I think Paul Krugman needs to get out and about a little more often. In his recent column he writes about Obama’s worries about the growing national debt:
But in a recent interview with Fox News, the president sounded diffident and nervous about his economic policy. He spoke vaguely about possible tax incentives for job creation. But “it is important though to recognize,” he went on, “that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”
Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.
Maybe he needs to talk to some different economists. Of course even among the ones he talks to, it’s only “most” who agree with him.
Is it possible that Krugman is wrong? Or maybe he’s right after all. It would be nice to cite some empirical evidence. I don’t think there is much on either side that is definitive. So we are left with what economists believe.
Or maybe he should talk with some of his colleagues on the staff at the New York Times. Edmund Andrews writes:
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
Then he writes:
The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
I think the first sentence is basically accurate—it is widely judged that way. Could be wrong of course. And it would be nice to have some empirical evidence that it was necessary to spend $1.4 TRILLION last year, above and beyond what was taken in in tax revenue.