The Fiscal Monster

In February, a New York Times columnist, and college professor, Paul Krugman wrote one of the strangest articles related to national debt ever written by someone professing to be an economist. Krugman is well known for two things. He is a devoted a socialist and winner of a Nobel Prize for which being a socialist now seems to be a prerequisite. Nobel Prizes these days are handed out only to those who carry the party message and Krugman does that with some zeal, albeit more than a bit crazy. However, that credential seems to have given him access to the media and he has busied himself helping the Obama administration try to sell the notion that national debt is a good thing.

In this week's article, entitled "Fiscal scare tactics miscast deficit as a monster", Krugman claims that Republicans in Congress and other economists around the world are simply stirring up hysteria. He believes there is nothing to be concerned about and that the current deficits represent no threat. This is tantamount to someone telling you that even though you are bankrupt, you have nothing to worry about and you should just take it all in stride and keep right on spending. This is not just bad advice; it is lunacy at the top of the scale. It is no wonder that the Obama administration loves Krugman. It is like taking your alcoholic friend along to go drinking. Not only is Krugman wrong, I think it is probable that he is suffering from some kind of mental delusion. Certainly no sane finance or economics expert would consider such statements. On the other hand, this might be from spending too many years locked away in his office in his university. I can see why he remains where he is, safely tenured in his job, because no business would hire him.

Lest anyone actually believe Professor Krugman, let me assure them that this is certainly not the view of the real world business economists and finance community. Clearly around the world, there is great concern, not just for the deficits of the US, but even more for some of the major European and Asian countries. This is not mystical, not opinion as Krugman suggests, not guess work, it is fact. The numbers do the speaking, not the economists. They only have to gather the numbers and assemble them. The reality is very simple to understand. There are only so many dollars in our economy and only so many in all those of the other countries. We know where that money is, what is available to invest, what financial instruments each is invested in, and what can be supported. In order for the US Government to get people to buy their notes, money must be transferred from some other investment source that either offers less return or is less secure. Taking money out of the capital investment market means businesses stop growing and so do jobs. This normally means that others will have to increase their returns to investors, thus setting off another round of inflation and a new cycle competing for the same dollars. In order to meet these staggering deficit numbers, profits, and wealth will have to grow enormously or they will simply not be able to find buyers for treasury notes.

The size of national debts that are being run up, exceed not just the amount of cash available in every kind of investment instrument, but in the entire gross domestic products (GDPs) of the countries that are creating them. Not only that, the unfunded liabilities for government programs like social security and Medicare are becoming many times larger than the GDPs and at current rates there is simply no money in the system to pay them. To suggest there is nothing to worry about is just insanity. Anyone that buys into Krugman's ideas is either as crazy as he is, unbelievably naive, or is trying to destroy the nation. We should speak out strongly against any such attempts to undermine the drive to fix these national problems. They must be fixed soon, or they will fix themselves with dire consequences.