Why Paul Krugman Is Wrong On The National Debt

Paul Krugman is a Nobel winning economist who is a media darling. When it comes to the national debt, he is simply and clearly wrong in his conclusions. Let’s take a look.

Paul Krugman

Paul Krugman is an economist who likes to suggest that not only do we not have to worry about the national debt, but that we should run it up more to get us out of the Great Recession. As is always the case with spenders like Krugman, the truth is exactly the opposite. To understand the truth of this, one needs only look at the current economic data. Despite the government and Federal Reserve spending like mad, we are seeing an economic downturn. The only question now is whether we will have a double dip or full blown depression. Yes, it is that bad.

Still, let’s assume the economy was really recovering. Wouldn’t Krugman and his ilk be right? Not at all. Their primary argument is the country was in far more debt as a percent of gross domestic product following World War II. This is true. The debt was about 120 percent of GDP. So, does this mean Krugman is right? Not a chance.

To understand how wrong Krugman is, one has to understand what happened in the immediate years after World War II. The year after, the United States starting cutting its debt. In fact, the debt was cut to 35 percent of GDP within 40 years. We are not in a similar situation now. Instead of finishing a war, we are looking at upwards of $112 trillion in unfunded liabilities in the next 30 to 40 years in the form of Social Security, Medicare and Medicaid spending. Krugman’s response to this is the pathetically lame “we’ll have to deal with it.”

Economic Growth

What about growth? Krugman argues that the expenditures in World War II facilitated massive economic growth in the country. He is absolutely right. The problem is the scenario now is completely different. The spending in World War II created a huge manufacturing platform that was easily converted to private enterprise and jobs when the war was over. Now? The money is used to bail out banks and spend on projects that don’t create a lot of jobs. I’m all for green energy, but wind farms don’t produce huge employment numbers. Again, Krugman’s argument is fatally wrong.

Future of National Debt

The politicians have shown no ability to create a plan to deal with the national debt moving forward. President Obama’s idealistic projections still put us in a $20 trillion hole by 2020. This is insane. At our current rate of debt growth, we will be at 100 percent debt to GDP by 2020, 300 percent by 2030 and up from there. No country has every survived such a spiraling debt and it is the ultimate hubris by people like Krugman to suggest we will.

Don’t by the hype. The national debt must be dealt with and it must be dealt with now.

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