By PAUL
KRUGMAN
The New
York Times
Once upon a
time, walking around shouting “The end is nigh” got you labeled a kook, someone
not to be taken seriously. These days, however, all the best people go around
warning of looming disaster. In fact, you more or less have to subscribe to
fantasies of fiscal apocalypse to be considered respectable.
And I do
mean fantasies. Washington has spent the past three-plus years in terror of a
debt crisis that keeps not happening, and, in fact, can’t happen to a country
like the United States, which has its own currency and borrows in that
currency. Yet the scaremongers can’t bring themselves to let go.
Consider,
for example, Stanley Druckenmiller, the billionaire investor, who has lately
made a splash with warnings about the burden of our entitlement programs. (Gee,
why hasn’t anyone else thought of making that point?) He could talk about the
problems we may face a decade or two down the road. But, no. He seems to feel
that he must warn about the looming threat of a financial crisis worse than
2008.
Or consider
the deficit-scold organization Fix the Debt, led by the omnipresent Alan
Simpson and Erskine Bowles. It was, I suppose, predictable that Fix the Debt
would respond to the latest budget deal with a press release trying to shift
the focus to its favorite subject. But the organization wasn’t content with
declaring that America ’s
long-run budget issues remain unresolved, which is true. It had to warn that
“continuing to delay confronting our debt is letting a fire burn that could get
out of control at any moment.”
As I’ve
already suggested, there are two remarkable things about this kind of
doomsaying. One is that the doomsayers haven’t rethought their premises despite
being wrong again and again — perhaps because the news media continue to treat
them with immense respect. The other is that as far as I can tell nobody, and I
mean nobody, in the looming-apocalypse camp has tried to explain exactly how
the predicted disaster would actually work.
On the
Chicken Little aspect: It’s actually awesome, in a way, to realize how long
cries of looming disaster have filled our airwaves and op-ed pages. For
example, I just reread an op-ed article by Alan Greenspan in The Wall Street
Journal, warning that our budget deficit will lead to soaring inflation and
interest rates. What about the reality of low inflation and low rates? That, he
declares in the article, is “regrettable, because it is fostering a sense of
complacency.”
It’s
curious how readily people who normally revere the wisdom of markets declare
the markets all wrong when they fail to panic the way they’re supposed to. But
the really striking thing at this point is the date: Mr. Greenspan’s article
was published in June 2010, almost three and a half years ago — and both
inflation and interest rates remain low.
So has the
ex-Maestro reconsidered his views after having been so wrong for so long? Not a
bit. His new (and pretty bad) book declares that “the bias toward unconstrained
deficit spending is our top domestic economic problem.”
Meanwhile,
about that oft-prophesied, never-arriving debt crisis: In Senate testimony more
than two and half years ago, Mr. Bowles warned that we were likely to face a
fiscal crisis within around two years, and he urged his listeners to “just stop
for a minute and think about what happens” if “our bankers in Asia” stop buying
our debt. But has he, or anyone in his camp, actually tried to think through
what would happen? No, not really. They just assume that it would cause soaring
interest rates and economic collapse, when both theory and evidence suggest
otherwise.
Don’t
believe me? Look at Japan , a
country that, like America ,
has its own currency and borrows in that currency, and has much higher debt
relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe
has, in effect, engineered exactly the kind of loss of confidence the debt
worriers fear — that is, he has persuaded investors that deflation is over and
inflation lies ahead, which reduces the attractiveness of Japanese bonds. And
the effects on the Japanese economy have been entirely positive! Interest rates
are still low, because people expect the Bank of Japan (the equivalent of our
Federal Reserve) to keep them low; the yen has fallen, which is a good thing,
because it make Japanese exports more competitive. And Japanese economic growth
has actually accelerated.
Why, then,
should we fear a debt apocalypse here? Surely, you may think, someone in the
debt-apocalypse community has offered a clear explanation. But nobody
has.
So the next
time you see some serious-looking man in a suit declaring that we’re teetering
on the precipice of fiscal doom, don’t be afraid. He and his friends have been
wrong about everything so far, and they literally have no idea what they’re
talking about
No comments:
Post a Comment