Professor Krugman:
(Deficit Hawks) have cried wolf too many times. They’ve
spent three years warning of imminent crisis — if we don’t slash the
deficit now now now, we’ll turn into Greece, Greece, I tell you. It is,
for example, almost two years since Alan Simpson and Erskine Bowles
declared that we should expect a fiscal crisis within, um, two years.
But that crisis keeps not happening. The still-depressed economy has
kept interest rates at near-record lows despite large government
borrowing, just as Keynesian economists predicted all along. So the
credibility of the scolds has taken an understandable, and
well-deserved, hit.
...(B)oth deficits and public spending as a share of G.D.P. have
started to decline — again, just as those who never bought into the
deficit hysteria predicted all along.
The truth is that the budget deficits of the past four years were mainly
a temporary consequence of the financial crisis, which sent the economy
into a tailspin — and which, therefore, led both to low tax receipts
and to a rise in unemployment benefits and other government expenses. It
should have been obvious that the deficit would come down as the
economy recovered. But this point was hard to get across until deficit
reduction started appearing in the data.
Now it has — and reasonable forecasts, like those of Jan Hatzius of
Goldman Sachs, suggest that the federal deficit will be below 3 percent
of G.D.P., a not very scary number, by 2015.
And it was, in fact, a good thing that the deficit was allowed to rise
as the economy slumped. With private spending plunging as the housing
bubble popped and cash-strapped families cut back, the willingness of
the government to keep spending was one of the main reasons we didn’t
experience a full replay of the Great Depression...
Read Krugman's entire piece
HERE @NYTs.
