We liked this note that was sent out by SocGen’s Kit Juckes this morning:
It wouldn’t be Christmas without Paul Krugman telling the US government it’s OK to spend money. Krugman thinks that anyone who worries about a disaster coming from the scale of US debt is a doom-mongerer. Especially the WSJ.
That’s snarky, but that is what Krugman’s Christmas eve column is about.
Essentially it’s a reminder of one of his favourite topics: That the prophets of fiscal doom have been warning ever since the crisis that the large deficits were going to spark surging rates and bond vigilantes and fiscal crises and Greece-like outcomes and that none of it has come true.
But it’s not just that the prophets of doom are wrong, it’s that they’re completely blind to being wrong, or at least would never admit that they are. Hence the cult:
In any case, some of the most prominent deficit scolds have indeed been willing to talk about dates, or at least time horizons. In early 2011 Erskine Bowles confidently declared that we would face a fiscal crisis within around two years unless something like the Bowles-Simpson deficit plan was enacted, and Alan Simpson chimed in to say that it would be less than two years. I guess he has about 10 weeks left. But again, don’t expect either Mr. Simpson or Mr. Bowles to admit that there might have been something fundamentally wrong with their analysis.
No, very few of the prophets of fiscal doom have acknowledged the failure of their prophecies to come true so far. And those who have admitted surprise seem more annoyed than chastened. For example, back in 2010 Alan Greenspan — who is, for some reason, still treated as an authority figure — conceded that despite large budget deficits, “inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued.” But he went on to declare, “This is regrettable, because it is fostering a sense of complacency.” How dare reality not validate my fears!
The key thing we need to understand, however, is that the prophets of fiscal disaster, no matter how respectable they may seem, are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner, and they will hold to their belief no matter how many corners we turn without encountering that crisis.
And of course it’s not just what we’ve seen in the last few years.
We posted a clip yesterday showing Alan Simpson and other Senators in 1990 warning about deficits, and the need to rein in medicare, and how crucial it was to rein them in to foster job growth and all that. Once people get wedded to this idea, nobody ever changes their minds.