Krugman: "...but they’re Very Serious People."

Me and the Bond Market

Whenever I point out that bond markets are not, in fact, demanding immediate fiscal austerity, I get comments along the lines of “So now you believe markets are perfect?” That’s missing the point. The starting point for the argument people like me make is that markets shouldn’t be demanding immediate austerity, because the long-run fiscal effects of short-run deficits are relatively small; the burden of proof is therefore on the other side to show that markets will demand something they shouldn’t.

Think of the dialogue as going like this:

Stimulist: Yes, long-run fiscal issues matter — but what we spend now is virtually irrelevant to those issues. A trillion dollars of spending will raise real interest costs by less than 0.1 % of GDP, and might even help the long-run position by avoiding a permanent loss of potential output.

Austerian: No, we must cut immediately to satisfy the bond market!

Stimulist: But the bond market isn’t demanding immediate cuts — it seems quite unworried by current deficits.

Austerian: But I know what the bond market will want, never mind what it’s saying now.

So the stimulists are saying that the fundamentals look OK, and there’s no obvious reason to disregard those fundamentals; the austerians are saying that we need to pursue economically irrational policies in order to satisfy demands that markets shouldn’t make and, in fact, aren’t making.

But they’re Very Serious People.

http://krugman.blogs.nytimes.com/2010/08/03/me-and-the-bond-market/

There is never a reason to remedy system inequities that return more of the wealth generated by labor to those who create that wealth. In fact, in the pursuit of funneling more of the Treasury into the overstuffed pockets of the wealthy, excuses of what a market "might" or "will" want in some hypothetical future are more powerful than actual facts.