New York Times columnist Paul Krugman is not happy with the deal Congress and the President apparently have agreed upon to end the debt ceiling impasse.
In his Monday piece, the Nobel laureate wrote, "[T]hose demanding spending cuts now are like medieval doctors who treated the sick by bleeding them":
For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.
The President and his Party could have prevented this entire situation by actually creating a budget. They do, after all, control the White House and the Senate.
If their priority in January was to avoid what appears likely to happen on August 1, they could easily have done so by, um, trying. But Krugman doesn't report the obvious when it goes counter to his agenda:
[S]lashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.
Let's take this one sentence at a time.
Slashing spending while the economy is depressed won’t even help the budget situation much.
Exactly what arithmetic was this Nobel laureate in economics taught? If you're spending more than you're earning each month, every dollar less of outlays improves your budget situation. To claim otherwise is either a lie or the height of ineptitude.
On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs.
That is indeed true - for now. But interest rates are at historic lows. They can't stay here forever, and when they eventually rise, the added cost to our budget will be catastrophic. It is therefore incumbent upon our government to begin reducing our deficits immediately.
On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue.
There is absolutely no evidence that cutting federal spending at this time will be economically harmful. Consider first that despite a 41 percent rise in annual outlays since 2007, the unemployment rate has risen from 4.4 percent to 9.2 percent.
Beyond this, an almost 50 percent cut in spending during the 1920's produced the strongest economy this nation ever enjoyed.
But there's potentially a bigger issue here: a looming credit rating downgrade. Notice that nowhere in Krugman's piece was this even mentioned.
One of the largest crises for America would be to have our bond rating dropped. The major credit rating agencies have warned that if we don't get our spending under control, they're going to cut us from AAA.
While folks like Krugman consider budget cuts akin to "medieval doctors who treated the sick by bleeding them," they conveniently ignore Moody's and S&P wielding battle axes to pounce on any bad budget decisions we make.
Since both of these agencies have made it clear that in order for them to keep their AAA rating on us they want to see serious budget deficit reductions, it is the spending-obsessed Krugman that is actually proposing leeches for the ailing patient.