Paul Krugman’s Beard

So Dilbert had some fun today at Paul Krugman’s expense, suggesting that he’s mostly listened to because, like any good economist, he has a beard.  Krugman’s response was to be flattered and honored–he thought it was funny. Dilbert’s making fun of me!  Yay!  Sort of a badge of honor, like appearing on Colbert.

But it did foster the impression that Krugman–and other neo-Keynesians–aren’t serious people.  Krugman has fun with that idea too–calls the recent success of the most basic kind of IS/LM macroeconomic models ‘the triumph of the Hippies.’  But the grim reality is, the Hippies actually have been right in these macroeconomic debates, while the Establishment types–led, perhaps, by Paul Ryan–haven’t fared so well.

On Sunday, I watched, as I do every Sunday, the political talk shows, especially This Week with George Snuffleupagus.  This week, they billed it as the Ultimate Showdown–Karl Rove, going head to head with David Plouffe.  Blarg.  Shoot me right now.  It was as tediously tendentious as anyone might have predicted.  And of course, one main argument was over the economy.  And most of the panelists (Krugman wasn’t there, obviously), agreed on the basics–the federal deficit and debt are the really super important issues to be dealt with right now.  That our current debt levels are unsustainable.  That we need to cut loads of spending, right now, immediately.  And that stimulative spending didn’t work, and raising the minimum wage would increase inflation and unemployment.  That’s what passes for Beltway conventional wisdom, after all.

What nobody has been able to identify is a single actual problem the debt is causing right now.  Yes, interest on the debt is a budget item, and it would be crowding out other discretionary spending if we didn’t borrow more to cover it. But if debt were so terribly dangerous, we’d be seeing that danger in higher interest rates, and in rising inflation, perhaps even in hyper-inflation.  And of course, interest rates and inflationary rates are both very very low.

The thing is, if, as David Plouffe kept insisting, the President has a laser focus on the economy, great.  He should have.  And if he’s really listening to ordinary people, he would know (and I think actually does know) that what people want are jobs. Everyone knows someone who is out of work–everyone can tell a story of human misery caused by low employment. Unemployment is the economic problem people want to see solved.  Unemployment is hurting people, is hurting families, is hurting children, is hurting recent college graduates.  We need jobs.  And the economy remains in a liquidity trap, where monetary policy won’t do the job on its own.  What’s needed is more stimulus.  And, you know, maybe some stimulative spending in the area of infrastructure wouldn’t be a bad idea. What with bridges collapsing and tornadoes wreaking havoc and all.

So I was chatting with a friend today on Facebook–a friendly chat, I promise–and he was all gloom and doom.  Unsustainable debt.  No mechanism to repay it.  What about the children!?!?!?  And I totally get his point of view.

The fact is, if the federal government were a family, it’d be completely underwater. No family could possibly manage their affairs like this; spending way more money than you’re bringing in would be a recipe for disaster.  Interest rates would kill you.  We’re charging all this money to the national credit card.  That’s terrible policy.  And our grandchildren are going to be stuck with the tab.

But the federal government isn’t a family, doesn’t act like a family, shouldn’t even try to.  For one thing, families can’t start wars. But government has the ability to borrow very large amount of money to deal with national emergencies.  The government has the ability to print more money.  The government has the ability to tax.  All those powers can be exercised foolishly.  But there’s no evidence, none, to suggest that they’re being exercised foolishly right now.

So the economy is in fact growing, and the deficit is in fact diminishing, projected at around 600 billion, way lower than at any time in years.and employment is in fact expanding.  All of that recovery is happening more slowly than anyone would like.  But it is all happening, and all indications are that it will continue to happen.  The bearded guys did seem to have gotten it right.  Dilbert’s wrong to mock them.

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