The rest of that is “baffle them with bullshit.” Everyone thinks that Paul Krugman is doing the former, but I have a very good bullshit meter, and Paul Krugman is pegging that meter again.
He’s been making the claim that our national debt is not a problem because it’s money that we owe to ourselves. I have been unable to address that issue on his blog because you can’t comment there unless you are a New York Times subscriber, but apparently someone did challenge that position directly because he is responding with an acknowledgement that yes, a “substantial portion” of our debt is owed to foreign investors.
But his counter deals with total investment, assets v. liabilities, and since the government doesn’t invest money at all the chart he displays is clearly dealing with private investment, which relates to government debt about the same way that a Boeing 747 relates to a groundhog.
He further “clarifies” the situation by saying, “as the budget deficit has exploded, the trade deficit has actually been lower than pre-crisis” and says that proves that, “rise in debt is very much a rise in the amount Americans owe other Americans, not a matter of selling IOUs to foreigners.”
That sounds really good if you are talking to someone who doesn’t know what a treasury note is and doesn’t know that it has nothing to do with the trade deficit which involves consumer trade. Whether the trade deficit is positive or negative, and whether it is big or small, when you sell a treasury note you are effectively “selling an IOU,” and when you sell it to the government of Japan or China, you are “selling an IOU to a foreigner.”
Paul, a shovel is not the best tool to use for getting out of a hole.