World’s Biggest Economic Sophist On Why Deficits Don’t Matter

February 5, 2010 at 10:00 am  ·  Category: Macro Economics

These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit.  The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world.  These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others.  Instead, they’re reported as if they were facts, plain and simple.

Yet they aren’t facts.  Many economists take a much calmer view of budget deficits than anything you’ll see on TV.  Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates.  The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.

So why the sudden ubiquity of deficit scare stories?  It isn’t being driven by any actual news.  It has been obvious for at least a year that the U.S. government would face an extended period of large deficits, and projections of those deficits haven’t changed much since last summer.  Yet the drumbeat of dire fiscal warnings has grown vastly louder.

To me — and I’m not alone in this — the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war.  Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt.  Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency.  Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.

And fear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction.

– Paul Krugman, “Fiscal Scare Tactics”, The New York Times, February 5

This is a classic Krugman piece and why I love reading him so much.  The guy attacks people concerned with the deficits as pure rhetoriticians while making no arguments to support his claim that the long term deficit is not that big of a problem.  He criticizes them as rhetoriticians while relying entirely on rhetoric himself!  That’s why he is the premiere economic sophist today.  He always does this.

What is the argumentative strategy?  Compare the current concern with budget deficits to concerns about Saddam’s WMDs back in 2003.  Of course, there were no WMDs and that whole episode is a sorry one.  The basic fallacy here is called false analogy.  It’s so transparent as to be ridiculous.  But maybe some people buy it.

Krugman concludes todays piece this way:

The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument.  And that is having tragic consequences.

For the fact is that thanks to deficit hysteria, Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there’s hardly any willingness to tackle mass unemployment. Policy is headed in the wrong direction — and millions of Americans will pay the price.

Indeed it does appear that many people have a hard time distinguishing cynical posturing and serious economic argument.  Paul Krugman has a job for just that reason.

Posted by Greg Feirman  ·  Trackback URL  ·  Link