Paul Krugman: America's Not Broke - We Can Still Borrow Money

If banks and credit card companies are willing to lend you money, does that mean you're not broke?

According to Nobel laureate Paul Krugman, America is doing just fine financially because we're having no problem borrowing money:

[T]he nation is not, in fact, “broke.” The federal government is having no trouble raising money, and the price of that money — the interest rate on federal borrowing — is very low by historical standards. So there’s no need to scramble to slash spending now now now; we can and should be willing to spend now if it will produce savings in the long run.

You got that?

It warrants repeating, because the inanity on display is almost staggering: 'The federal government is having no trouble raising money...So there’s no need to scramble to slash spending now."

I guess in Krugman's view, governments shouldn't worry about their deficits until they have problems borrowing.

Should corporations and individuals manage their finances the same way? Isn't that in fact a large cause of the financial crisis that rocked our nation in 2008?

To put a finer note on the absurdity, a few paragraphs earlier, Krugman said, "[T]here are still moments when I find myself saying, 'They can’t really be that stupid.'”

This is how a feel virtually every time I read one of Krugman's columns or see him on television.

But there was more:

[W]hile the government does have a long-run fiscal problem, that problem is overwhelmingly driven by rising health care costs. The Congressional Budget Office expects Social Security outlays as a percentage of G.D.P. to rise 30 percent over the next quarter-century, as the population ages, but it expects a near doubling of the share of G.D.P. spent on Medicare and Medicaid.

So if you’re serious about deficits, you shouldn’t be pinching pennies now; you should be looking for ways to rein in health spending over the long term. [...]

Think of it this way: Congress could, with a stroke of a pen, cut Social Security benefits in half. But it couldn’t do the same with health spending: Medicare can’t suddenly start paying to replace only half a heart valve or mandate that bypass operations stop halfway through.

Readers are once again reminded that this man has a Nobel prize in economics and is widely-revered by liberals from coast to coast.

To begin with, reining in Medicare costs in the future will indeed require decisions to be made concerning what the program will and won't cover. Most experts agree the program can't go on forever without making such tough choices.

Krugman himself made this very point on ABC's "This Week" last November:

If they were going to do reality therapy, they should have said, OK, look, Medicare is going to have to decide what it's going to pay for. And at least for starters, it's going to have to decide which medical procedures are not effective at all and should not be paid for at all.

So, four months ago before the new Republican House was sworn in looking to cut spending, Krugman was all for Medicare reducing costs by making decisions concerning what procedures it will and won't cover.

But on Friday, as Republicans are pushing for very modest fiscal belt tightening, Krugman claimed Congress can't cut Medicare spending.

They can’t really be that stupid.

What shills like Krugman intentionally hide from Americans is what's called unfunded liabilities. These are the combined financial obligations of Social Security and Medicare in the future.

As the National Center for Policy Analysis reported in June 2009:

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars!  That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums.  Last year alone, this debt rose by $5 trillion.  If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both.

$107 trillion! That's almost eight times our current Gross Domestic Product!

Add to that the $14 trillion we currently owe, and the rose-colored budget projection by the White House of $7 trillion in additional debt creation in the next ten years, and we're really in the hole for $128 trillion or nine times GDP.

But don't worry. A famous Nobel laureate in economics says we're not broke because we can still borrow more.

And here's the punch line: the title of this article is "Dumbing Deficits Down."

Readers are once again reminded Krugman asked four weeks, "How can voters be so ill informed [sic]?"

Someone cue Alanis Morissette

Social Security Budget Banking/Finance Bailouts Economy New York Times
Noel Sheppard's picture

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