New York Times columnist Paul Krugman doesn't see any problem with the huge deficits being run up by President Obama. In a column released to national newspapers in October, he claimed that Obama's deficits are coming down dramatically and nobody on the "right wing" is praising the president for that.
First of all, the deficits aren't really coming down that much. According to the Office of Management and Budget, the deficit only came down by about $30 billion (4.5 percent) in the most recent fiscal year. (To see the budget deficit data, go to www.whitehouse.gov/omb/budget/historicals
This is a far cry from the Krugman of the George W. Bush years, when he said that Bush's deficits — which were ALL lower than in any Obama year — would cause a "fiscal train wreck." In 2003, Krugman said that he was "terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits. . . . We're looking at a fiscal crisis that will drive interest rates sky high."
Krugman's prediction was way off the mark by two measures. First, short-term U.S. interest rates rose from 1 percent in 2004 to 5 percent in 2006, but the deficits DECLINED. The deficit in fiscal year 2004 was $412 billion, but then the Bush deficits began rapidly falling, to $318 billion in 2005, $248 billion in 2006 and a remarkably low $160 billion in 2007. Krugman failed to give Bush any credit for declining deficits.
Secondly, Krugman was wrong about deficits causing higher interest rates. The fed funds rate has been zero to 0.25 percent for the last SIX years, despite Obama's huge deficits, averaging more than $1 trillion per year. Deficits don't cause higher rates. They cause lower rates, since the government does not want to pay high interest rates on its $18 trillion in deficits. The government has a vested interest in keeping rates very low.
Now, we turn to the president's hypocrisy. In his 2008 Presidential campaign, Obama echoed Krugman's deficit concern. Here's a sample from July 3, 2008: "The way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents. #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back. That's irresponsible. It's unpatriotic."
Oops! Obama won and began running up unprecedented deficits, but Krugman didn't seem to mind.
In 2010, when Obama was running up the second of his four trillion-dollar-per-year deficits, Krugman wrote: "These days it's hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we're told; it puts American economic stability at risk; it undermines our influence in the world. These claims generally aren't stated as opinions, as views held by some analysts but disputed by others. Instead, they're reported as if they were facts, plain and simple. Yet they aren't facts." He also defended one of his favorite presidents by saying "The long-run budget outlook is problematic, but short-term deficits aren't — and even the long-term outlook is much less frightening than the public is being led to believe."
Which is true — Krugman's 2003 concerns over small deficits or his 2010 acceptance of larger deficits?
Here are the uncomfortable facts about each president, taken from the White House's own website:
- Total deficits in eight years under Bush: $2.005 trillion (average $250 billion per year)
- Total deficits in six years under Obama: $6.422 trillion (average $1.07 trillion per year)
The "iron law of modern liberalism," espoused most eloquently by Krugman, seems to be that budget deficits are dangerous under Republicans but necessary under Democrats. They hurt the nation when they are $412 billion under Republicans, but they help the nation when they rise to more than $1.2 trillion under a Democrat. If this isn't cynical partisan propaganda, then what would you call it?
I wish Tim Russert were alive to quote "Krugman on Krugman" or "Obama on Obama" in his classic Meet the Press style. The question remains — why isn't today's press doing what Tim Russert would do?
In the long-term, gold will tend to rise when interest rates remain low and deficits remain high. This fact is lost on Krugman, who wrote a New York Times column against "gold bugs" ("The Lust for Gold," April 11, 2013), in which he said that "historically, gold has been anything but a safe investment."
Krugman also maligns gold as just "a decorative metal" with little practical value. He ignores the role that gold has served for 4,000+ years. (If gold has no inherent value, isn't that even more true of paper?)
The problem with Krugman is that he ridicules the opposition but can't acknowledge his own blind spots. Whether the subject is gold or budget deficits, Krugman seldom considers opposing positions, or views the other side as honorable, so any attempt at a compromise is often doomed from the beginning.
About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award-winning Michael Fuljenz Metals Market Weekly Report.
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