# For Krugman followers: How much debt would be acceptable? **URL:** \ **Category:** Great Debates\ **Created:** [August 1, 2011, 11:10pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106 "2011-08-01T23:10:01Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [August 2, 2011, 6:22pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/21 "2011-08-02T18:22:15Z")
Krugman simply is correct. The Japanese got in trouble when they cut spending and hunkered down. They stayed in trouble for 10 years. They discovered that policy actually suppresses demand. If they want the economy to take off, they have to increase demand. Demand is the economic trigger. That is where jobs are created. If the private sector can not or will not create jobs , all that is left is the government. If we increase spending on infrastructure , the money will actually create jobs and increase the tax base. That in turn cuts the deficits. Social Security, unemployment and programs for the poor, result in immediate spending and increased demand. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [August 2, 2011, 7:32pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/22 "2011-08-02T19:32:43Z")
Japan did not cut spending and hunker down. That is exactly the opposite of what happened. Japan kept spending and spending so now it has paved most of the country and has one of the highest debts in the world. Debt was around 75% of GDP in 1992 and is now around 225% of GDP. They have tripled their debt without producing the desired growth. Krugman may be conflating monetary policy, which Japan has been very stingy with, with fiscal policy which they have been very lavish with. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [August 2, 2011, 7:51pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/23 "2011-08-02T19:51:09Z")
Dear Mr Krugman: How are you? I am fine. The weather here is nice, if you like Calcutta. I am writing to urge you to do something that might be unpleasant, but necessary. It is clear, from **Sam** ’s blistering critique, that you know nothing whatsoever about economics. This fact is utterly incontestable, as he has so many solid references and citations, he hasn’t the room to list them all, and must content himself with simply asserting their existence. Apparently, the whole of academic economics regards you as a retard and a charlatan. For these reasons, I suggest you forward your Nobel Prize to him, forthwith and toot sweet. You can most likely send it General Delivery, Canada, by now they must all know who he is. ---
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [August 2, 2011, 7:58pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/24 "2011-08-02T19:58:36Z")
> [@Sam\_Stone](#): > > Krugman is simply wrong. He lives in a world where stimulus spending can be applied instantly, efficiently, and where there are no negative effects from running up more debt. He’s got columns and a blog. Can you support this with his words? (A. No, you can’t.) > [@](#): > > In the real world, this government had a hell of a time spending the amount of money it did get for a stimulus - some of it still isn’t spent. Mostly for two reasons: (1) the Obama Administration expected a V-shaped business-cycle-style recession, and excluded projects that would, in their expectation, wind up crowding out private spending once the recovery was well underway in 2010, and (2) the Obama Administration was oversensitive to the possibility that the stimulus would be tarred by claims of misuse. > [@](#): > > In addition, Krugman repeatedly refuses to accept the political reality that a stimulus much bigger than the one that passed was simply impossible to get through Congress. The guy lives in an ivory tower and issues edicts that the rest of the world can’t possibly live up to. Again, support with quotes. Good luck and happy hunting! > [@](#): > > If the stimulus just needed to be bigger, then if it should have been twice as big we should have seen half the effect from this one. But in fact, this 810 billion dollar stimulus simply _vanished_ into the economy. Studies of its effect have found that it did very little good at all. States that received stimulus money did not see their average purchasing go up _at all_ compared to states that received less. A lot of the money was used to raise salaries for government workers who are already making as much as two or three times the median wage. Cites for these claims? > [@](#): > > In the meantime, Krugman utterly refuses to acknowledge the recent academic literature showing that deficits are more destructive to an economy than previously thought. He has also ignored papers showing that countries with floating exchange rates and open economies tend to gain no output from fiscal stimulus. He has also ignored peer-reviewed analysis of previous stimulus programs that have found them to be ineffectual and have ‘multipliers’ below 1. > > Each time he was presented with those papers, he’d hand wave them away, stating that they have ‘obvious’ problems that he’d love to outline in detail if only he had the time. Please, give a for-instance of this waving-away, OK? ---
**Author:** ![Diogenes\_the\_Cynic](https://avatars.discourse-cdn.com/v4/letter/d/e99b99/32.png) [@Diogenes\_the\_Cynic](https://boards.straightdope.com/u/Diogenes_the_Cynic)\ **Post date:** [August 2, 2011, 7:59pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/25 "2011-08-02T19:59:55Z")
The money to pay the debt is out there, we just need to take it back from the people who have been stealing it for thirty years. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [August 2, 2011, 8:06pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/26 "2011-08-02T20:06:57Z")
nm ---
**Author:** ![Diogenes\_the\_Cynic](https://avatars.discourse-cdn.com/v4/letter/d/e99b99/32.png) [@Diogenes\_the\_Cynic](https://boards.straightdope.com/u/Diogenes_the_Cynic)\ **Post date:** [August 2, 2011, 8:08pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/27 "2011-08-02T20:08:36Z")
We just need enough to make the payments. That’s easy enough to do. We go back to Eisenhower level tax rates, and recover all the wealth which has been stolen since Reagan. ---
**Author:** ![Der\_Trihs](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/der_trihs/32/233_2.png) [@Der\_Trihs](https://boards.straightdope.com/u/Der_Trihs)\ **Post date:** [August 2, 2011, 8:11pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/28 "2011-08-02T20:11:14Z")
> [@Diogenes\_the\_Cynic](#): > > The money to pay the debt is out there, we just need to take it back from the people who have been stealing it for thirty years. Exactly. We’ve been letting the wealthy hog more and more of the national wealth, and it’s finally reaching a point where letting them freeload on the rest of is no longer supportable. We either raise taxes on them, make them pay their fair share or everything crashes down because the rest of us don’t have the money to support them anymore. ---
**Author:** ![Fotheringay-Phipps](https://avatars.discourse-cdn.com/v4/letter/f/d9b06d/32.png) [@Fotheringay-Phipps](https://boards.straightdope.com/u/Fotheringay-Phipps)\ **Post date:** [August 2, 2011, 8:11pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/29 "2011-08-02T20:11:20Z")
> [@elucidator](#): > > Dear Mr Krugman: How are you? I am fine. The weather here is nice, if you like Calcutta. > > I am writing to urge you to do something that might be unpleasant, but necessary. It is clear, from **Sam** ’s blistering critique, that you know nothing whatsoever about economics. This fact is utterly incontestable, as he has so many solid references and citations, he hasn’t the room to list them all, and must content himself with simply asserting their existence. Apparently, the whole of academic economics regards you as a retard and a charlatan. > > For these reasons, I suggest you forward your Nobel Prize to him, forthwith and toot sweet. You can most likely send it General Delivery, Canada, by now they must all know who he is. Cute, as always. But the fact is that Krugman’s Nobel is in international trade, which is less of a political hot button for him. He is a passionate liberal politically, and people’s political passions can sometimes get in the way of rational analysis, even when they are Nobel Prize winners. From the [farewell column](http://www.nytimes.com/2005/05/22/weekinreview/22okrent.html) by the former NYT ombudsman: > [@](#): > > Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 2, 2011, 8:13pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/30 "2011-08-02T20:13:39Z")
RTFirefly: I have repeatedly posted cites for all these claims. They generally get ignored, and then when another thread about the stimulus pops up I repeat the claims, only to be asked for the same cites - which get ignored again. So I’m not going to look them up and post them again. Feel free to search the SDMB for the other threads, and you’ll find cites a-plenty. ---
**Author:** ![Buck\_Godot](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/buck_godot/32/6573_2.png) [@Buck\_Godot](https://boards.straightdope.com/u/Buck_Godot)\ **Post date:** [August 2, 2011, 8:14pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/31 "2011-08-02T20:14:55Z")
> [@Sam\_Stone](#): > > In the real world, stimulus spending winds up in the hands of the politically powerful rather than invested in idle resources. Of course we all know that tax cuts all go to those people who need it most to really get this economy working, rather than to plutarchs who will sit on it until they see demand rise, at which point the economy has already recovered so its not needed. Anyone who says “now is not the time to raise taxes”, should also be forced to say “now is not the time to cut spending”. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 2, 2011, 8:17pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/32 "2011-08-02T20:17:10Z")
> [@elucidator](#): > > Dear Mr Krugman: How are you? I am fine. The weather here is nice, if you like Calcutta. > > I am writing to urge you to do something that might be unpleasant, but necessary. It is clear, from **Sam** ’s blistering critique, that you know nothing whatsoever about economics. This fact is utterly incontestable, as he has so many solid references and citations, he hasn’t the room to list them all, and must content himself with simply asserting their existence. Apparently, the whole of academic economics regards you as a retard and a charlatan. > > For these reasons, I suggest you forward your Nobel Prize to him, forthwith and toot sweet. You can most likely send it General Delivery, Canada, by now they must all know who he is. An appeal to authority is still an appeal to authority, no matter how many layers of snark you wrap it in. Do I win if I can post quotes by TWO Nobel Prize-winning economists who disagree with him? How about six? At what point does his Nobel stop being the secret weapon that is supposed to end all debate? How about if I post a quote from a Nobel prize winning macroeconomist? Does that trump his Nobel prize in trade theory? I’m just trying to understand the parameters of your appeal to authority so I can play the same game. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 2, 2011, 8:23pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/33 "2011-08-02T20:23:14Z")
> [@Buck\_Godot](#): > > Of course we all know that tax cuts all go to those people who need it most to really get this economy working, rather than to plutarchs who will sit on it until the economy has already recovered, and they see demand rise. > > Anyone who says “now is not the time to raise taxes”, should also be forced to say “now is not the time to cut spending”. I never said anything about tax cuts, and I’m opposed to further tax cuts. It’s very clear that the economy’s problem right now is not high taxes. it’s high deficits, uncertainty, a dysfunctional government that refuses to even pass budgets that businesses can plan around, and a regulatory state issuing orders willy-nilly without taking the time to define them so that business can understand what its future liabilities will be. But the biggest problem in the economy is the fact that Americans over-consumed for a decade and a half in the mistaken belief that they were richer than they were. Now the bills are coming due. There’s really no way out of that, you know. No amount of financial jiggery-pokery will magically make 10 to 20 trillion dollars in real wealth re-appear. So the economy WILL correct itself. Government attempts to prevent it will just turn a medium length sharper correction into an endless progression of debt, low growth, big government, and high unemployment. Or, it will turn a correction into an inflationary spiral or a credit crisis that creates a huge new problem on top of the old one. TAANSTAAFL - There ain’t no such thing as a free lunch. Words to live by. ---
**Author:** ![Diogenes\_the\_Cynic](https://avatars.discourse-cdn.com/v4/letter/d/e99b99/32.png) [@Diogenes\_the\_Cynic](https://boards.straightdope.com/u/Diogenes_the_Cynic)\ **Post date:** [August 2, 2011, 8:25pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/34 "2011-08-02T20:25:46Z")
We didn’t overconsume (except for Bush’s wars), we just undertaxed. We actually need to spend more, not less, and we need to stop giving the overclass a break on the rent. Their welfare days need to be over. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 2, 2011, 8:38pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/35 "2011-08-02T20:38:43Z")
Really? Not taxing the people enough caused a crash? That’s a…novel idea. It’s also hard to reconcile with the uncomfortable fact that just before the crash U.S. taxes as a percentage of GDP were well above the historical average. Kinda blows your thesis out of the water. Tax receipts NOW are at 60-year lows, but that’s because of multiple tax cuts as a ‘stimulus’ signed since 2008, coupled with a huge loss in revenue due to the steepest recession in 60 years coupled with an over-reliance on the taxes of the wealthiest Americans, who generally have the greatest ability to avoid taxes in a downturn due to capital losses. But just before the recession hit, tax revenues were above the historical average and rising. And right now, the White House is projecting that tax revenues will rise back to pre-recession levels and beyond by 2015 due to economic recovery. Of course, I don’t think that’s likely, but that’s what the Obama administration thinks. ---
**Author:** ![tim-n-va](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tim-n-va/32/3001_2.png) [@tim-n-va](https://boards.straightdope.com/u/tim-n-va)\ **Post date:** [August 2, 2011, 8:38pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/36 "2011-08-02T20:38:43Z")
What stimulates the economy is buying where there is a reasonable expectation that the buying is a trend not an aberration. (Does that mean that me buying porn has a double stimulus effect?) A government program that will provide a relatively long term income stream to an industry, business or person could have a positive effect. A governement program that is seen as a one-time gimmick, or one when money goes without contstraint to states (who use it to maintain their status quo spending, not to expand) or to individuals who act like individuals will have no positive effect. A tax rebate in uncertain times that causes people to try to save the tax rebate doesn’t help where a tax rebate where consumer confidence is on the margin of improving will. Relevent to this thread, it is not a question of how much, it is how the debt and/or stimulus is applied. ---
**Author:** ![Lantern](https://avatars.discourse-cdn.com/v4/letter/l/d26b3c/32.png) [@Lantern](https://boards.straightdope.com/u/Lantern)\ **Post date:** [August 2, 2011, 8:41pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/37 "2011-08-02T20:41:14Z")
> [@Sam\_Stone](#): > > Another paper by Christina and Paul Romer from last year found the same thing in reverse - tax increases cause a drag on the economy, but if the taxes are used to reduce the deficit, the drag vanishes. This implies that the economy ‘sees’ a deficit as if it was additional taxation. That negates the entire strategy of Keynesianism, which presupposes that borrowing money and spending it will act as a net injection of spending. But if people cut back their spending by an identical amount, no net increase happens. You just distort the economy and drive up government debt. Still peddling this nonsense? As I have explained several times, the RR paper has no implications for the desirability of a Keynesian stimulus. The idea that long-term deficits can cause a drag on the economy is more than a hundred years old and the RR paper is absolutely not some kind of new evidence for this proposition. Christina Romer has been a strong advocate for stimulus both inside and outside the administration. If her paper was some kind of devastating evidence against Keynesianism you would have thought she would have noticed by now. The rest of your arguments have also been discussed at length many times before. Do you think posting them again and again without modification makes them more convincing? ---
**Author:** ![Lantern](https://avatars.discourse-cdn.com/v4/letter/l/d26b3c/32.png) [@Lantern](https://boards.straightdope.com/u/Lantern)\ **Post date:** [August 2, 2011, 8:59pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/38 "2011-08-02T20:59:54Z")
Incidentally Krugman’s predictions and analysis about the economy over the last few years have pretty much been dead on: 1. He supported stimulus but was very loud and insistent very early on that the actual stimulus was far too small and had too many tax cuts and wouldn’t produce a real recovery. And indeed the stimulus helped to pull the US economy from recession and increased the growth rate without producing a robust recovery. 2. He predicted that the massive increase in the monetary base wouldn’t produce inflation because the economy was in a liquidity trap. His opponents have been crying hoarse about impending inflation for years and of course they have been proved wrong. 3. Similarly he said that higher government borrowing wouldn’t raise interest rates which has been exactly the case. His critics keep warning about rising bond rates which have never happened. 4. Finally he predicted that austerity measures in Britain would slow down their economy which is exactly what has happened over the last few quarters. ---
**Author:** ![Diogenes\_the\_Cynic](https://avatars.discourse-cdn.com/v4/letter/d/e99b99/32.png) [@Diogenes\_the\_Cynic](https://boards.straightdope.com/u/Diogenes_the_Cynic)\ **Post date:** [August 2, 2011, 9:06pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/39 "2011-08-02T21:06:21Z")
> [@Sam\_Stone](#): > > Really? Not taxing the people enough caused a crash? Yup. That plus Bush’s wars. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [August 2, 2011, 9:09pm UTC](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106/40 "2011-08-02T21:09:05Z")
> [@Lantern](#): > > Still peddling this nonsense? As I have explained several times, the RR paper has no implications for the desirability of a Keynesian stimulus. The idea that long-term deficits can cause a drag on the economy is more than a hundred years old and the RR paper is absolutely not some kind of new evidence for this proposition. Christina Romer has been a strong advocate for stimulus both inside and outside the administration. If her paper was some kind of devastating evidence against Keynesianism you would have thought she would have noticed by now. > > The rest of your arguments have also been discussed at length many times before. Do you think posting them again and again without modification makes them more convincing? And I’ve explained the relationship in the Romer paper before. In that very paper (which was written after she advocated for the stimulus), she admitted her surprise at the lack of negative effect of tax increases used to pay the deficit. She was also surprised by the magnitude of GDP contraction caused by exogenous tax increases that were NOT used to lower the deficit. And you’re misreading the paper if you think it has no implications for stimulus. The reason Romer and Romer looked only at ‘exogenous’ tax changes was not because they thought there was something special about them, but because it was easier to separate out tax effects when the cuts weren’t in response to other rapid changes in economic conditions. It was basically a way to remove noise from the data. You’re technically correct that since the paper didn’t look specifically at tax cuts intended as economic stimulus, you can’t draw firm conclusions about their effect as stimulative tools. But it also doesn’t mean it’s irrelevant to such discussions. In particular, the fact that applying taxes to debt didn’t result in GDP contraction while other taxes did is a very interesting result that bears further research, but if it holds up in the stimulus case, it would suggest that at least at the levels of debt measured in the paper, borrowing money for stimulus will have much less effect than you would think if it drives up the debt. [Previous page](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106.md?page=1) [Next page](https://boards.straightdope.com/t/for-krugman-followers-how-much-debt-would-be-acceptable/591106.md?page=3)