Friday, 2 October 2009

Debt Is Not a Dirty Word, and the Recession is Not Over--Paul Krugman

A warning from Paul Krugman today: deficit is not a dirty word, debt is not necessarily bad, and the recession is not over yet.

He says that now is not the time to switch from worrying about priming the pump (to use that old New Deal metaphor, that I bet very few people can visualize these days: the photo at right is from India but I remember my grandmother having one like it.) He writes:

“You see, spending money now means a stronger economy, both in the short run and in the long run. And a stronger economy means more revenues, which offset a large fraction of the upfront cost. Back-of-the-envelope calculations suggest that the offset falls short of 100 percent, so that fiscal stimulus isn’t a complete free lunch. But it costs far less than you’d think from listening to what passes for informed discussion.

Look, I know more stimulus is a hard sell politically. But it’s urgently needed. The question shouldn’t be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no. “

This is right in line with Lee’s concern about the success of Margaret Atwood’s book of Massey Lectures, Pay Back . He fumed while he listened to the first three lectures broadcast on the CBC last November, and now says she has done a terrible disservice in not pointing out the economic repercussions of debt. Debt is another name for investment, he says, and the world needs a lot of that. He would agree with Krugman that it’s not the time to obsess about how we’re going to pay back what has been invested while we struggle with the financial crisis, brought on by a bunch of people who were too greedy/ideological to see where we were headed.

If all that has happened isn't enough to put you off conservative ideas for life, here's a delightful sketch from Rick Mercer. The context is Canadian but you can apply it south of the border too. (Thanks to Penney Kome for the link.)

1 comment:

Lord of Wealth/Green Assassin Brigade said...

I have to disagree, there is a point where future growth created by priming the pump can no longer cover the carrying charge of the debt one has built up. While not quite there in Canada the U.S. is getting the point where the debt can never be covered without debasing the dollar and punishing those who were rational enough to save rather than spend. U.S. Unfunded liabilties are over 60 trillion or nearly 5 x GDP, and even at a clearly unattainable growth level Tax revenue will never keep up.

You have to remember that the west has been priming the pump for 30 years and living beyonds its means, sure you can prime it again but you just push back the fall a little, not solve the problem, over consumption and over blow expectation.

The priming the pump arguement is an acceptance of the belief that endless growth is possible, the worlds resource and financial base simply cannot keep up.