Debt crisis? What debt crisis?
Paul Krugman NAILS IT:
Pundits who spent years trying to foster a sense of panic over the deficit have begun writing pieces lamenting the likelihood that there won’t be a crisis, after all. Maybe it wasn’t that significant when President Obama declared that we don’t face any “immediate” debt crisis, but it did represent a change in tone from his previous deficit-hawk rhetoric. And it was startling, indeed, when John Boehner, the speaker of the House, said exactly the same thing a few days later.
What happened? Basically, the numbers refuse to cooperate: Interest rates remain stubbornly low, deficits are declining and even 10-year budget projections basically show a stable fiscal outlook rather than exploding debt.
So talk of a fiscal crisis has subsided. Yet the deficit scolds haven’t given up on their determination to bully the nation into slashing Social Security and Medicare. So they have a new line: We must bring down the deficit right away because it’s “generational warfare,” imposing a crippling burden on the next generation.
What’s wrong with this argument? For one thing, it involves a fundamental misunderstanding of what debt does to the economy.