Tuesday, July 22, 2014

Krugman Hits "Deficit Scolds"

Paul Krugman writing at his blog today:
"I got some correspondence from people telling me to read Rob Portman’s op-ed in the WSJ, intended to refute the growing evidence that the budget deficit has been grossly overrated as an issue. And it is an interesting piece — it’s a very good illustration both of the desperate desire to see a debt crisis, and what happens when someone (Portman, or more likely the staffer who wrote it) tries to be a Very Serious Person without actually understanding the numbers or having followed any of the analysis...
Finally, whenever someone warns about the supposedly unsupportable costs of entitlements decades into the future, you should ask why, exactly, it’s urgent that we solve that conjectural future problem now — and why it has any bearing at all on current fiscal issues. Don’t say that it’s obvious; it isn’t, and in fact deficit scolds bob and weave when confronted with that question.

But the deficit scolds do love their looming disaster, and they love making tough proposals that someone always involve sacrifices by the little people."
Debt Disaster Dead-Enders, by Paul Krugman, NY Times


Ralph Musgrave said...

The interesting question (one which is within the comprehension of MMTers and way above everyone else’s heads) is this.

As a couple of MMTers have pointed out, a country that issues its own currency can pay any rate of interest it likes on its debt. That raises the question as to what the right or optimum rate is. Personally I vote for a rate which is bit below inflation. That amounts to a negative real rate, which means the relevant government profits at the expense of its creditors.

But I admit you could argue (as does Warren Mosler) that the rate to aim for is zero.

Matt Franko said...

Krugman has no argument as he also believes the budget has to balance over the long term (dove)...

so the Conservative/Protestant response is to not procrastinate and get right to the business of balancing the budget immediately... "take your medicine now , blah blah..."

Then throw in the libertarian view that govt gets the "money" from the non-govt in the first place and its a trifecta of moronhood....

Ralph, imo perhaps long term after big changes to current public systems for retirement income, but for right now savers are being penalized for doing what they have been trained to do by the policy of same government that is implementing ZIRP over here ie "save for retirement".... now retirees who have saved have no interest income... so to stay at ZIRP without addressing the situation of current retiree/savers is still a moron policy imo... rsp,

NeilW said...

"That amounts to a negative real rate, which means the relevant government profits at the expense of its creditors."

ZIRP just says that the state doesn't have to pay the banks for doing nothing and doesn't have to mess around jiggling government bonds to hit some meaningless positive target.

I'm not at all sure what benefit anybody gets from the state rewarding people for holding near liquid assets - certainly over a 'rainy day fund' amount.

Pensioners should of course be able to cash in their pension pot with the state for an increase in the state pension. There is no need for a middleman in the provision of annuities.

Detroit Dan said...

I agree that Ralph is asking the right question, and I'm with him in being open-minded at this point. Neil's response makes sense too.

In practice the government sets interest rates that go up and down with the rate of inflation. The attempts to steer the economy by going a little above or below the rate of inflation are pathetic, IMO.

So perhaps the interest rate should just be a cost of living adjustment for pensions and other socially beneficial types of saving?

Roger Erickson said...

All of the above?

"Policy," after all, admits selection. So why not just set different interest rates for different uses of currency?

That's well within the scope of "policy."

Our constant need is to increase Policy Agility as fast as our Policy Space expands? Anything less is making excuses.