Lies, damned lies, and Krugman

A nice turn of phrase is that. Can I follow it up with a clever post? Probably not, but I will try.

You got to hand it to Krugman. He will say anything to move the liberal ball down the field toward the goal line. The recent post, Nobody Understands Debt, does not square with reality. Either Krugman is totally deluded, or he's a big liar. Take your pick.

Here's the crux of Krugman's arguments:

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

As for the first point, how can Krugman ensure that the debt will grow more slowly than the tax base?  He can't, because the tax base must be connnected to economic growth.  According to these series of posts, it will be most unlikely that growth will resume to the level that Krugman envisions.  He compares the World War II debt accumulation to conditions of today.  That was a different time.  The population was younger and there was a baby boom shortly thereafter.  The opposite is true today.  Demographics do not favor us.   Secondly, the rest of the world was in shatters after the war.  We had no competitors.  Now, the rest of the world has caught up with us.  We have to compete and we may not be up to it.

The second point, is that we owe the money to ourselves.  This is a collectivist argument.  Debt is owed to somebody, not everybody.  Just as property should be owned by somebody, not everybody.  This kind of thinking usurps property rights.  Debts are owed and must be paid back.  Just because we owe it to other Americans doesn't make it any better than it it were owed to foreigners.  It is still owed.

Krugman knows these things, but he brushes them aside.  So, is he lying, or is he just foolish?

The recent recession began with a credit freeze.  Creditors won't lend if they can't get their investment back.  That's what brought on the freeze.  It can happen again.

What makes Krugman think that the government is going to get unlimited amounts of money anyway?  What stops us from becoming like Greece?  When it happens, it will happen fast.  Just a small increase in the interest rate will make the debt unserviceable.  When it begins to appear that way, the credit markets will rebel and we are in Greek territory.

Krugman is locked in his belief system.  He is fighting the last war, just like the generals at the beginning of World War II tried to refight the first World War.  It didn't work then and it won't work now.