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Comment by j_baker | Hacker News Reader

This is a strawman argument. Krugman isn't trying to say that the debt isn't important. What he's been saying is that normal fiscal policy doesn't apply in the current crisis: http://www.nytimes.com/2008/11/14/opinion/14krugman.html?_r=...

In particular, there's a reason interest rates are adjusted regularly: in different economic situations, you need different interest rates. Were interest rates too low before the current crisis? Probably. That's mostly academic now though. What matters is what interest rates should be at now. And our economy is in totally different shape since before the crisis. What made sense then isn't necessarily good policy now.

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However, if following his advice in the past has led the world to financial ruin, wouldn't it be logical to question his assessment of the current situation?

Absolutely. But in and of itself, that doesn't make him wrong.

His advice was not followed in the past.

The Keynesian prescription, basically, is for the government to run deficits during recessions and to pay back those loans when the economy recovered. During the 2000 Presidential campaign and the first three-quarters of Bush 44’s Administration, Krugman excoriated Bush’s economic policies, because those policies were running up the national debt to unprecedented levels while the economy was going well and the country could have afforded to pay down the debt.

The last Bush+Republican Congress deficit was $100B and was on track to surpluses in the following years. (It had been decreasing for a couple of years by that point.)

Krugman complained bitterly.

The first Bush+Dem Congress deficit, before the current crisis, was significantly larger than $100B.

Krugman didn't make a peep.

The Keynesian prescription is fatuous because, with rare exceptions, politicians never are willing to stop the flow of goodies that get them elected (tax and borrow, spend, elect).

Sure, in theory, it might work to smooth out the normal business cycle (although I have serious doubts about its applicability to catastrophes, e.g. pushing on a string), but in normal circumstances it's a recipe for ever increasing sovereign government debt in the hands of mortal humans.

The governments of the world have had plenty of time since Keynes to spend themselves into insolvency, and they haven’t done so yet. The US debt-to-GDP ratio dropped steadily between the end of WW2 and the Reagan administration, and dipped again during the Clinton administration. The UK ratio dropped from the end of WW2 until around 1975, held steady, and then had another dip around 1985–1990. Canada’s ratio has been declining gradually since around 1995; the nominal debt has been pretty much steady, but GDP has risen.

So it looks to me like politicians are frequently resisting the temptation to borrow as much money as they can throw at their constituents.

How about the PIGS, just for starters (http://en.wikipedia.org/wiki/PIGS_%28economics%29)? Not all the world is part of the Anglosphere like the US, U.K. and Canada.

At the worst reasonable end, what about Argentina? They were epsilon from becoming a developed country ... when Peron gained power.

Or Japan. Do you really expect them to pay back their debt, with a rapidly aging population that's actually been decreasing in absolute and accelerating terms since 2007 (http://en.wikipedia.org/wiki/Demographics_of_Japan#Populatio...)?

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