Krugman: Deficits, debt, and the economy

Deficits, debt, and the economy

So the CBO and OMB mid-session reviews are out; not much difference, but there’s more information in the OMB report (big pdf). So let me go with that.

It turns out that I was a little over-pessimistic in my assessment, mainly because the $9 trillion includes this year’s deficit, so we start from debt at 40% of GDP, not 50%. Overall, the OMB puts debt in 2019 at 76.5% of GDP; that figure is slightly exaggerated, however, because various financial rescues get counted as additions to the deficit even though taxpayers end up with additional assets. Net of these assets, the debt in 2019 is 68.9% of GDP.

As I’ve pointed out, that’s bad, but it’s not horrific either by historical or international standards. On a comparable basis, federal debt hit 109 percent of GDP at the end of World War II, and hit a second peak of 49 percent at the end of the Reagan-Bush years. And a number of European countries have hit substantially higher debt levels without crisis.

http://krugman.blogs.nytimes.com/2009/08/25/deficits-debt-and-the-economy/

Always good to have his insight.

keeps earning my trust in their prognostications.

I think Krugman maybe comes off like he has a huge ego because he often points out how he was right, but he's also willing to show where he has been off on certain things too. I respect his analysis he's intellectually honest.