Paul Krugman: Borrow!

I was toying with the idea of using Paul Krugman's latest opinion piece in the "Today's news" post, but it takes a full post to point out all the logical inconsistencies and fallacies in one Krugman piece.

Even the title of Krugman's New York Times editorial, "Time to Borrow", shows you that a $20 trillion debt load is not enough for America. But I will let him dig his own hole:

The campaign still has three ugly months to go, but the odds — 83 percent odds, according to the New York Times’s model — are that it will end with the election of a sane, sensible president.

In case you aren't familiar with Krugman, he means the Democrat. In this case, Hillary Clinton, although he would mean any Democrat. If the Democrats nominated a squirrel, he would still be referring to the squirrel as a "sane, sensible president".

...So what should she do to boost America’s economy, which is doing better than most of the world but is still falling far short of where it should be?

Exactly how does he know WHERE the U.S. economy should be? What if it is exceeding where it should be? Or is he saying that President Obama is underperforming? You heard it here first folks! This should be a headline: "Krugman blames Obama for underperforming economy".

There are, of course, many ways our economic policy could be improved. But the most important thing we need is sharply increased public investment in everything from energy to transportation to wastewater treatment.

Read: More government!

But how do we pay for this Dr. Strangelove...er, Dr. Krugman?

We shouldn’t — not now, or any time soon. 

(Or ever.)

Right now there is an overwhelming case for more government borrowing. 

I guess this is what he meant by "Time to Borrow"?

First, we have obvious, pressing needs for public investment in many areas. In Washington, the aging Metro is in such bad shape that whole lines may have to be shut down for maintenance. In Florida, green slime infests beaches, in large part because failure to upgrade an 80-year-old dike or to purchase more land as a runoff area is forcing the Army Corps of Engineers to release polluted water from Lake Okeechobee. There are similar stories all across America. 

Krugman completely misses the irony in his comment about Lake Okeechobee. The dike was originally a Herbert Hoover project. Yes folks, this was a big government project that is failing. So how do we fix it? More government spending! If at first you don't succeed, spend more until you do!

Mind you, even if they fix the Lake Okeechobee dike, it will fail again. And they will spend more to fix it again.

So investing more in infrastructure would clearly make us richer. 

No, it will actually make us spend more later.

Meanwhile, the federal government can borrow at incredibly low interest rates: 10-year, inflation-protected bonds yielded just 0.09 percent on Friday.

This is where the great economist shows his own economic failing. What happens when the government creates more debt? It removes investment funds from the economy to fund the debt. Large investors will happily buy government debt, because it is the safest game in town, even at absurdly low rates of return. So instead of investing in venture capital, or loaning money to fund new business formation, investment banks and large investors buy government bonds instead. That large sucking sound you hear is the government vacuuming up every available economic dollar.

Put these two facts together — big needs for public investment, and very low interest rates — and it suggests not just that we should be borrowing to invest, but that this investment might well pay for itself even in purely fiscal terms. How so? Spending more now would mean a bigger economy later, which would mean more tax revenue. 

When we are $20 trillion in debt, he says we have "big needs for public investment"? It looks like the money already spent was wasted if we still have "big needs". The old saying goes "When you find yourself in a hole, quit digging." The Krugman Corollary to that is, "When you find yourself in a hole, dig faster."

If we buy his premise, that spending more means a bigger economy later, which then leads to more tax revenue, why not just spend $100 trillion now? Because he knows there is a speed limit called "hyperinflation", which will crash the economy.

This additional [tax] revenue would probably be larger than any rise in future interest payments.

I like how he hedges that: "would probably". In other words, he has no freaking clue. But his Nobel Prize winning "wild-assed guess" is supposed to be better than ours?

And this analysis doesn’t even take into account the potential role of public investment in job creation: Despite a low headline unemployment rate, the U.S. economy is still probably short of full employment, and an investment agenda would also offer valuable insurance against possible future downturns.

Is he suggesting the low unemployment rate could be a fudged number? Catch me, I might swoon.

I like how he hedges again on the economy being "probably short of full employment". Darn that Obama again!

As for his idea of a public "investment agenda", it only shows more future investment requirements.

Fortunately, Dr. Krugman goes on to refute objections to his policy prescription:

We can’t borrow because we already have too much debt. People who say this usually like to cite big numbers — “Our debt is 19 trillion dollars,” they intone in their best Dr. Evil voice. But everything about the U.S. economy is huge, and what matters is the comparison between the cost of servicing our debt and our ability to pay. And federal interest payments are only 1.3 percent of G.D.P., low by historical standards.

Sounds nice, huh? Here is what the Congressional Budget Office projects will happen if current spending and projected spending remain unchanged:

But what do they know? They are just government employees...oh wait, Krugman wants MORE people like this!

Borrowing costs may be low now, but they might rise. Yes, maybe. But we’re talking about long-term borrowing that locks in today’s low rates. If 10 years isn’t long enough for you, how about 30-year, inflation-protected bonds? They’re only yielding 0.64 percent.

Note he doesn't stop to ask WHY rates are low. Could it be all this borrowing that is creating such a low-rate environment?

And he hedges again with a "maybe"?

The government can’t do anything right. Solyndra! Solyndra! Benghazi! A large part of our political class is committed to the proposition that any and all government efforts to improve our lives are doomed to failure — a proposition that turns into a self-fulfilling prophecy when these people are actually in office. But to hold that view you have to turn your back on our own history: American greatness was in large part created by government investment or private investment shaped by public support, from the Erie Canal, to the transcontinental railroads, to the Interstate Highway System.

What does Benghazi have to do with this? As for Solyndra, let's talk about that failure, shall we? Or how about government programs to encourage home ownership that led too many banks to create too many unaffordable mortgages that crashed our economy? Anyway...

Krugman's problem here is he is using "big idea" projects to justify continued investment in "small idea" projects that are not sustainable on a long-term basis. The Lake Okeechobee dike needs to be re-thought, and possibly redesigned or even scrapped for a better idea. His idea to expand it is just a small idea to buy time on the taxpayer's dime. Unfortunately, government is not known as being a hotbed of bigger or better ideas. Apparently, neither is Krugman.

As for the constant harping on individual failures, all large organizations, private businesses very much included, engage in some projects that don’t work out. Yes, some renewable-energy investments went bad — but overall, the Obama administration’s promotion of solar and wind has been a huge success, with a rough quadrupling of production since 2008. Green energy should be seen as an inspiration, not a cautionary tale.

Sorry Paul, but you can't call this a success until you remove the government funding and it floats.

There is, in short, an overwhelming policy case for federal borrowing to pay for public investment. 

Only if you keep your progressive blinders on.

The good news is that elite discourse seems, finally, to be moving in the right direction. Five years ago the Beltway crowd was fixated on debt and deficits as the great evils. Today, not so much. 

Let's just gloss over the fact that politicians of all varieties love to spend money, so naturally they don't like to talk about debt and deficits.

The bad news is that even if Hillary Clinton wins, she may well face the same kind of scorched-earth Republican opposition President Obama faced from day one.

We can only hope!

Basically, Krugman fails to justify further spending based on our country's already poor history of spending. His only justification is the government credit card currently charges low interest, and even though we have already spent over a year's salary on it, it's time to take a family vacation to Europe!