Repaying The Compliment From Paul Krugman
Several weeks ago Paul Krugman said in his blog that he wished he had written one of my columns. Today I want to reciprocate in kind: I truly wish I had written this from a few days ago. Paul's money quote:
So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.
For that matter, I also wish I had written these posts (here and here) from the past two days on Krugman's blog on the astounding refusal of policymakers to listen to what the bond market is saying after demanding that it be considered to be the fiscal policy oracle.
Krugman
It's kind of interesting. I remember when your idol Krugman sang a different tune idea about deficits and interest rates when Bush was president.
Krugman in 2004 "for many years, advocates of tax cuts have insisted that the normal laws of supply and demand don't apply to the bond market, and that government borrowing — unlike borrowing by families or businesses — doesn't affect interest rates. But there's no argument among serious, nonideological economists. For example, a textbook by Gregory Mankiw, now the president's chief economist, declares — in italics — that "when the government reduces national saving by running a budget deficit, the interest rate rises."
You Miss The Detail
Right that is because the interest rate in 2004 was being set by supply and demand at something above 0%, where as now, we are against the 0 lower bound where as supply and demand would push interest to -5% or so. Until the government borrows enough money to soak up the supply between -5% and 0%, there will be no change in the interest rate.
Mr. Krugman is absolutely consistent in applying his models and rules, its you who is misunderstanding how they are being applied.
Krugman
Yet Another Budget Wonk glosses over the underlying conditions. Of course deficit spending in an otherwise relatively healthy economy is unwise and inflationary. But we are trying to avoid a depression, at worst, or climb out of a terrible recession, at best, right now. It's not 2004. As we now see every day, the deficit spending during the relatively healthy times of the 1990s simply took away the government's array of options when the real problems hit.
Glossing over
I'm not really glossing over anything. It's fact that Krugman was on record during the Bush years ( the economic condition has no relevance ) saying quite emphatically that nonideological economists know that govt borrowing affects interest rates. ( A crowd of which he included himself ).
Now he along with Stan are basically saying otherwise. And surprise Bush isnt president anymore and the tune changed.
I fully understand the need for deficit spending in times like this but look at the deficit and if this country not only needs this size deficit to get us out of a recession then there is something massively wrong.
And you're right about the buildup of deficit spending and it's hampering of potential means to help a recovery but it wasnt just in the 90's. Someone gave me a stat ( I have no idea if it's accurate or not ) that 36 or 37 of the last 40 years had deficits. If true that's stunning but not really the point of the matter anyway.
I'm ok with deficit spending right now. Just not this much and congress( repubs and dems ) and Obama need to get serious about fixing things and I dont want to hear apologists trying to encourage fiscal insanity or saying things like ( deficits dont matter or the market wants the govt to borrow ) more like was written in another piece on this website.
ok with deficit spending...just not this much?
Really? Are you so sure you want to demonstrate a lack of comprehension about how dreadful America's economic situation is?
The only problem with the current Federal deficit is that it's way, way too small. The economy has contracted so brutally with the collapse of the Bush/Greenspan bubble that true street-level unemployment is well above 17%. The Main Street, real live economy simply lacks the liquidity required to permit growth to resume. Quite the contrary; collapsing demand and the ongoing brutal retrenchment by State governments mean the economy is once more contracting.
The only thing wrong with Obama's stimulus package is that it was only half the size needed to avoid economic stagnation. Without it...Great Depression v. 2.0. If it had been big enough, we might be seeing the return of at least some hiring and economic demand. Instead we're stuck in limbo.
And the biggest reason for colossal deficits other than the Wall Street meltdown is still Bush/Cheney's "no billionaire left behind" tax cuts.
Krugman
Difference between Bush in 2001-2006 and Obama now-see automatic stabilizers, economic conditions variations.
But if the markets don't want
But if the markets don't want the government to borrow, why do they keep lending it money?
Well...
... a trillion dollars has been picked up by the Fed so far, and it is continuing to buy $20 billion a month, in an explicit program to push rates down and bond values up.
Is the Fed "the markets"?
but if the markets don't want...
"But if the markets don't want the government to borrow, why do they keep lending it money?"
Ask yourself this: Who is buying? I offer up several buyers willing to pay a high price for our government paper.
1. China. To continue it's skewed trade policy.
2. Banks. Loaning out free reserves and locking in a high leverage guaranteed return.
3. Everybody else. Like, just what is there to buy? Stocks? Real estate? Gold?
borrowing
Because where else are they going to put there money right now ? Stock market isnt that good and they dont have access to any type of yields short term of any significance. I mean if IBM issues 3 year paper at 1% you really dont have a lot of alternatives.
If they had an alternative they'd go there. If you see the markets improve you will see money go back there. If headline risk diminishes overseas you can see money go back there
Look at all the money that came out of equity mutual funds the 1st 7 months of this year on top of what came out last year when the market went up. To me that says a lot
Krugman
"I am not glossing over" of course completely glosses over the radically changed conditions between 2004 and 2010. This is of course the problem with the people who attack Krugman (and through Krugman, Keynes). They are so obsessed with their strawman arguments, and their fidelity to the neo-classical faith, they miss the arguments, EVEN WHEN MADE IN BIG CAPITAL LETTERS THAT WHEN THE ECONOMY IS APPROACHING FULL-EMPLOYMENT, THE GOVERNMENT SHOULD RUN A SURPLUS, REDUCING SPENDING AND RAISING TAXES IF NECESSARY TO REDUCE INFLATIONARY DEMAND, AND THAT WHEN YOU ARE IN A ZERO-BOUND SITUATION WITH INTEREST RATES BECAUSE THE ECONOMY IS DEPRESSED AND THERE IS HUGE AMOUNTS OF UNUSED LABOR AND CAPITAL, GOVERNMENT BORROWING WILL NOT RAISE INTEREST RATES IN THAT UNIQUE SITUATION. In other words, as Keynes is reportedly quoted as saying, "when the facts (or circumstances) change, I change my mind. What do you do sir?"
...but is the hysteria justified?
Mike, you had mentioned this on another post, that money could eventually flow out of treasuries and into equities. I don't disagree with you that that's a place money might flow to. But the question remains, does that mean treasuries are in a bubble? If all we're saying is something like 'in the near future, equities could begin to look more attractive relative to bonds,' (which is a pretty banal statement), then I'm not sure catastrophe is looming on the horizon, as some so-called "austerians" would have us believe.
In any case, I can't think of any reason why a bunch of foreign central banks (obviously some of the biggest holders of treasuries) would want to put that money into stocks (or commodities) after selling their US govt bonds. Nor can I see how fixed-income mutual funds are going to do anything like that. Besides, the higher the yield got on govt bonds, the more attractive they would become to domestic retail investors. (I'm sure there are plenty of baby-boomers who would take a guaranteed 6% return for twenty years.) My point is that, I can't see how anything too scary or unmanageable is going to occur, and yet that same doomsday scenario is serving as the justification for fiscal "belt-tightening" that may actually make things worse.
And besides, if a true doomsday situation were to occur, complete with defaults on the govt debt, and/or the fed printing money to redeem the bonds held by the Chinese, etc., we wouldn't need to worry about where else in the global economy people would be putting their money, because there would no longer be a functioning global economy to invest in.
John
I'm not sure about a bond bubble. The last 2 weeks have felt very strange from a money management point of view. Short covering in bonds definitely part of it right now. The mutual fund inflow figures are out again ( not sure if I put the 2010 numbers on the other thread as I did the 09 numbers ) but as of july money was funneling out of equity funds and pouring into bond funds again.
What worries me is a lot of these people going into funds have no idea what they are getting into IF rates go higher. If you buy the 10 year bond and rates go higher yeah it sucks because your price gets hit but it still matures and you are basically just stuck with an underperforming investment and hopefully it doesnt represent all your money. Bond funds in a rising interest rate environment you can get hurt bad and that's not even factoring in if the funds start getting withdrawals.
Ex in aug or sept of 08 I bought some long term munis at par for myself. A little over a month later they were trading around 80 ( after lehman etc ). No biggie because I planned on holding them to maturity. A fund is different because if there is a run on the fund and they have to sell bonds it's harder to make up that lost money.
As somewhat of a contrarian I worry about a couple of things. All the money pouring into bond funds ( although I think a lot of it stays there because of changing age demographics but some money coming out can affect yields to an extent ). Eventually fed buying ends ( I think but who knows I guess ) But also more than anything I think as of last year the average maturity on US debt was something like a little over 50 months or something.
Maturity/interest reinvestment rate risk is what worries me the most going forward. Now we are catching a break this year because rates are down even more and a lot of debt was coming due but look at the rates on short to intermediate paper and tell me they cant go higher. the 30 year going from 3.6 to 6 isnt the problem as we dont issue all our debt there anyway. Look at the shorter end of the curve ( heck we are basically paying nothing now on 3 and 6 month paper )and see if rates go up what it's going to cost us later in interest expense after compounding these deficits
And dont get me wrong I hope rates go higher to an extent because hopefully it's a byproduct of a stronger economy. I just dont want to see trillion dollar deficits made an excuse of.
Bond bubble or not.
I'm not sure about a bond bubble...
It's really simple. As the recession passes, either interest rates will return to their long-term norms of over the last 30 years, or they won't.
If they do, then long-term bonds are going to fall in value *a lot*, on the order of 30%, over that time period. That's just arithmetic: rates go up, bond values go down. You can call that a "bursting bubble" or not, it's up to you.
If rates don't normalize upward, then bond values won't fall.
I don't have a crystal ball, so I don't know what will happen.
But being that rates today are the lowest in 50 years -- and, we hope, the economy can only get better from here at least in the long run -- it sure seems like the bulk of the risk is concentrated on the "rates go up/bond values down" side.
There's no doubt that buying long bonds today is "buying high", and we've already had three or four good examples in the last decade of how that can work out.
Krugman then and now
"I am not glossing over" of course completely glosses over the radically changed conditions between 2004 and 2010.
Back in Dubya's time Krugman screeched about the fiscal solvency of the US being threatened. No less. He was terrified! Quote...
~~~
I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits ... we're looking at a fiscal crisis that will drive interest rates sky-high...
But what's really scary, what makes a fixed-rate mortgage seem like such a good idea, is the looming threat to the federal government's solvency.
That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 , make that 3, O.K., maybe 4 percent of G.D.P.
But that misses the point ... because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.
... the conclusion is inescapable. Without the Bush tax cuts, it would have been difficult to cope with the fiscal implications of an aging population. With those tax cuts, the task is simply impossible. The accident, the fiscal train wreck, is already under way.
How will the train wreck play itself out? ... my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.
... investors still can't believe that the leaders of the United States are acting like the rulers of a banana republic. But I've done the math, and reached my own conclusions -- and I've locked in my rate.
~~~~
That was back when the 10-year projected deficit was a mere $1.8 trillion -- not $10 trillion.
Note well: Krugman was not talking about conditions in either 2004 or 2010. He was talking about them at the end of his mortgage, in the 2020s. He was "terrified" about "the looming threat to the federal government's solvency" approaching then.
And he was right to be. At the same time CBO was projecting that income tax rates would have to rise 50% by 2030 to stay with the cost of entitlements, else the economy would crash from mega-deficits thereafter, and S&P was projecting the credit rating of the US would be "junk" by 2027 on then-current policy.
What's changed since then? Well...
1) The deficit/debt projections for the 2020s are much, much worse.
2) Obama and the Dems plan to renew 85% of the very Bush tax cuts that the "terrified" Krugman said made it "inescapable" that dealing with the 2020s fiscal crisis would be "simply impossible" -- and Krugman has signed right on with that renewal.
3) Krugman's become a happy camper! Concern about the time of the end of his mortgage? What concern? The public debt will be no larger then than it was for Ozzie and Harriet after WWII, and things worked out fine for them!
All we have to do is get the cost of tending to all those seniors under control. ;-)
This is of course the problem with the people who attack Krugman (and through Krugman, Keynes). They are so obsessed with their strawman arguments, and their fidelity to the neo-classical faith, they miss the arguments, EVEN WHEN MADE IN BIG CAPITAL LETTERS THAT WHEN THE ECONOMY IS APPROACHING FULL-EMPLOYMENT, THE GOVERNMENT SHOULD RUN A SURPLUS,
Yet Obama budget projections show much more spending and much bigger deficits coming as a result of his policy changes after they project the recession to end, onward forever.
You don't mind? In spite of all those all-caps? Krugman sure hasn't said peep.
GOVERNMENT BORROWING WILL NOT RAISE INTEREST RATES IN THAT UNIQUE SITUATION
The problem is, that unique situation ends in a year, or two, or three. But the trillions of extra debt you've piled on is permanent. And then you find yourself in another, even worse unique situation -- that you've just made even worse yet.
Except that his concerns are
Except that his concerns are consistent--in the medium and long term he is still worried about medical costs--and would point out that Obamacare does in fact improve those numbers.
But even more destructive than the future debt is the current long term unemployment rate, the lack of demand and inability to fully use our GDP. If you get the economy back humming now, where the real costs of borrowing are close to 0, you have a bigger economy in 10-20 years to help absorb the rising entitlement costs.
Why is raising the interest
Why is raising the interest rates from all-time lows such a sudden concern, Budget Wonk? Isn't deflation more of a concern in times of high unemployment?
Or did you skip that day in Econ to talk about how stupid dems are?
BTW, an interesting factoid about Keynes.
Keynes himself never in his live ever supported "Keynesian" deficit stimulus spending.
At least not if one can believe the Palgrave (1998 edition), quoting:
~~~
"Despite the fact that the economics of deficit finance began with the Keynesian Revolution, it has been conclusively established by Kregel (1985) that Keynes himself did not ever directly recommend government deficits as a tool of stabilization policy. Keynes played a conservative political hand and viewed budget deficits with a 'clearly enunciated lack of enthusiasm'."
~~~
In fact, Keynes opposed deficit stimulus spending on multiple occasions, such as in Britain, 1937 (with unemployment at 11%).
Bond bubble or no bond bubble?
So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument...
Because if there's one thing we've learned in the last 10 years, it's that when asset prices go up way higher than the historical norm, it just can't be a bubble! (Dot.coms, oil, housing...).
Not so long ago Warren Buffett was savaged on this very blog for not recognizing the housing bubble. Now he's warning of a bond bubble, and he gets savaged for the "sheer audacity" of doing so.
Well, there's a simple test. The 30-year T-bond rate on Friday was 3.66% Wow, how low can it go?
Now, if this is the "new normal", no bubble, than we should all be happy to buy those bonds to hold. That's the *no-risk* best long-term yield anyone can get!
Of course, if the recession passes (as we all hope!), the Fed sells back the trillion dollars of securities it bought to push rates down, the money flows back to Europe, things normalize ... well, the Social Security Trustees just projected the long rate at over 6% in 2013.
A 30-year bond just bought for 100 paying 3.66% will, if rates go to >6% three years from now as SSA projects, then be worth less than $69 -- a more than 31% drop. I don't know if a fast >31% down officially qualifies as a "burst bubble", but no risk?
And such bonds would still have a long way to run. With all the huge deficits following, in a normal economy post-2013 we can expect rates to rise further (as the "terrified" Krugman of old used to emphasize) driving the bond price down further.
So the test: How much of our long-term retirement portfolios should we load into 30-year bonds today, with safe confidence? How much does Krugman suggest? What do people here say?
That Buffett is such an audacious rascal. :-)
BTW, I enjoy the rhetoric. People reluctant to make the largest deficits in history even larger are "austerians". :-)
"Stimulus now, smaller economy later, CBO says"
Stimulus and tax cuts now, smaller economy later, CBO report says
Stimulus spending and extending the Bush tax cuts can help a little in the short term, but they would likely hurt America's long-term economic outlook, a CBO report issued Thursday says
The Congressional Budget Office released an improved outlook for the federal budget deficit this year, but the report also amounted to a warning to President Obama and Congress about the limits of policies designed to stimulate the economy...
On the sobering side, the same Thursday report suggested that economic stimulants can be harmful to long-term health ... because it would increase the nation's public debt, the boost would come at a price.
"Later in the coming decade, real GDP would fall below the level in CBO’s baseline, because the larger budget deficits would reduce investment in productive capital," the CBO report says.
So more tax-cut and spending stimulus now means a smaller economy later. The government would be eating up resources that could otherwise be used to create private-sector jobs that expand the nation's wealth and productivity....
http://www.csmonitor.com/USA/Politics/2010/0819/Stimulus-and-tax-cuts-no...
~~~~~~~~~~~~~
Previously it was argued that while the economics of today's situation is all for more stimulus and bigger deficits, the politics is against it because voters are "ignorant" and deceived by "misleading statements, campaign slogans, and demagoguery".
But another explanation is that voters are becoming ever more informed about the fiscal crunch to come, know that larding on more debt today will make things worse in the long run, as it indeed will -- and that as the great majority of voters remain employed even in today's economy, they are more concerned about the long run.
They may be neither so ignorant nor so irrational as presumed.
Great Job Budget wonk and Jim
Now that was fun reading. I used to like Krugman before 04 probably mainly because I hated GW Bush but then Krugman started going off the deep end after kerry lost. Some of the stuff he writes is still good but some of it you just have to read it form your own opinions and then shake your head.
As wonk and you pointed out. He said it plain and simple. Cant hide from it. Great great job. That was great reading. 1.3 trillion dollar deficits and the guy is making excuses for more ( knowing more deficits are coming ). The compounding affect of these problems down the road are simply scary
budget wonk hater
I read wonk or wonkette's posts again and nowwhere do they say anything about not wanting rates to go higher. Rates are going to have to eventually. The question you need to ask yourself is what is going to happen when they do go up and you keep piling on the debt because you refuse to do anything about that. Budget wonk even acknowledged the need for deficit spending now they just dont want as much of it and would probably agree with me that marginally higher rates would be a good thing because that could be a sign of economic growth. But with the current borrowing/ignore crowd who wouldnt have the same attitude if a republican was president this is a problem because of the compunding affects of piling on so much debt
Deficits under Bush were disgusting and Obama needs to rethink the entire budget and figure out how to spend more affectively and make a serious plan to curtailing the deficit
Seems pretty reasonable to me.
A few questions...
Said Jim: "I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits ... we're looking at a fiscal crisis that will drive interest rates sky-high..."
"Once financial markets wake up" -- how can you be so sure they're asleep? What if the financial markets have the same information at their disposal as you do, and they've simply come to a different conclusion? Does disagreement with your view entail not being awake? My point is that that's a very bold statement. Can you tell why Krugman and co. read this as if you're saying that you personally know more than the markets?
I would also love to hear what your idea of "sky-high" is, and I'm not being facetious. Also, I can't imagine that you mean sky-high interest rates coupled with deflation, so I'm assuming that you're forecasting hyperinflation. Have I got that right?
I'm sure you know that the Fed's in no rush to jack rates up into the double digits. So what's going to drive the interest rates so high?
Krugman's blog today...
Krugman's blog today (on another subject) pretty much demolishes what Wonk and others are saying above.
http://krugman.blogs.nytimes.com/2010/08/23/making-it-up/
Why a different opinion on deficits now? Because monetary policy isn't working (and can't below zero bound). 'in normal times I’m all in favor of having the Fed take on the job of managing the business cycle, and basing fiscal policy on long-term concerns.'
What about crowding out (which is the mechanism by which govt borrowing drives rates up)? 'deficit spending — which doesn’t crowd out private spending when the interest rate doesn’t change — '
And as he puts it: 'The point is that I’m not making it up as I go along; I have a consistent view here, which yields unorthodox conclusions right now only because we’re in an unusual situation.'
So despite the claims about Krugman changing his mind, he's pretty much stayed consistent if you're reading _and understanding_ what he's writing.
And if you ask about what happens when economy improves - he'll say (as he said before) that this will be the right time to be careful about the budget. He's prefer running surpluses, but would probably live with a growing economy and deficits below the rate of growth.
It's pretty simple
As wonk pointed out or whoever in the beginning of this post During the Bush years Krugman said deficits matter and he said they affect will affect interest rates now under Obama he says they dont. Facts are facts and regardless of the circumstance now and what it will take to get us out of this he is saying something different.
He's pretty clear about deficits. But please feel free to show any articles during the Bush years where he is defending deficits ( and as much as I hate GW he came into a bad situation although no doubt he compounded it dramatically )
Fair is fair
The Lies Don't Fool Traders
Debt implies an eventual tendering of "payment". Simpy lying about debt does not change the obligation of "payment".
This is called "reality" and I don't care if it hurts your poor liberal feelings.
There's a sense in which this
There's a sense in which this conversation is getting a bit silly. Take a simple example: murder is generally bad, but in wartime situations or in self-defense, though not good, it is one's only hope. I think Krugman's defenders are simply trying to make this same point, but about deficits rather then murder. If we can make the distinction between times when it is permissible to murder without being inconsistent, why can't we do the same about deficits?
That being said, Krugman HAS been shifting his position. (And like other commentators have pointed out, it appears that whatever his intellectual reasons for his shifts in policy preference, he seems to be politically motivated as well, at least in my opinion.)
Scott Sumner, on his blog, has been following and reporting on Krugman's changing beliefs too. By advocating more for monetary stimulus, as opposed to fiscal stimulus (deficit spending), Krugman is now tacitly admitting that deficit spending may not have the desired effect he was saying it would have just a year ago. So it appears, then, that Krugman went from being against deficits (during the "Rubinomics" days), to being for them (by arguing that the stimulus bill wasn't big enough), and now to believing that the Fed should be taking more control through monetary policy (and that this is preferable over more deficit spending). So it IS true that Krugman is being a bit slippery.
Krugman consistent? And the honest argument for stimulus.
So despite the claims about Krugman changing his mind, he's pretty much stayed consistent if you're reading _and understanding_ what he's writing.
Really?
[] Krugman was "terrified" of the "looming insolvency" of the US at the end of his mortgage's term, in the 2020s. Now, with debt projections for then trillions of dollars worse, he says the debt then in the 2020s will be like in the 1950s, and "I haven’t heard that anyone considered America a debt-crippled nation when JFK took office". Consistent?
[] Krugman savaged the Bush tax cuts year-after-year, saying they make it "simply impossible" to avoid the national insolvency crisis in the 2020s. Now, as 85% of them are about to be made permanent by Democrats as the Obama tax cuts, he gives them a thumbs up and says the fiscal result will be no worse than in the 1950s, see above. Consistent?
Why a different opinion on deficits now? Because monetary policy isn't working ...
Rhetorical bait and switch. Bunk. A recession in 2009-10 has nothing to do with the national solvency crisis of the 2020s that "terrified" him -- except to make it worse, of course, while he is now hand-waving it away.
Krugman is claiming to be consistent thusly...
"I said I was 'terrified" of the 'looming insolvency' of the US in the 2020s due to the massive coming debt load that will be 'simply impossible' to avoid. Now all debt projections for 2020 are trillions of dollars higher -- yet I say things won't be any worse in 2020 than they were for JFK.
"Is there any inconsistency in this? No! Because in 2009-10, a decade earlier, comes a recession..."
You buy that? It's amazing how many do. :-)
If Krugman were consistent he'd say:
"I said I was 'terrified" of the 'looming insolvency' of the US in the 2020s due to the massive coming debt load that will be 'simply impossible' to avoid. Now all debt projections for 2020 are trillions of dollars higher -- and I am even more worried about it, as anyone sensible has to be.
"But today we are dealing with the consequences of a steep recession. By running up more permanent stimulus debt today we can create needed jobs. Yes, there is a trade-off -- it will make the long-run national solvency crisis even worse, and harm long-term economic growth.
"As the CBO just stated, increasing the debt via more stimulus can increase GDP today at the cost of lower GDP in the long run, after the recession is over, because of the higher debt.
"Nevertheless, I believe the short-term benefit is worth the long-term costs in this tradeoff, because..."
THAT would be consistent. But do you see Krugman (or Stan) mentioning the trade-off spelled out by CBO? Any trade off at all?
There is a real long-term cost to short-term fiscal stimulus, pumping up permanent debt for temporary gain. There is *huge* longer-term problem getting closer every year, now only about a dozen years away. Not *so* long term any more.
Those who don't know of the cost are ignorant or misled. Those who do know the cost, but suddenly have totally forgotten it in all deficit discussions, are ... disingenuous.
The honest way for the well-informed to argue for fiscal stimulus is to say "I believe the short-term benefit is worth the long-term cost". But, of course, others may disagree on that same grounds, thinking the long-term is more important .... so instead we get that people concerned about the long-term cost are "ignorant" and deceived by "misleading statements, campaign slogans, and demagoguery". This for believing what Krugman used to tell them!
BTW, Because monetary policy isn't working (and can't below zero bound)... is bunkum too.
Krugman has said repeatedly that monetary stimulus can work from here and should be applied, as Scott Sumner has documented if you want to see for yourself. Krugman's complaint about monetary stimulus is that for institutional reasons the Fed won't do any more of it (which seems true) which leaves fiscal policy. But that argument cuts both ways, as Sumner points out. There's not going to be any more serious fiscal stimulus for institutional/political reasons, which leaves monetary stimulus. And since monetary stimulus doesn't add to the permanent debt long-run cost, if you want to argue for one or the other, which should it be?
[Krugman'd] prefer running surpluses, but would probably live with a growing economy and deficits below the rate of growth.
Yet Obama's team is projecting permanent, post-recession deficits far larger than ever projected during the Bush years, for which Krugman relentless savaged Bush. So where is Krugman's "consistent" criticism of Obama's long-term deficit plan?