Tuesday, March 03, 2009

Paul Krugman Then and Now

If there were still any question that Paul Krugman, large cash awards from Swedish bankers aside, should no longer be taken seriouslyas an economist, check out this editorial from last week. But first, let's set the stage by looking at his previous statements.

From 2003, when the budget deficit was a "mere" $378 billion:

As a drunk is to alcohol, the Bush administration is to budget deficits.....

It's O.K. to run a deficit during a recession, as long as the deficit is clearly temporary. But both the numbers and the administration's search for excuses tell us that there's nothing temporary about the red ink. On the contrary, we'll probably be on a deficit bender until the baby boomers retire -- and then it will get much worse.

Paul Krugman in 2004, when the deficit was $413 billion:

Well, basically we have a world-class budget deficit not just as in absolute terms of course - it's the biggest budget deficit in the history of the world - but it's a budget deficit that as a share of GDP is right up there.

It's comparable to the worst we've ever seen in this country.

It's biggest than Argentina in 2001.Which is not cyclical, there's only a little bit that's because the economy is depressed.

Mostly it's because, fundamentally, the Government isn't taking in enough money to pay for the programs and we have no strategy of dealing with it.

So, if you take a look, the only thing that sustains the US right now is the fact that people say, "Well America's a mature, advanced country and mature, advanced countries always, you know, get their financial house in order," but there's not a hint that that's on the political horizon, so I think we're looking for a collapse of confidence some time in the not-too-distant future.

Now, Paul Krugman on a Obama budget that starts out at $1.7 trillion and even in its best year never dips below $500 billion, more than any Bush deficit:

But I don't blame Obama for leaving some big questions unanswered in this budget. There's only so much long-run thinking the political system can handle in the midst of a severe crisis; he has probably taken on all he can, for now. And this budget looks very, very good.

In fact that is even the title of the editorial, in big bold letters:

Krugman: This budget looks very, very good

Amazingly he even spins things to make it look like Bush had it easy as a result of the real estate bubble:

Bear in mind that from 2005 to 2007, that is, in the three years before the crisis, the federal deficit averaged only $243 billion a year. Now, during those years, revenues were inflated, to some degree, by the housing bubble.

By contrast I am not aware of him ever pointing out that the surplus of the late 90s was mainly due to capital gains resulting from the stock market bubble, even thoough most serious economists admit it was, to Krugman it was purely the genius of Bill Clinton and Robert Rubin.

And finally he manages to spin this once more:

But won't the deficit be swollen by interest on the debt run-up over the next few years? Not as much as you might think. Interest rates on long-term government debt are less than 4 percent, so even a trillion dollars of additional debt adds less than $40 billion a year to future deficits.

Oh, great. You ruin the economy to the point that the Fed drops interest rates to effectively zero, and scare everone from investing in anything other than treasuries, then take pride in the fact that the national debt is cheap to finance.

And they gave a Nobel Prize to this guy?

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