Regular readers of this blog know that economics is not my field of expertise, although I’m familiar enough with the subject to know that common sense doesn’t get a person very far, and that there’s a great deal of argument among so-called experts about what should be done in the current economy.
I also know that Paul Krugman is a disingenuous, self-serving egomaniac. How do I know that? Not from reading his economics posts, but from a lengthy bit of research I did in 2003, a year or so before I became a blogger, on the subject of Krugman’s explanation of and apologia for the anti-Semitism of Mahathir Mohamad of Malaysia (I recall that he wrote a subsequent column on the brouhaha as well, and for some reason I can’t locate it right now). Coming to that conclusion didn’t take any knowledge of economics at all—just research, reading comprehension, and logic.
I could write a very long paper on what my research uncovered, but that’s not the point of this post. For now, suffice to say that I started out having no particular opinion about Krugman except that I knew he’d won a Nobel for economics, and had written some popular books on the subject that I’d heard were pretty fair and fairly good. But when I delved into the story behind Mahathir’s remarks, the more I learned the more I was stunned to discover that Krugman had misrepresented nearly everything about them except the actual quote. For example, Krugman said that Mahathir was using the remarks to shore up his domestic flank, but it turns out that Mathahir was actually retiring from politics. Krugman also failed to mention Mahathir’s lengthy history of anti-Semitism, and Krugman’s deeply entwined relationship with Mathahir and Malaysia.
There was more—much more. But the point was that, on a subject that was much more accessible to me than economics, many hours of research convinced me that Paul Krugman was a man who played fast and loose with the truth, and who would double down on his misrepresentations when accused and challenged. That hardly makes him unique, but it does make him suspect.
Which brings us to the subject of today’s post—Krugman and the debt. I would not be paying attention to Krugman except for the fact that, when he writes about economics, he still has clout and influence (including among certain people whose intelligence I respect, and who know more about economics than I do).
I have my usual difficulty evaluating what he’s saying about the economy vs. what his critics write about what he’s saying. Case in point: this recent column of Krugman’s. Cut away all the gratuitous and mean-spirited slams (Krugman’s trademark) at conservatives and you get this kernel:
…U.S. debt is, to a large extent, money we owe to ourselves.
This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.
But isn’t this time different? Not as much as you think.
It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.
When I read that, I thought it made no sense on the face of it. How can Krugman compare debt owed by government to debt owed to private US companies abroad (which is what he appears to be doing)? I’m certainly not the only one raising this question. A commenter named “SteveinCH” remarks, in response to a post by Owen Gray at The Moderate Voice about Krugman’s column:
And here we have a great example of why Paul Krugman is so dangerous to the US economy. I first saw a version of the argument that Owen links to over the holidays. Although I hate linking to Krugman, the link can be found below.
Now, why is this such a dangerous argument? Because it massively misrepresents the story and I rather suspect Dr. Krugman knows this to be true. To show you why, let’s refer to the 2010 census data.
http://www.census.gov/compendia/statab/2012/tables/12s1289.pdf
Now, let’s focus on government investment outside the US and foreign government holdings inside the US. The private holdings are not income that accrue to the US government so they are irrelevant for Dr. K’s argument.
US government assets abroad are about $560 billion. Most of that is reserve assets (the stuff that notionally backs our currency). Most of the reserve assets don’t pay interest (things like gold and SDRs). The securities holdings of the US government abroad are less than $100 billion.
Now foreign governments hold $4 trillion of US government securities. Foreign corporations hold another $1 trillion of US securities. So the ratio of instruments the US is paying debt on versus receiving interest on is somewhere between 8 and 50 to 1, nothing like the charts Dr. K uses.
Then again, maybe Dr. K believes public and private assets are the same and money paid to US corporations is actually paid to the government. At least his math would work then but you’d think it might be worth owning up to that assumption.
As to why he’s dangerous, it’s because people like Owen and many others simply link to his work, never understanding how disingenuous he’s actually being.
Here’s another critique of Krugman, this one by an economics professor at George Mason University. It focuses on a different point, but one that also involves public vs. private sector considerations:
When government spends money, resources that would otherwise have been used to produce valuable private-sector outputs are instead used to produce public-sector outputs. The values of these foregone private-sector outputs are a genuine cost of government projects regardless of government’s funding method, regardless of the merits of the government projects, and regardless of the nationalities of government’s creditors. And the private-sector outputs that are never produced because resources are instead used to produce public-sector outputs do not miraculously appear ”“ they are not miraculously ”˜unforegone’ ”“ simply because the obligation to pay for public-sector outputs is deferred to the future or because the holders of the debt instruments are citizens of the same country as the taxpayers.
The argument in the above paragraph isn’t unique: it is elaborated in great detail in many of the works on public finance by another Nobel laureate economist, James Buchanan.* It’s discouraging that Mr. Krugman seems to be unfamiliar with Buchanan’s contributions.
My guess is that Krugman is not unfamiliar with Buchanan’s contributions. My guess is that he disregards everything that does not fit into the message he wants to deliver. In this, again, he is hardly unusual—for a columnist, that is. But Mr. Krugman should finally own up to the fact that he long ago stopped being an economist at all, and morphed into a polemicist in economist’s clothing.
