Krugman vs. Greenspan

June 18, 2010

If you thought last night’s down-to-the-wire Celtics-Lakers battle was exciting, we’ve got a grudge match for you: Krugman versus Greenspan.

In this morning’s New York Times columnist Paul Krugman argues lawmakers — in Europe, and in the U.S. — should ignore “deficit hawks.” He calls for more spending and says plans to cut spending remind him of “1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.”

Over at The Wall Street Journal former Federal Reserve Chairman Alan Greenspan, in a timely and direct answer to Krugman’s analysis says, “I believe the fears of budget contraction inducing a renewed decline of economic activity are misplaced.” Greenspan says the U.S. is much closer to Greece than anyone wants to acknowledge.

Greenspan acknowledges common effects of high budget deficits — inflation and long-term interest rates — are low despite buckets of red ink, but warns the U.S. not to grow complacent just because these indicators are low. Greenspan says Americans should be concerned because the “budget constraints of the past are missing.”

Greenspan is — at the very least — right on that account. Federal spending per household has ballooned from around $20,000 in the 1990s to around $30,000 today.  That’s a 50 percent increase in just a decade.

If the type of spending Krugman advocates worked shouldn’t the U.S. economy be sailing along?

Who do you think is right? Krugman or Greenspan?

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