Time for an old fashioned fisking

Blogs haven't been around that long, maybe a decade.  The old time blogs used to have their own language, but you don't see much of that anymore.  One such term, called Fisking, was used in describing a 100% deconstruction of a poorly constructed argument.  One such argument seems to have been put forth by our dear friend, Paul Krugman.  Let's see how I do in fisking his argument.  He starts off well enough, as follows:

From G.D.P. to private-sector payrolls, from business surveys to new claims for unemployment insurance, key economic indicators suggest that the recovery may be sputtering.

And it wasn’t much of a recovery to start with. Employment has risen from its low point, but it has grown no faster than the adult population. And the plight of the unemployed continues to worsen: more than six million Americans have been out of work for six months or longer, and more than four million have been jobless for more than a year. 

A fair description of our current situation, but here is where he veers off the road:

It would be nice if someone in Washington actually cared.

It’s not as if our political class is feeling complacent. On the contrary, D.C. economic discourse is saturated with fear: fear of a debt crisis, of runaway inflation, of a disastrous plunge in the dollar. Scare stories are very much on politicians’ minds.

Yet none of these scare stories reflect anything that is actually happening, or is likely to happen. And while the threats are imaginary, fear of these imaginary threats has real consequences: an absence of any action to deal with the real crisis, the suffering now being experienced by millions of jobless Americans and their families.

A lack of caring can take more than one form.  Krugman doesn't care about debt, but he should.  After all, it was a debt problem that got this recession on the road.  I can recall it vividly in 2007.  When I first heard of the freeze in the credit markets, I knew recession was inevitable.  All the caring in the world wasn't going to stop it.  The only way to ease it was to assure the markets that the debts could be made good.   The government did that, but at a fearful price.  It took the burden upon itself of righting the ship, but in the process, has now begun taking on water itself.  But Krugman isn't worried about this.  But there have been rumblings across the globe about this runaway spending.  What happens if the rest of the world decides that we can't pay our debts?

What does Washington currently fear? Topping the list is fear that budget deficits will cause a fiscal crisis any day now. In fact, a number of people — like Erskine Bowles and Alan Simpson, the co-chairmen of President Obama’s debt commission — have settled on a specific time frame: terrible things will happen within two years unless we make drastic spending cuts.

I have no idea where that two-year deadline comes from. After all, what we do in the next couple of years hardly matters at all for U.S. solvency, which mainly depends on what we’ll do in the long run about Medicare and taxes. And, for what it’s worth, actual investors — people putting real money on the line — are notably unworried about any near-term fiscal crisis: the Treasury Department continues to have no trouble selling debt and remains able to borrow very cheaply, indicating high confidence on the part of investors that debts will be repaid in full.
 

Who's buying the debt?  Has Krugman ever heard of quantitative easing?  That's how the government is financing itself these days.  The only reason the government can borrow cheap is that it is borrowing from itself.  Indeed, the monetization of debt is a sure sign of grave distress.  Even during the Great Depression, the government wasn't doing this.  It is a new phenomenon, at least in the United States.  Once upon a time, the Southern States seceded from the Union.  But they had financial problems.  What did they do?  Why they printed money, of course.  This is what happens when governments start to fail.  But Krugman isn't worried about this?

Do the scare-mongers even believe their own stories? Maybe not. As Jonathan Chait of The New Republic notes, the politicians most given to apocalyptic rhetoric about the deficit are also utterly opposed to any tax increase; they argue that debt is destroying America, but they’d rather let that happen than accept even a dime of higher taxes. Yet the inconsistency and probable insincerity of their fear-mongering hasn’t stopped it from having a huge effect on policy debate.

No, obviously not.  Anybody worried about this is a fear monger.  Raising taxes may help a little.  I suspect that it won't though.  The problem is a hostile attitude toward growth.  Amongst the left, there is this great dislike of any notion that people should actually get rich.  That we must have a "sustainable" economy.  Hence the blockade upon pro growth policies.  Higher taxes and higher regulations.  Let's not grow, let's regulate and "spread the wealth".  No mention of creating new wealth.  Does Krugman really believe that raising taxes and creating vast new debt is going to create wealth?  That is not his argument.

The deficit isn’t the only unfounded fear. I’ve written before about misguided inflation fear, but, for now, let me focus on a new issue that has suddenly begun to loom large in opinion pieces and remarks on talk shows: fear of a disastrous plunge in the dollar. (Who sends out the memos telling people what to worry about, and why don’t I get them?)

What you would never know from all the agitated dollar discussion is that the recent dollar slide is actually tiny compared with big drops in the past, notably under the administration of George W. Bush and during Ronald Reagan’s second term. And you’d also never know that those earlier dollar slides, far from hurting the economy, were beneficial, because they helped U.S. manufacturing compete on world markets.
 

So, his argument is for a cheaper dollar.  This hardly reassures those who worry about the plunge in the dollar that has already occurred.  Continuing this policy, which has not really worked over the past decade, should not be what the doctor ordered.  But that appears to be what this doctor is ordering.

He claims that this fear is unfounded, but that is precisely how we got into this mess in the first place.  When you can't pay debts, you lose your credit privileges.   Isn't Krugman worried about this?  No.  He is worried about unemployment.  But who isn't?  It just so happens that repeating the same policies that got us in this mess won't help unemployment.  Instead, we should have a growth policy.  The only growth Krugman wants is growth in debts and taxes.

Which brings me back to the destructive effect of focusing on invisible monsters. For the clear and present danger to the American economy isn’t what some people imagine might happen one of these days, it’s what is actually happening now.

Unemployment isn’t just blighting the lives of millions, it’s undermining America’s future. The longer this goes on, the more workers will find it impossible ever to return to employment, the more young people will find their prospects destroyed because they can’t find a decent starting job. It may not create excited chatter on cable TV, but the unemployment crisis is real, and it’s eating away at our society.
 

Of course unemployment is real.  The disagreement is over how to address this issue.  Debt is real too.  Unless you don't intend to pay your debts.  Which leads to a debt problem when you can't get credit.

Yet any action to help the unemployed is vetoed by the fear-mongers. Should we spend modest sums on job creation? No way, say the deficit hawks, who threaten us with the purely hypothetical wrath of financial markets, and, in fact, demand that we slash spending now now now — which might well send us back into recession. Should the Federal Reserve do more to promote expansion? No, say the inflation and dollar hawks, who have been wrong again and again but insist that this time their dire warnings about runaway prices and a plunging dollar really will be vindicated. 

It is an old argument.  What causes growth?  Does the government create jobs or does the private sector? Does increasing debt without limit create jobs, or does investment that creates growth.  Is the private sector more competent in creating growth, or is the government?  We've seen two years of this, but results are less than impressive, except in the rate of growth of debt.

He finishes by scolding the political class for not caring enough.  Therefore, they should spend more and not worry.

So we’re paying a heavy price for Washington’s obsession with phantom menaces. By looking for trouble in all the wrong places, our political class is preventing us from dealing with the real crisis: the millions of American men and women who can’t find work.

Is rising debt a phantom menace?  I suppose people can disagree.  I think that it is a real menace that must be addressed now.  In order to maintain credit privileges, one has to demonstrate the integrity and the ability to repay the loan.  At some point, if the debtor has shown no discipline in controlling his own appetites and begins to show the inability or unwillingness to repay his debts, he will lose that privilege.  It is this that Washington should fear.  What is needed is a strong growth policy.   A policy that will encourage growth, not debt.  One that ensure that our debts will be paid and that is what will enable us to borrow what we need to do the spending that is necessary.