4. Neftali,
    The answers to your questions are:

    Higher than it is today. Hence, there is no crisis.

  5. When George W. Bush inherited a big budget surplus from Bill Clinton, he and the Republican Congress didn’t apply it to reducing the national debt. Instead, they passed tax cuts and started a couple of wars.

    But now the Repubs pretend to be deficit hawks. No, most of them don’t want to take back the tax hikes for rich folks (as most Americans favor) to pare the deficits, but they say they want to reduce spending. They just won’t say how. John Boehner won’t specify where spending should be cut because he’s afraid the voting public won’t agree with him. Instead, he wants Obama to make suggestions in that regard so he can demagogue the issue in the elections of 2014.

    These people are so transparent.

  6. So in 2008 when Obama called Bush “unamerican” for his spending he was demagogueing the issue as well!

    I also note we are still in Iraq and Afganistan almost 4 years after Obama took office and almost 6 years since democrats said they would end the wars.

    So I guess liberals want to give all there money to government, so when will you start giving?

  7. Brian Opsahl

    @big dave, Bush broke out that credit card and pounded it after being handed a budget surplus….by those same Liberals, then did something even dumber than dumb he added tax cuts and then passed all of that down the road to …who..? who had to take that on…dave..? ..it was Mr.Obama at the same time he also handed off a near depression economy…with a crashing stock market,housing market,Auto business,and also remember Europe and Asia was also crashing all of this at the same time…and look what ended up happening….we are slowly comming out of that mess…and your not going to give the President the credit for that…?

    Sorry but it’s exactly what I voted for….and if he puts forth that same effort on the deficit as he did during those very bad times we just went through….then we will be just fine..

  8. Brian, I guess you love to rewrite history. If you carefully check you will see that Bush’s largest deficts were after the 2006 elections and that’s when the democratic party took over the House and Senate. Now I’m not saying that the republicans didn’t spend as well and that spending lead to their demise in that 2006 election. But I will never give credit to anyone who voted for spending increases then and keep the spending going when he (Obama) was elected on 2008.

    Secondly, there was a recession when Bush took office in 2001 and you can check tht out as well. I also recall that the unemployment percentage was around 4-5% for most of the Bush Presidency not the over 7.7% under our current President, or have you forgotte that as well? I will also point out that Europe’s problems are something we in the US will face if the government keeps spending, since I hear nothing on spending cuts!

    And Brian, this quote of yours: “Sorry but it’s exactly what I voted for….and if he puts forth that same effort on the deficit as he did during those very bad times we just went through….then we will be just fine..”

    Please seek help!

  9. Brian Opsahl

    Big Dave…dude you left out a whole mess of issues that let us down the path to near depression…are you completly forgetting about those 2 un-funded wars…on the credit card..? or then to compound the economic problem by giving 2 tax cuts to his rich oil buddys remember that one…dave
    When the former President gives you a budget surplus and Bush turns it into Major deficit spending, you can’t just blame the other guy..Dave

    Bush from his own words said …I dont even care about OBL anymore I mean I don’t even think about him…His words..dave 3000 Americans dead and he don’t even think about him anymore…..

    Well Mr. Obama sure did think about him….he had him killed in a mission that went into a Foriegn Country that if it went bad would have cost him big time…dave

    Your memory is very short Sir…!!

  10. “former President gives you a budget surplus and Bush turns it into Major deficit spending”

    Yes. Where were thre republicans then? Why weren’t they concerned with paying down the debt, or at least paying or the war? Sorry, their words now ring hollow.

  11. It doesn’t matter who said what before.

    What matters is the daily worsening of the fiscal math.

    Krugman thinks that because we can still borrow money now at historically good rates, that we should continue to run up the debt with all time high deficits.

    I suspect that was the same logic many people used to take out loans for much more house than they could afford last decade.

    That didn’t work out so well. Even worse, what exactly would a foreclosure proceeding on the USA look like?

  12. http://www.cnn.com/SPECIALS/war.casualties/index.html

    Brian, In the link I proved you on this subject you can clearly see the totals from both Iraq and Afganistan. One thing you will note is as the deaths went down in Iraq and they sky rocket in Afganistan and this occurred starting in 2009. I’m sorry but Bush was not President then, can you tell me who was and that President had control of both houses of Congress, so why didn’t he bring them home then? Since democrats did promise to do that when running in 2006 and now it close to 2013 and they are still there!

    As for Tax Cuts, well everyone got them not just the rich! I wonder if you know how much the rich pay in taxes compaired to the rest of americans? Please read this: http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

    “When the former President gives you a budget surplus and Bush turns it into Major deficit spending, you can’t just blame the other guy..Dave ” Brian are you talking about Obama? Since I never have heard Bush blame anyone for anything unlike our current President.

  13. Big Dave says “I never have heard Bush blame anyone for anything unlike our current President.”

    Big Dave should Google the term “Bush blamed Clinton.” He’ll get thousands of results.

  14. Pat, it would be best if you gave examples maybe even a link or two. I did find several but one of those came from the GOP not Bush.

    But there are no comparisons with Obama is there!

  15. Big Dave said: ” there was a recession when Bush took office in 2001″

    You are wrong internet breath. The recession started in March of 2001.

    Big Dave said: ” the unemployment percentage was around 4-5% for most of the Bush Presidency”

    Wrong again. It was 6.3% in June of 2003 and it was 7.8% when GWB left office in 2009, despite GWB’s two stimuli.

    Big Dave said: Democrats promised to bring the troops home in 2006.

    Did you forget they tried in 2007 but were unable to override the President’s veto?

    Big Dave again: “anyone who voted for spending increases then and keep the spending going when he (Obama) was elected on 2008.”

    So tell us what you would have done if you inherited an economy headed for a depression. Let me guess! You would cut spending, give a tax cut to the rich, and rescind all regulations.

    Maybe you can tell us what happened when the government cut spending in 1932. Then tell us how trickledown has worked out. And tell us what happened when banking regulations were rescinded.

  16. Tex, please!

    Let’s see Bush took office in January 01 and as you say recession started in March 01. Can you tell us what Bush did to caused it in (2) months?

    Democrats controlled both the House and Senate and they could not override the veto, ok. But they sure tried very hard to do this right or was it just talk.

    Since I’m not president I don’t know but I do know one thing, what was done has not worked so is the rich the blame for that as well?

    And please tell us what the spending cuts were, if you can.

  17. Big Dave: Let me explain this again so that even you can understand. Google the words “Bush blamed Clinton” (with quotation marks around the phrase), and you’ll get 63,800 results.

    As for Obama blaming Bush for the economic crisis that dimwit left us, that only makes sense. Besides, most Americans have long agreed with Obama on that point. Maybe you don’t agree, but then that’s no surprise.

  18. Boy, I could have sworn that one time on this site I was roundly scolded for trying to use Google search results numbers as an argument.

    If I hadn’t been I would have pointed out that “Obama blames Bush” yields 50 million results.

  19. Big Dave said:” And please tell us what the spending cuts were, if you can.”

    You can look those up yourself Dave. But read this link. It tells what happens when you cut spending during a depression or recession. Also if you look at the graph you will see that spending has been cut under Obama.

    http://seekingalpha.com/article/468851-forgotten-math-how-spending-cuts-increase-deficits-and-kill-markets

  20. 63,800 results for Bush blames Clinton over 8 years.
    50,000,000 results for Obama blames Bush over 4 years.

    I rest my case!

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