The Sky Is Not Falling

link here to article

Paul Krugman is a dangerous economist. He is intent upon using arithmetic to destroy goblins like the "confidence fairy" and the "bond vigilantes" . In this article he uses a bit of arithmetic to show that our short term debt problem does not lead to a long term national debt disaster as long as the economy grows at the nominal trend rate of 4%. Of course things could change, the bond vigilantes may take actions that cause the cost of government debt service to rise. He argues, however, that they are also capable of doing the arithmetic that he just did. There really are no vigilantes, there are a lot of investors who prefer to use arithmetic when making decisions. Hopefully, they will follow his line of reasoning as well.

We have to keep asking ourselves why we have become so affected by goblins. There are lots of folks who invent the goblins because they want to run goblin-centric election campaigns, and there are others who would like to erode the public safety nets that are provided by government. They hate taxes, and they believe that safety nets distort market signals when the safety nets support ordinary Americans who face uncertainty. They are only supposed to be used to rescue bankers who take excessive risks with other people's money.