According to liberal economic Paul Krugman, a "third depression" will occur if nations tighten their belts and attempt to balance their budgets.
Forget about the riots in Greece over a social welfare system the government couldn't maintain or a $1.4 trillion annual U.S. budget deficit. Krugman claimed that the threat of deflation supersedes both of those results of runaway government spending - that is higher taxes in the long run and a debt to future generations.
In his June 28 column for The New York Times, Krugman wrote: "We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost - to the world economy and, above all, to the millions of lives blighted by the absence of jobs - will nonetheless be immense."
At the G-20 meeting in Toronto last week, European leaders encouraged fiscal discipline from the United States, while President Barack Obama pushed an opposite approach. That disappointed the Times columnist.
"And this third depression will be primarily a failure of policy," Krugman continued. "Around the world - most recently at last weekend's deeply discouraging G-20 meeting - governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending."
Krugman has rarely been concerned by government debt, unless it was for a war or could be used to bash former President George W. Bush. Maintaining his spendthrift perspective, he insisted the concerns raised over government spending have nothing to do with a genuine concern for the financial insolvency of the government or the threat of runaway inflation, but were part of an irrational "orthodoxy."
"So I don't think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs," Krugman wrote. "It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times. And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again."
For 2010, the federal deficit, as a percentage of U.S. gross domestic product is a whopping 10.64 percent, the highest since 1945 in the midst of World War II - an imbalance that worries many people, just not Krugman.
Over the past couple years, Krugman has been an outspoken advocate of government stimulus spending, criticized a $775 billion stimulus plan for being too small, called for a second stimulus, and even claimed in 2008 that "we probably have $10 trillion of running room" when asked how much the government could spend to turn the economy around.