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Wednesday, May 25, 2011

"Debt Arithmetic"

Paul Krugman:

Debt Arithmetic (Wonkish): The whole tone of current discussion about deficits is one of urgency: deficits must be brought down now now now or crisis looms. Where is this coming from? Not from the arithmetic..., even with substantial deficits, the pace of long-term budget worsening is very slow. If it’s a debt death spiral, it’s a slooooowww motion death spiral. ...
As I’ve often written, we’re in a strange state now where people who actually take textbook economics and simple arithmetic seriously are seen as dangerously radical and irresponsible, while people who believe in invisible bond vigilantes and confidence fairies, who claim to know what the market will want even though there’s no sign of that desire in current asset prices, are viewed as Very Serious.
Anyway, the arithmetic of debt is much less scary than you might think.

I came to the same conclusion, there's nowhere near the urgency that deficit hawks claim. Brad DeLong says "Paul Krugman vastly understates his case."

    Posted by on Wednesday, May 25, 2011 at 12:33 AM in Budget Deficit, Economics, Politics | Permalink  Comments (77)


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