Paul Krugman critics, including our own Joe Weisenthal, have jumped all over the Nobelist for his contention that we survived massive debts and deficits after World War 2, and we’ll survive them again this time.
Krugman, the critics said, ignores the fact that, after World War 2 ended, we simply cut war-spending, which returned the deficit to normal levels. This time, we won’t have war-spending to cut (not as much spending, anyway), so shrinking the deficit will be that much harder.
This morning, Krugman responded. It is true that we shrank the deficit by cutting World War 2 spending, he says, but this did nothing to help our massive debt. We dealt with the latter over the next decade, and we came through it just fine.
In general, we think Krugman gets too much crap for his debt-and-deficit arguments: He’s not saying our debt-and-deficits are a good thing. He’s saying they’re less bad than the alternative–which, in his view, would be another Great Depression.
In this case, however, we don’t think he has addressed the main thrust of the criticism, which is not about the debt we’ve piled up, but the difference between the deficit we have now versus the one we had in 1945–as well as the difference between consumers now and consumers then.
- In 1945, we had the war spending to cut. Right now, we don’t have massive war spending to cut. So how are we going to get the deficit back under control? Growth? Stimulus and entitlement cuts? Tax increases? All of the above? Krugman needs to address this.
- In 1945, consumers didn’t have debt coming out of their ears. The government was racking up huge debts in those days, but consumers weren’t. On the contrary, through the war years, consumers were barely spending at all, because there was nothing to buy. So, when the war ended, there was a lot of pent-up demand. Now, consumers have debt coming out of their ears.
Once the deficit is under control, the debt can be managed–Krugman is clearly right about that. And in his post this morning, he argues that the debt we’ll pile up now will be smaller than the debt we piled up after the war.
But Krugman still has yet to explain how we’re going to get the deficit under control, or how the economy will grow as strongly as it did when consumers had little debt and had experienced years of deprivation.
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