Paul Krugman: The Lesser of Two Evils?

In times when there are no good alternatives, tradeoffs can become an acceptance of an increase in one bad thing in order to affect a decrease in another bad thing seen as being the greater evil.  Progressives think the central tradeoff right now is between the federal deficit and unemployment, and they believe we must accept an increase in the deficit in order to bring down unemployment.

New York Times columnist Paul Krugman thinks the deficit is the lesser of our two evils.  In column after column he has urged that unemployment be tackled first and the deficit later.  On March 25, Krugman wrote:

Two years ago, faced with soaring unemployment and large budget deficits -- both the consequences of a severe financial crisis -- most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.

Progressives like Krugman treat unemployment with massive doses of government spending -- such things as stimulus and Keynesian pump priming, which make the deficit all the worse.  Krugman has long insisted that the Obama's trillion-dollar stimulus was much too small to make the needed difference.  But right after the 2006 election, when the Democrats took back Congress, Krugman advised:

Democrats shouldn't spend political capital trying to bring the deficit down. ... given a choice between cutting the deficit and spending more on good things like health care reform, they should choose the spending. ... Should [the Democrats] use the reclaimed revenue to reduce the deficit, or spend it on other things? The answer, I now think, is to spend the money...and let the deficit be. ... In the long run, something will have to be done about the deficit. But given the state of our politics, now is not the time.

This advice came at a time when America had "full employment."  So it's natural to wonder if for Paul Krugman there is ever a right time to tackle the deficit.

But which of our two evils really is the lesser?

To a man without a job, unemployment may be the greater evil.  Also, with higher unemployment come higher costs to the state: greater spending on unemployment benefits and social programs, less tax revenue, and perhaps social unrest.

There are, however, serious downsides to out-of-control federal deficits.  The most sobering is the destruction of our currency.  And since half of economic transactions, including employment, is money, it doesn't seem obvious that the deficit really is the lesser evil.  If the almighty dollar collapses, all jobs are going to be threatened.

On May 16, the feds hit the debt ceiling.  So right now folks are worried about the possibility of default.  But on May 15 on ABC's This Week, Krugman said this:

KRUGMAN: I actually -- I think it may be necessary to take this up to the limit. Because the fact of the matter, we do not...

AMANPOUR: And default?

KRUGMAN: Possibly, if -- if we have complete -- if we have demands for a large change in policy under threats of debt limit. This has to be the point where you say, no, we don't believe in letting hostages be taken.

Had Krugman inadvertently revealed his true colors; had he finally "jumped the shark"?  The three other panelists were so repulsed by Krugman's suggestion that they scrambled to distance themselves from it, asserting that default was unthinkable.  Amanpour ended the segment: "on that terrifying note we're going to have to pick this up another time."

Why would Krugman prefer default to changes in policy, namely spending cuts, if default means the end of the world?  How sane is that?

Krugman's hostage and blackmail metaphors only work when one side has all the power.  The spendaholics have their own version of blackmail, which goes like this: If you don't raise the debt ceiling and give us another $2 trillion, we'll default and you (Congress) will be blamed for it.  And this is a real threat, as the media blamed Congress for the government shutdown in 1995, even though Clinton's refusal to sign the budget was the effective cause of the shutdown.

Likewise, because federal revenue will be way more than enough to pay interest on the debt, the only way we can go into default is if the Obama administration refuses to pay debt obligations first.  So if we default, blame Obama -- and Krugman.

On the Green Room webcast that followed the aforementioned This Week, Krugman repeated his credo: "We should be doing a lot more spending on job creation."  But what would Krugman know about creating jobs?  Krugman's never created a job; he's an academic, not a businessman.  His answer to all our woes is to just spend -- the magic "multiplier effect."  Krugmans's one-size-fits-all solution (spending) doesn't require any creativity or thinking, but it's the one weapon in his arsenal and he's going to use it.

The subtext of every column Krugman has written is that he, Krugman, is the smartest guy in the room.  And not only that, he's the most moral guy in the room.  But the only adult in the Green Room was Douglas Holtz-Eakin, who said: "I don't view the deficit reduction efforts and jobs as being in conflict."

What?  Has Krugman presented us with a false choice?  Can America really do two things at the same time?  Holtz-Eakin went on to advocate long-term policies over short-term fixes.  (Finally: an adult.)

Make no mistake: The economic horse latitudes America has been trying to sail through these last four and half years is "the Krugman economy."  Krugman's policies have wasted trillions on useless spending and amassed ruinous debt.  But Krugmanism has also spawned the most potent political force in decades: the Tea Party.

Democrats have been taking advice from their little celebrity economist for far too long.  Krugman has failed to recognize the greater evil: debt.  Debt is taking down states and even entire nations.  It's a monumental failure for an economist to incorrectly identify our most pressing economic problem -- Krugman should be rusticated and ignored.

(Watch this short video of a real economist.)

Jon N. Hall is a programmer/analyst from Kansas City.

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