Krugman: Debt? What Debt?

On occasion, I find myself partially agreeing with Paul Krugman and his most recent column attacking Republicans (yeah, I know, that's a rare thing) on their "concern" about the federal budget deficit deserves at least one cheer. I am wearied of Republicans expressing concern about deficits at a time when they are calling for massive increases in military spending.

Now, Krugman does not mention that point at all in his column, instead claiming that the deficit hawks only want to starve the poor and elderly, deny them any medical care, and force them to sleep under bridges. He does not put things in quite that language, but that is the gist of what he is saying. But, then, this is someone who actually believes that government welfare programs increase wealth because they bring about instant spending, and everyone knows that saving money and investing in capital is evil and brings down the economy.

(Krugman's capital theory seems to be another rendition of "Capital Happens" in which capital magically appears in our economy.)

So, let us look at Krugman in his own words:

At a time of mass unemployment and record-low borrowing costs, a time when economic theory said we needed more, not less, deficit spending, the scolds convinced most of our political class that deficits rather than jobs should be our top economic priority.

 Keep in mind that in Wonderland, when the Federal Reserve System pushes down interest rates to artificially-low levels, that has ONLY good effects. After all, the Laws of Wonderland dictate what we should believe about economic growth and the economy in general:

• Saving is evil and only suppresses economic growth
• We should use all means to confiscate savings either through inflation or outright taxation because we need to spend everything we make in the present
• Don't worry about capital formation because "Capital Happens"
• Anything that encourages present spending is good, and anything that requires any present abstinence from spending right now is evil and must not be permitted
• The only real benefit we might get from capital formation is in present spending for capital goods.

Given that Krugman already has called for the Fed to finance present government spending via Fed purchases of federal debt in the primary market, we know where this whole thing is headed. In fact, as Krugman says, our problem right now is that the federal debt needs to be greater, as we need to borrow trillions of dollars more:

And just to be clear, the danger for next year is not that the deficit will be too large but that it will be too small, and hence plunge America back into recession.

 The last statement really should leave us in a quandary, for earlier in this column, Krugman attacked the "tax cuts for the wealthy" (or what we call Democratic talking points) as helping to create deficit conditions. However, given that we need larger deficits, why raise tax rates at all? If we can borrow at no appreciable opportunity cost -- And what self-respective Keynesian ever would think that government spending always trumps the Law of Scarcity? -- why should we worry if tax rates are "too low"?

As Krugman declares:

This wouldn’t be hard if they had been making a more honest case on the budget: the truth is that deficits are actually a good thing when the economy is deeply depressed, so deficit reduction should wait until the economy is stronger. As John Maynard Keynes said three-quarters of a century ago, “The boom, not the slump, is the right time for austerity.”

 So, Krugman seems to be operating at cross purposes with himself. Using his own logic, it would be stupid to raise income taxes on anyone or to jack up taxes on investment because deficits during a depression are "a good thing." But we have to remember that "Krugman Logic" is not based upon economics, but rather on left-wing politics.