First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Krugman needs to take a reality pill, although he may already be beyond any such remedy. The debt at the end of World War II was about $3 trillion and indeed has, essentially, been swallowed up by a population increase from 130 million people to 313 million. What sort of increase will be needed to swallow up our present debt of $14 trillion? My calculation says it would require a national population of about 973 million people, and I don’t even want to think about the problems that would present.
Or, perhaps, merely 400 million people, each with an income of $6 trillion. What would the “poverty level” be in such a society?
When I was a teenager I once grew 6” in a six month period. Applying Paul Krugman’s theories, I should be about eighty feet tall right now. Feeding me would be a problem. Of course, feeding an American population of 973 million would be a bit of a problem.
He also sort of slides past the fact that even by the “Krugman Theory” of not paying it, our debt is still a problem because we are not even within hand grenade distance of “ensuring that debt grows more slowly than our tax base.” Our population has gone from 130 million to 313 million since World War II, a 240% increase, while our debt has gone from $3 trillion to $14 trillion, which is a 467% increase.
Krugman only uses facts which are convenient to his purpose.
Then there was the whole “debt ceiling crisis” in which the government’s integrity was at stake. The world needed to be assured that “America would pay its debts.” Paul Krugman says America will not pay its debts, because that’s not what governments do.
Then, to the larger audience reading the op-ed than earlier read his blog, he trots out the “it’s largely money we owe ourselves” argument and is a little more open about the fact that “foreigners now hold large claims” on our government debt. He carefully omits saying that those claims amount to a full one-third of our government debt, nor does he come right out and reiterate his claim that we should not worry about it since we aren’t going to pay that money back because governments don’t pay debt.
What he does say is that “every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners,” as if that meant anything. One dollar of American government debt held by the Japanese government is matched by 89¢ worth of factory owned in Japan by General Electric. So what? I owe the bank money on my house, and I own a car. Can I tell the bank to kiss off because my car is paid for?
I don’t happen to think we should be raising taxes at this moment, but Paul Krugman’s arguments are simply idiotic, and I certainly do not think we should continue cutting taxes. If I’d wanted a continuation of the pandering to taxpayers with tax cuts, I’d have voted for a Republican. Debts do matter, the bill will come due, and we need fiscal sanity not only in our government but in our nation.