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Friday, October 25, 2013

Paul Krugman: Addicted to the Apocalypse

Why is Chicken Little so popular?:

Addicted to the Apocalypse, by Paul Krugman, Commentary, NY Times: Once upon a time, walking around shouting “The end is nigh” got you labeled a kook... These days, however,... you more or less have to subscribe to fantasies of fiscal apocalypse to be considered respectable.
And I do mean fantasies. Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency. Yet the scaremongers can’t bring themselves to let go.
Consider, for example, Stanley Druckenmiller... Or consider the deficit-scold organization Fix the Debt, led by the omnipresent Alan Simpson and Erskine Bowles. ... [gives examples of doomsaying] ...
As I’ve already suggested, there are two remarkable things about this kind of doomsaying. ... On the Chicken Little aspect: It’s actually awesome, in a way, to realize how long cries of looming disaster have filled our airwaves and op-ed pages. For example, I just reread an op-ed article by Alan Greenspan ... warning that our budget deficit will lead to soaring inflation and interest rates ... published in June 2010... — and both inflation and interest rates remain low. So has the ex-Maestro reconsidered his views after having been so wrong for so long? Not a bit. ...
Meanwhile, about that oft-prophesied, never-arriving debt crisis:... two and half years ago, Mr. Bowles warned that we were likely to face a fiscal crisis within around two years... They just assume that it would cause soaring interest rates and economic collapse, when both theory and evidence suggest otherwise. ...
Look at Japan, a country that, like America, has its own currency and borrows in that currency, and has much higher debt relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe has, in effect,... persuaded investors that deflation is over and inflation lies ahead, which reduces the attractiveness of Japanese bonds. And the effects on the Japanese economy have been entirely positive! ...
Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.
So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally have no idea what they’re talking about.

    Posted by on Friday, October 25, 2013 at 12:33 AM in Budget Deficit, Economics, Inflation, Politics | Permalink  Comments (67)

          


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