Remember Paul Krugman yelling that huge budget deficits will impose an enormous burden on our children and threaten to sink the economy? You probably don't remember this because he has been strongly arguing the opposite position for the last five years.
This is why it was striking to see the NYT opinion page's description of Krugman's column last week which has Krugman referring to a "fiscal crisis." Krugman absolutely does not believe there was a fiscal crisis. Krugman's column discussed the financial crisis and the economic downturn that followed the collapse of the housing bubble.
The NYT description was surely a mistake rather than an attempt to put words in the mouth of the paper's most prominent columnist. It is still worth asking how a mistake like this can be made, and more importantly, how it can slip by the paper's editors and remain posted for the better part of a day.
Promoting concerns about the budget deficit is a major industry in Washington. It is centered in a number of organizations that were started and/or funded by Wall Street tycoon Peter Peterson, including the Concord Coalition, Fix the Debt, the Committee for a Responsible Federal Budget, and of course the Peter G. Peterson Foundation. These organizations can always count on respectful treatment in the media, basically because almost anyone with lots of money can count on respectful treatment from the media.
But the impact goes much deeper than can be explained simply by the billions of dollars floating out of Peterson's pocketbook. The deficit crisis story clearly resonates with our everyday understanding of the world. We all know that we can't continually spend more than we earn, so why should the federal government be any different?
It is easy to tell the story of how the federal government is different and why it has to be different, as anyone who has ever been through an intro econ class should know. The government must use deficits to fill gaps in demand when the private sector does not spend enough. If the government doesn't run large deficits in such situations, the result is high unemployment like what we see today.
Also, unlike the rest of us who expect to die at some point, the government should be around indefinitely. It doesn't have to pay back its debt. In this sense it is like a corporation, many of which continually add to their indebtedness over time.
The CEO of GE will not get a warm reception from shareholders if he has to explain that profits have tanked, but he paid off the company's debt. The priorities of a corporation are different than for a household, just as is the case for the government.
But, it is easy for even well-educated people to be confused on issues like this. And when you have deep-pocketed folks like the Peterson crew promoting such confusion it compounds the problem.
The situation is similar to having a group of well-funded and well-credentialed astronomers who insisted the sun goes around the earth. If this group regularly mocked the scientists who pointed to the evidence the earth goes around the sun – telling people to look at what they can see with their own two eyes – most people would likely still believe the sun orbits the earth.
This is the situation we face in economics today. Tens of millions of people are needlessly unemployed or underemployed because those with money and power are happy to use it to promote confusion on the issue. As a result, we have a budget policy that keeps unemployment high. After all, the stock market is up, the rich are happy, what seems to be the problem?
This state of affairs should argue for a paper like the NYT to be especially careful. By hosting columnists like Krugman, and also running some very good pieces on budget and economic issues in its business and new "Upshot" section, the NYT has helped to inform millions of readers on how the economy works. However its writers and editors are subject to the same prejudices on issues involving deficits and debt as anyone else. The paper needs to be aware that mistakes like this can slip into print or cyberspace if people are not alert to the problem.
At a more basic level this mistake shows the enormity of the task involved in changing public thinking and policy on the most important economic issue facing the country today. It took centuries to get people to understand the earth orbits the sun. If it takes as long to get the public to understand and our politicians to understand the economy, billions of people will suffer needlessly.