Posts Tagged ‘ Paul Krugman ’

Why Progressives Must Embrace the Robust Optimism of “American Exceptionalism”

Friday, August 13th, 2010
Jeff Bloodworth


Jeff Bloodworth is an assistant professor of history at Gannon University in Erie, Pennsylvania.

by Jeff Bloodworth

The Hacketts Gospel Singing Shed

The Shed -- Dermott, Arkansas

Alexis de Tocqueville would understand “The Hacketts Gospel Singing Shed.”

Located in Dermott, Arkansas on the edge of a small cotton farm, “The Shed,” as locals call it, is a venue for gospel singers and fans to gather for song, worship, and fellowship. In the 1830s, Tocqueville toured America and witnessed the very sort of religiosity and voluntarism that motivated the Hackett family to transform a tractor shed into what has become a local community hub. The young Frenchman’s resulting sociological masterpiece, Democracy in America, explains “The Shed” and offers some timeless lessons about America’s uniquely ambitious political culture –
lessons Democrats looking for keys to ending the Great Recession ought to consider.

During his travels, Tocqueville recognized how republican ideals and cheap plentiful land had produced a profoundly optimistic, democratic, individualistic, entrepreneurial, and decidedly populist people. His shorthand for the differences between the U.S. and Western European political cultures – “American Exceptionalism”— remains a handy and useful concept progressives should both heed and employ.

“Exceptionalism” is not a Limbagh-esqe a priori verification of America’s supreme awesomeness. Rather, exceptionalism cuts both ways. The very populist impulses both bred the civil rights movement and spawned the Tea Party.

In the same way, American individualism is responsible for both a vibrant economic growth, a broad middle class, technological innovation, AND an anemic welfare state, concomitant high poverty and comparatively crime rates.

In sum, exceptionalism is not chest-thumpin’ We-Will-Rock-You, rah-rah USA cornpone; Tocqueville would recognize “The Hacketts Gospel Singing Shed” by echoing Denny Green’s infamous postgame rant, “They are who we thought they were!”

American Exceptionalism not only explains “The Shed.” It should also inform Democratic policy responses, both in substance and style, to the Great Recession.

Progressives understandably shy away from a term that seemingly reeks of parochialism and sounds like a potential first and middle name for one of Sarah Palin’s children. Instead of “exceptional” substitute “difference” and then wonder how and why Germans accept 8 percent unemployment as normal, middle class Danes ride bikes to work instead of drive cars, or Canadian cities are so neat-and-tidy. For better or for worse, the American “difference” is real.

Economic recoveries are like snowflakes—no two are ever the same. This should remind us that the “dismal science” is no hard science at all. To hear Paul Krugman or the Cato Institute’s certitude, however, one would hardly realize economists are making little more than highly educated guesses.

Ironically, even as partisan economists claim all-knowing prescience their field is thankfully moving away from technocratic certainty and toward ambiguity. While it is humbling (and quite a bit scary) to accept mysterious, unpredictable, and ultimately unknowable economic forces control our material fates, this is exactly why the American difference matters.

Modern progressive economic policy should combine short-term fiscal stimulus and long-term deficit reduction with rhetorical and policy faith in the American character. While sound policy matters, more and more economists realize that intangibles and emotions often spell the difference between recovery and double dip recessions.

The American difference really matters. Four hundred years of history (including the colonial era) proves that American optimism, individualism, entrepreneurial spirit, and waves of eager immigrants will eventually lead to robust economic recovery. Talk of decline, power moving east, and a new “normal” are reminiscent of the early 1990s when observers claimed Japan and Germany would overtake American economic leadership. If memory serves, the 1990s were fairly good economic times.

President Obama has provided such leadership. Time and again he has extolled the American work ethic and unique character; it is Congressional leaders and the liberal punditocracy, however, who are out of tune with the great resilience of the American tradition., Congressional leaders – who too often dwell myopically on technocratic details, medium versus big stimulus or extending unemployment benefits – fail to convey the most important ingredient for economic policy success: sunny optimism and a profound belief in an American difference.

All peoples in all lands hope, innovate, and work for a better future. Americans do so in their own unique, different, and yes even “exceptional” way. The route of this mess takes good policy but requires bold, optimistic, and a quintessentially American leadership. It is the sort of simple yet profound wisdom that a Frenchman; the folks of Dermott, Arkansas; and skinny kid with big ears and a funny name all know in their bones.

photo credit: Jeff Bloodworth

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A More Productive Path than Self-Immolation

Wednesday, August 4th, 2010
Scott Winship


Scott Winship is research manager of the Pew Economic Mobility Project and a recent graduate of Harvard's doctoral program in social policy. The views he expresses do not represent those of Pew.

by Scott Winship

Everyone’s approvingly linking to this Edward Luce piece on “the crisis of middle-class America.” I want to set myself on fire.

Seriously, it’s discouraging to see so many people who should know better (because they’ve argued these points with me before) promoting this article.  I can’t think of another piece in the doomsday genre—and there are many—that gets it so consistently wrong. I’ll stipulate that none of the criticisms below are intended to minimize the struggles that many people are facing.  But it’s important to get this stuff right. Let me dive in, with Luce’s words in italics and my responses following:

Yet somehow things don’t feel so good any more. Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears.

The share of mortgages either in foreclosure or 3 or more months delinquent is 11.4 percent, which, because 30 percent of homeowners have paid off their mortgage, translates into 8 percent of homes. So the Freemans’ situation is typical of about one in twelve homeowners, or not quite 3 percent of households (since one-third rent).

Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee.

Luce is arguing that there’s a new crisis facing the current generation. About 30 percent of those age 18 to 24 were uninsured in 2008 when the National Health Interview Survey contacted them.  I don’t have trends for that age group, but the share of Americans under age 65 without health insurance coverage was 14.7 percent in 2008, up from…14.5 percent in 1984.

And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.

Well, the violent crime rate in 2008 was 19.3 per 1,000 people age 12 and up, down from 27.4 in 2000 and 45.2 in 1985.

Once upon a time this was called the American Dream. Nowadays it might be called America’s Fitful Reverie. Indeed, Mark spends large monthly sums renting a machine to treat his sleep apnea, which gives him insomnia. “If we lost our jobs, we would have about three weeks of savings to draw on before we hit the bone,” says Mark, who is sitting on his patio keeping an eye on the street and swigging from a bottle of Miller Lite. “We work day and night and try to save for our retirement. But we are never more than a pay check or two from the streets.”

The key question is, again, Is this worse than in the past? The risk of a large drop in household income has risen modestly, but people experiencing a drop end up much better off than in the past. For example, the risk of a 25 percent drop in income over 2 years has risen from 7 percent among married couples in the late 1960s to 14 percent in the mid-2000s (based on my computations from Panel Study of Income Dynamics data). But if you look at the average income of married-couple families after their 25 percent drop, it rose from $40,000 to $63,000 (in constant 2009 dollars).

Solid Democratic voters, the Freemans are evidently phlegmatic in their outlook. The visitor’s gaze is drawn to their fridge door, which is festooned with humorous magnets. One says: “I am sorry I missed Church, I was busy practicing witchcraft and becoming a lesbian.” Another says: “I would tell you to go to Hell but I work there and I don’t want to see you every day.” A third, “Jesus loves you but I think you’re an asshole.” Mark chuckles: “Laughter is the best medicine.”

Hmmm…just a typical American household…

The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.

Adjusting for household size and using the PCE deflator to adjust for inflation, median household income in the Current Population Survey rose from $29,800 in 1973 to $40,500 in 2008 (in 2009 dollars, again based on my compuatations).  Factoring in employer and government noncash benefits would show even more impressive growth.

In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start.

This is entirely a function of changes in the population composition (more Latinos) and in the share of employee compensation going to health insurance and retirement plans.

Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

Nope. The evidence is ambiguous, but the best studies imply that intergenerational economic mobility hasn’t changed that much in the past few decades. Intra-generational earnings mobility has increased since the 1950s, though it has declined among men.

Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: “America is the best country in the world to be poor.” That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.

Tim Smeeding’s research based on the Luxembourg Income Study shows that in general Americans have higher incomes than their European counterparts as long as they are in the top 80 to 90 percent of the income distribution.  Below that, incomes are more comparable across countries, and the living standards of Americans look less impressive.  The US has comparable intergenerational earnings mobility to Europe, according to Markus Jantti’s research, except among men (but not women) who start out at the bottom.  In terms of occupational mobility, David Grusky’s research shows we’re as good or better as anywhere else, but this doesn’t translate into earnings mobility because we let people get rich or poor to a greater extent than other countries do. Jantti and Anders Bjorklund have estimated that Sweden would have the same mobility as the U.S. if the return to skill was as high there as it is here.  Finally, employer benefits further complicate how “bad” we look.

Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. “Who killed the ­American Dream?” say the banners at leftwing protest marches. “Take America back,” shout the rightwing Tea Party demonstrators.

The rise in income inequality is mostly about the top 5 percent of the top 1 percent pulling away from everyone else, and existing estimates overstate inequality and its growth by ignoring employer and government noncash benefits and possibly by ignoring different rates of inflation in different parts of the income distribution.

Unsurprisingly, a growing majority of Americans have been telling pollsters that they expect their children to be worse off than they are.

Totally wrong.  The key here is to only look at polling questions that ask people about their own kids, not kids in general.  Here are the relevant survey results I could find:

General Social Survey (1994)—45 percent said their children’s standard of living will be better (vs. 20 percent worse)
General Social Survey (1996)—47 percent
General Social Survey (1998)—55 percent
General Social Survey (2000)—59 percent
General Social Survey (2002)—61 percent said their children’s standard of living will be better (vs. 10% worse)
General Social Survey (2004)—53 percent
General Social Survey (2006)—57 percent
General Social Survey (2008)—53 percent
Economic Mobility Project (2009)—62 percent said their children’s standard of living will be better (vs. 10 percent worse)    (unlike GSS and PRC, asked only of those with kids under 18)
Pew Research Center (2010)—45 percent said their children’s standard of living will be better (vs. 26 percent worse)

BusinessWeek (1989)—59 percent said their children will have a better life than they had (and 25 percent said about as good)
BusinessWeek (1992)—34 percent said their children will have a better life than they had (and 33 percent said about as good)
BusinessWeek (1995)—46 percent said their children will have a better life than they have had (and 27 percent said about as good)
BusinessWeek (1996)—50 percent expected their children would have a better life than they have had (and 26 percent said about as good)
Harris Poll (2002)—41 percent expected children will have a better life than they have had (and 29 percent said about as good)

Harris Poll (1997)—48 percent felt good about their children’s future
Harris Poll (1998)—65 percent felt good about their children’s future (17 percent N.A.)
Harris Poll (1999)—60 percent felt good about their children’s future (15 percent N.A.)
Harris Poll (2000)—63 percent felt good about their children’s future (17 percent N.A.)
Harris Poll (2001)—56 percent felt good about their children’s future
Harris Poll (2002)—59 percent felt good about their children’s future
Harris Poll (2003)—59 percent felt good about their children’s future
Harris Poll (2004)—63 percent felt good about their children’s future

Pew Research Center (1997)—51 percent said their children will be better off than them when they grow up
Pew Research Center (1999)—67 percent said their children will be better off than them when they grow up

Bendixen & Schroth (1989)—68 percent said their children will be better off than they are
Princeton Religion Research Center (1997)—62 percent of men said their sons will have a better chance of succeeding than they did; 85 percent of women said their daughters will have a better chance
Angus Reid Group (1998)—78 percent said children will be better off than them
Washington Post/Kaiser Family Foundation/Harvard (2000)—46 percent said they were confident that life for their children will be better than it has been for them
Economic Mobility Project (2009)—43 percent said it would be easier for their children to move up the income ladder
Economic Mobility Project (2009)—45 percent said it would be easier for their children to attain the American Dream

Also, polls consistently show that Americans say they have higher living standards than their parents.

And although the golden years were driven by the rise of mass higher education, you did not need to have graduated from high school to make ends meet. Like her husband, Connie Freeman was raised in a “working-class” home in the Iron Range of northern Minnesota near the Canadian border. Her father, who left school aged 14 following the Great Depression of the 1930s, worked in the iron mines all his life. Towards the end of his working life he was earning $15 an hour – more than $40 in today’s prices.

Thirty years later, Connie, who is far better qualified than her father, having graduated from high school and done one year of further education, makes $17 an hour.

It’s not valid to compare her pay mid-career to her father’s at the end of his career—and also, how much work experience does she have relative to him?  Did she take time off to raise kids?

The pace of life has also changed: “We used to sit around the dinner table every evening when I was growing up,” says Connie, who speaks with prolonged vowels of the Midwest. “Nowadays that’s sooooo rare.”

Time-use surveys show that while parents spend more time working (because of mothers) than in the past, they do not spend less time with children.  They spend less time doing things by themselves.

Then there are those, such as Paul Krugman, The New York Times columnist and Nobel prize winner, who blame it on politics, notably the conservative backlash which began when Ronald Reagan came to power in 1980, and which sped up the decline of unions and reversed the most progressive features of the US tax system.

Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalization and technology. But they belong to unions in larger numbers and their health care is publicly funded.

Though unionization has declined markedly in most of these countries, and their health care policies are increasingly becoming too costly.  Also, most of the decline in unionization in the U.S. occurred before Reagan took office.

More than half of household bankruptcies in the US are caused by a serious illness or accident.

This is bad Elizabeth Warren research—she counts a bankruptcy as being “caused” by illness or accident if one was reported, but the household could have been in serious debt before these occurred.  At any rate, bankruptcies are exceedingly rare (under 1 percent of households—see Figure 13).

Pride of place in Shareen Miller’s home goes to a grainy photograph of her chatting with Barack Obama at a White House ceremony last year to inaugurate a new law that mandates equal pay for women.

As an organizer for Virginia’s 8,000 personal care assistants – people who look after the old and disabled in their own homes – Shareen, 42, was invited along with several dozen others to witness the signing.

Ah…another representative household…

More and more young Americans are put off by the thought of long-term debt.

Evidence?

Had enough?  I have speculated that to the extent economic insecurity has increased, it reflects the impact of a negativistic media (amplified by gloom-and-doom liberalism).

Picture
Pieces like Luce’s—and the blog posts it generates—affect consumer sentiment. Ben Bernanke and Tim Geithner aren’t the only people who can inadvertently talk down the economy.

This item is cross-posted at ScottWinshipWeb.

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Comparing Employment Changes During Recessions

Monday, August 2nd, 2010
Scott Winship


Scott Winship is research manager of the Pew Economic Mobility Project and a recent graduate of Harvard's doctoral program in social policy. The views he expresses do not represent those of Pew.

by Scott Winship

I keep seeing that chart that shows how employment declines in the current recession are so much worse than in past ones. You know, this one:

On many dimensions, of course, the current recession is much worse, but this chart has always seemed funny to me. And after reading Paul Krugman mock the idea that the recessions of the 1970s and 1980s were at all comparable, I decided to make my own damn chart. Because the above chart looks at employment levels, which are affected by labor force growth, I decided to look at employment rates instead (subtracting the unemployment rate for each month from 100). Because the composition of the labor force has also changed over time (lots more married women, most notably), I decided to confine to white men ages 20 and up. And because it’s unclear to me what “peak” is used in this chart (see the vague note at the bottom of Rampell’s chart) and since the relationship of the NBER business cycle peak to the unemployment rate involves a lag, I decided to measure from the peak employment level. Got all that? Here’s my chart:

I’ve labeled the lines the same way that Rampell’s chart is labeled, by the recessions that followed each employment rate peak. The figures are from BLS and are based on their seasonally adjusted series.

This approach makes clear why people were disappointed by the “jobless” recoveries from the recessions of the early 1990s and 2000s, which were no faster than after the much more severe recession of the early 1970s (though of course, the declines in employment were much smaller to begin with). More to the point, it also shows that while the current recession still looks bad, bad, bad, the decline in employment is comparable to the decline during the double-dip recession, which is apparent from the “1980″ line. That’s not the most fantastic news of course, but it’s worth noting. Unfortunately, I doubt this is the chart you’ll see others use and update as things evolve in the next few months.

This item is cross-posted at ScottWinshipWeb.

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Give Innovation Economics a Chance

Thursday, July 1st, 2010
Scott Andes


Scott M. Andes is a research analyst at the Information Technology and Innovation Foundation.

by Scott Andes

Budget deficits are emerging as one of Washington’s chief economic obsessions, with both liberal and conservative economic camps opining about the deficit’s effect on the economy. Robert Samuelson’s recent column in the Washington Post describes how the major economic doctrines—particularly Keynesian and monetarists (or supply-siders)—interpret the fiscal impact of budget deficits.

Keynesians believe budget deficits (either from increased spending or reduced taxes) can stimulate the economy, leading to more demand and therefore more jobs. As Paul Krugman’s recent arguments have demonstrated, they believe that when unemployment rates are high job creation should not be sacrificed on the altar of deficit reduction. In contrast, many neoclassical economists, especially conservative supply-siders, argue that big government deficits reduce national savings and increase interest rates while also contributing to financial uncertainty and reducing private sector investments.

While Samuelson rightly points out the differing perspectives of the Keynesian and supply-siders, he misses what they have in common. Neither of them considers the role of innovation in their growth models or distinguishes between spending and investment. And with this omission they fail to see what particular types of deficit spending can be harmful to the economy and conversely what kinds can be beneficial.

Innovation economists argue that the long-term benefits of investments, particularly in innovation, outweigh the costs of temporary budget deficits. For example, as the Information Technology and Innovation Foundation recently demonstrated, expanding the R&D tax credit, while costing the government money in the short run, would actually lead to more revenue for the Treasury in the medium term. Innovation economists support direct investments, such as government research, and indirect public investments, such as an expansion of the R&D tax credit. Robust investment in innovation and technology are essential to long-term growth. This is because innovation increases productivity, and productivity gains have accounted for the lion’s share of economic prosperity over the last several decades.

Once economists recognize innovation as the most important part of economic policy, the impact of budget deficits becomes clearer. For example, neoclassical economists worry that deficit spending will increase interest rates and reduce the amount of capital available for private sector investment. Innovation economists believe that investments in technology and knowledge spur economic growth and will generate more capital. The problem is that the market doesn’t always allocate as much capital to these endeavors as it should. Indeed, the extremely low interest rates in the early 2000s did little to boost these kinds of investments. Instead, people used low interest rates to increase capitalized spending, specifically in housing, which created the housing bubble. Instead of emphasizing access to capital, innovation economics argues that if investment in technology (including new capital equipment used by business) is the goal, then policy makers would do better to focus on policies that incentivize such investments, such as allowing first-year capital expensing—even if doing so temporarily increases the budget deficit.

Samuelson frets that the differing opinions on how to handle the budget deficit indicate that “[w]e may be reaching the limits of economics.” Indeed, if in the knowledge-based economy we are limited by theories that still define the production process as only land, labor or capital, as Adam Smith did, these legacy economic doctrines will likely offer little advice on the budget. On the other hand, the new-growth theory of innovation economics that puts knowledge and innovation at the center of the contemporary production process is more able to intellectually navigate the modern, global economy and dictate appropriate policy decisions.

Photo credit: TheTruthAbout…’s Photostream

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Explaining Inequality Trends: Pretty Simple?

Friday, May 7th, 2010
Scott Winship


Scott Winship is research manager of the Pew Economic Mobility Project and a recent graduate of Harvard's doctoral program in social policy. The views he expresses do not represent those of Pew.

by Scott Winship

James Kwak, coauthor of the new financial crisis book 13 Bankers, recently sought to explain his thesis “in 4 pictures.” And impressive pictures they are. But I’ve been particularly struck by one of them — this chart, from a paper by economists Thomas Philippon and Ariell Reshef, showing the close correspondence between deregulation trends on the one hand and the ratio of financial sector wages to private sector wages on the other. My reaction to the chart was essentially, Huh. Those trend lines look like the basic income inequality trend line.

But to my knowledge, no one has really made this point since the chart has circulated widely. Certainly no one has tried to illustrate it.

Maybe people just lack my whiz-bang PowerPoint and Excel skills, or maybe I’ve actually had an Original Thought. But take a look at the chart I created, which overlays a trend line showing the share of income received by the top one percent (the black line) on top of the Philippon-Reshef chart. The trend line comes from the widely cited work of economists Thomas Piketty and Emmanuel Saez, who used IRS data to look at the incomes of the very rich:

I’ve argued before that I think the Piketty-Saez top-share trend line overstates the recent rise in income inequality, but I don’t see much reason to doubt the basic U-shape of the trend since the Great Depression. For all of the consensus around the basic inequality trend, there’s surprisingly little agreement or understanding as to why it looks the way it does (a major theme of Paul Krugman’s Conscience of a Liberal). Could it really be as simple as the extent of financial regulation? Every analyst bone in my body says this is too easy, but…but….

Of course, saying it’s all financial regulation trends isn’t necessarily inconsistent with Krugman-esque arguments that it’s all about changes in cultural acceptance of inequality.  Maybe financial regulation flows from public attitudes about inequality.

Anyway, interesting — no?

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A Fiscal Dr. Strangelove

Friday, February 5th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

Paul Krugman wants Americans to stop worrying and learn how to love the bomb – the fiscal bomb that is.

Just as Dr. Strangelove in the eponymous film classic assures the president that America can survive thermonuclear war, Krugman professes blithe disregard for the impact of massive government borrowing on U.S. fiscal stability.

The public and a good many economists may beg to differ, but what do they know? Voter concern about deficits has grown salient over the past year, as Washington has spent trillions to prop up the economy. Last March, a slight majority approved of President Obama’s handling of the federal budget deficit; in January, a CNN/Opinion Research poll found that 62 percent disapprove.

Krugman dismisses such concerns as “hysteria” and puts them down to a combination of economic ignorance and Republican propaganda.

On one point, the intensely partisan Krugman is dead right: GOP credibility on fiscal discipline is shot to pieces. The Bush Republicans squandered the budget surplus President Clinton bequeathed them on tax cuts and profligate spending. In 2003, they rammed through Congress a trillion-dollar prescription drug benefit for Medicare recipients but somehow forgot to pay for it. Quite a contrast to President Obama, who took pains to insist that Congress fully offset the costs of his health reform plan – with Republicans all the while hooting inanely about “socialism” from the peanut gallery.

But on the fundamental question – whether progressives should ignore America’s huge and growing fiscal imbalances – Krugman is flat wrong. GOP hypocrisy aside, plenty of progressive economists are sounding the fiscal alarm.

Jeff Garten, for example, believes America’s ballooning national debt will lead to “the slow but inexorable decline of the U.S. dollar,” undermining a key source of U.S. prosperity and influence in the world.

In a compelling Time essay, Jeffrey Sachs argues that the mounting public debt is symptomatic of a breakdown in political responsibility in Washington that stymies the nation’s progress. Republicans won’t abandon their anti-tax fetish, Democrats won’t rein in spending, especially on fast-growing entitlements, and the result is paralysis. “Until both political parties make a serious effort to improve the performance of government while shrinking its swelling deficits, Americans will watch both their quality of life and their country’s standing in the world erode,” he maintains.

Liberals, says Sachs, are wrong to cite deficit spending during the New Deal as proof that Americans shouldn’t worry about government borrowing today. During the height of the Depression, he notes, the federal government was running deficits of around about 5 percent of GDP as opposed to 10 percent today. Back then, he notes, we financed our debts domestically. Today about half of our national debt is held by foreign creditors, especially China and Japan.

Now, Sachs is neither an economic ignoramus nor a Republican stooge. He believes, as Krugman does, that public investment is an imperative to create jobs, rebuild U.S. infrastructure, and restore shared prosperity. But unlike Krugman, he recognizes that Washington’s unwillingness to defuse the public debt bomb is relentlessly squeezing out fiscal space for such investment.

President Obama gets it too. He is trying to strike a balance between massive, short-term spending (although not massive enough for Krugman) to stimulate the economy, and the need to restore fiscal discipline over the long haul by freezing domestic spending and creating a bipartisan commission to tackle entitlement reform.

That’s not easy, and he deserves more help than he is getting from liberals like Krugman who pose a false choice between progressive reform and fiscal responsibility.

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