Invictus writes:

I could not help but be struck by the different positions — both articulated on Friday –  on federal spending taken by two economists for whom I have the utmost respect — Paul Krugman and David Rosenberg.  In his daily missive Friday, Rosie went off on federal spending:

Government spending, in the United States, is simply out of control.

Over the past decade, federal expenditures rose at an average annual rate of 6% while the growth rate in the number of households has risen at a 0.8% annual rate.  At around 25% of GDP, spending is higher now than at any other time since 1946.  That is an outlier.  Admittedly, revenues at 15% of GDP are abnormally low as well, and while a partial by-product of the recession and sluggish recovery, loopholes galore and endless tax gimmicks are also at play — in the 1991 economic downturn that ratio was around 18% and in the severe economic decline in the early 1980s, it was 19%.  Revenues have to go up and there’s a cool trillion sittin’ right there in loopholes — oh, sorry, deductions and “tax expenditures,” we don’t want to offend anybody — that could be eliminated without sacrificing growth while reducing the ridiculous complexity of the tax code. [...]

But to think that the U.S. government cannot manage to deliver effective and essential services with a $2.5 trillion revenue base is absurd.  [...]  Isn’t 21 grand per household of government benefits enough?

You get the gist.

Krugman sees it otherwise:

Whenever someone like me or Bruce Bartlett points out how little Obama resembles the right’s portrait of a raging leftist, someone is sure to come back with the assertion that Obama has presided over a vast expansion of federal spending. Even people who really should know better, like John Taylor, do it.

So what’s the truth? I’ve written about this before, but here’s another take.

The fact is that federal spending rose from 19.6% of GDP in fiscal 2007 to 23.8% of GDP in fiscal 2010. So isn’t that a huge spending spree? Well, no.

First of all, the size of a ratio depends on the denominator as well as the numerator. GDP has fallen sharply relative to the economy’s potential; here’s the ratio of real GDP to the CBO’s estimate of potential GDP:

A 6 percent fall in GDP relative to trend, all by itself, would have raised the ratio of spending to GDP from 19.6 to 20.8, or about 30 percent of the actual rise.

That still leaves a rise in spending; but most of that is safety-net programs, which spend more in hard times because more people are in distress. The CBO breaks out “income security” (Table E-10 in Historical Budget Tables), which is unemployment insurance, food stamps, etc., and also gives us numbers on Medicaid; here’s what they look like as percentages of GDP:

That’s another 2 points of GDP, or about half the rise.

So we’re still left with a bit, around 1 point of GDP. That’s the stimulus, more or less. And there are two things you need to know about it. First, it’s temporary, and already fading out fast. Second, a large part of the stimulus “spending” was actually aid to state and local governments, intended not to expand spending but to avert a fall — that is, it was about maintaining government, not expanding it.

Now, pointing out the Obama spending binge is a myth generally produces rage: people know that it happened, because Rush Limbaugh and the Wall Street Journal say so. But that doesn’t make it true.

What I find most fascinating is that back in the period leading up to the recession, both Krugman and Rosenberg were spot-on in their assessments of what was unfolding.  Far from calling it in real time, they were way ahead of the curve and their peers (see here for Rosie’s prescient piece on the housing market; it’s just one of dozens).  They both brilliantly foretold of the coming crisis and the effects it would have on the economy, jobs, joblessness, liquidity, monetary policy, interest rates, etc.  Where they are diametrically opposed is on how to solve a problem they both so astutely saw coming. That two people could so precisely diagnose a problem, yet differ so totally on the solution, intrigues me greatly.  Would love to see the two of them side-by-side on a panel discussion.

See also:

Mokito Rich, NY Times, The Role of Government Spending, July 29, 2011

Category: Economy, Research

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

85 Responses to “Rosie v Krugman”

  1. Sircornflakes says:

    I’m all for less government spending. But in the absence of said spending, where is the investment by the private sector when we see private jobs in decline.

    Lower government spending will put government workers out of jobs. They’ll join the already bloated lines looking for private sector jobs that aren’t there.

    While we’ve heard the budget balancing argument of the deficit, what about the GDP story of it? What will be the impact on GDP of the cuts in government spending and how will that impact upon jobs?

    In a country that worships the private sector, how will jobs be created when that sector isn’t investing?

  2. whskyjack says:


    You have an apples and oranges situation here, where both are right and they aren’t in conflict.
    Rosenberg is talking about the structural problems that have been brought into the system since 2001. Where as Krugman is discussing the current crises. What is needed to get us through to next week is not necessarily the one you want to do for the long term. BTW both need to be addressed.


  3. gms777 says:

    Obama is Gorbachev, presiding over a system that cannot be sustained. A bit eerie as the Soviet withdrawal from Afghanistan also accompanied that country’s woes.

  4. UncleMilty says:

    I think the key difference is that Rosie is actually trying to figure out how we will eliminate the deficit, manage the interest payments and repay the debt. Krugman is only focused on fixing the immediate economic problem. As M. Thatcher once said…the problem with socialism is that you eventually run out of other people’s money.

    Krugman loves his multiplier when liberals buy votes with gov’t spending, but he never gets around to explaining that the lunch is not a free one. Our kids will be paying the interest on this monster we’ve created while they also fund our over-promised and underfunded entitlements and try to save for their own retirement and health care costs. As for our grand kids…

  5. Lukey says:

    The private sector investors are “sitting on their thumbs” (to quote Steve Wynn). Langone echoed that sentiment more recently. If we keep pursuing an anti-wealth, business bashing political agenda, we will continue to see a “need” for the government to keep spending to fill the void. That seems to be Dr. Krugman’s preference. I see that as following Europe into stagnation and permanent high levels of unemployment. Sure austerity causes the economy to slow, but we are shedding unsustainable government activity and it will eventually be replaced with private sector growth. Of course, we’d get there a whole lot quicker if we reduce (unnecessary and/or conflicting) regulation, streamline the tax code (and stop demonizing capitalists and denouncing capitalism) but I don’t see that happening before 2013 (at the earliest).

  6. call me ahab says:

    “They both brilliantly foretold of the coming crisis”

    let’s drop the brilliant, many a layman saw the same thing on the horizon . . .but maybe you, invictus, had to have it spoon fed

    Invictus: Not exactly. It was actually as clear to me early on as it was to Krugman and Rosie, and I have referenced my earlier pieces from that era (posted mostly at Bonddad’s blog and many times.

  7. sailorman says:

    I often agree with Paul Krugman, but totally disagree with his statements that our debt is not as great, proportionally, as at the end of WWII and we had no trouble paying that back.

    While the first part of the statement is true, there is no comparison to the US economics of today with the end of WWII. After WWII, almost all the manufacturing capacity of Europe and Japan had been destroyed by the war. China did not have much back then, so the US was the major manufacturer for all the worlds goods for many years. There was low personal debt and the war factories easily converted back to producing consumer goods. We had no trouble paying off the debt because our GDP grew in leaps and bounds.

    Today the situation is completely reversed: we have next to no manufacturing, we have a giant and bloated financial service sector that sucks the blood out of the rest of the economy and doesn’t pay its fair share of taxes. Not to mention that we are fighting two wars and never raised taxes to pay for them.

    There is no way we can pay it back without severe disruptions to the lifestyle of our citizens unless we decide we can no longer afford the current military budget.

  8. Bynoceros says:

    “Isn’t 21 grand per household of government benefits enough?”

    Well, actually, no: $1.2T in Medicare/Social Security, $600B in Defense, and $400B in interest expense doesn’t leave a lot of money for schools, roads, unemployment assistance, Medicaid, veterans benefits, etc.

  9. Mike in Nola says:

    See no link to Rosie’s whole statements to see if there really is a contradiction. To the extent there is, I think they are just looking at it from two different aspects. Yes, there has been a huge increase in government spending over the past decade, but a large percentage has been for disastrous wars, the military-industrial complex, and bailouts. At the same time, the bottom half of the population have seen incomes decrease, accounting for recent increases in expenditures on top of the prior increases. Since the rich (remember Rosie hears a lot from wealthy clientes) aren’t benefiting from the social safety net, and, god-fobid, they may have to pay taxes to support it, the increase has suddenly become important.

    Invictus: There is no link to Rosie’s work; it’s now paid subscription (since around March) and unavailable for linkage.

  10. Invictus,

    just, to 2x-check, the oft-heralded ‘Social Security “Trust Fund”‘ has been looted, yes?

    point being, Why? concern yourself with senseless, pututive, dichotomies (Rosie v. Krugman) when there are serious ‘nuts and bolts’ Questions that need to be Answered–to get a grasp on how far down the chute We’ve, already, been shoved..

  11. techy says:

    I am not 100% sure, maybe somebody can confirm this?

    Isn’t Social Security benefits return on what we paid in?? so why is it touted as though it is a socialist benefits to its citizens??

    I know medicare costs are not comparable to what we pay in, but my paycheck tells me that it is not completely govt benefit for nothing.

    Whoever thinks that this whole drama is about fiscal policies…..need to stop watching media and do some self analysis….

    its all about putting the other party out of power……they people are not angry that spending is out of control….

    30% of them are angry that a black man is the president. and maybe he is a kenyan and a muslim..

    another 10% has no idea…and they beleive whatever rush limbaugh or fox news tells them…..

    forget about fox news….no major media wants to talk about the real reason…

    why is it always about Fiscal chokehold…when the democrats are in power?? because they cannot go out in the open and say: that blacks are also humans, abortion is about choice and unfortunate, gays also deserved to be treated like humans…and bible is not to be taken literally all the time.

    but whatever it is…till we have a campaign finance reform….just be thankful that the country is not getting sold as parts.

  12. constantnormal says:

    None of this matters any longer. Regardless of whether the Teahadists are removed from control of this sorry situation, we are now embarked on our next step over the Japanese waterfall, with another wave of unemployment looming ahead, which will drive another (additional) wave of mortgage failures (there are not many outside the ranks of the wealthy who can service a mortgage without paychecks), which will rejuvenate our slumbering financial crisis — and if the goobermint is in or near a state of default, how can we bail out the banksters again?

    The die is cast, the Great Roulette Wheel of Karma is in motion. Place your bets.

  13. dead hobo says:

    Sorry, at this point I don’t care much. I whined loudly and for years about Uncle Stupid and a host of miserable, horrible, incompetent, and hate inspired laws and regulations that allowed and still allow thieves to steal at will. Nothing happened except my writing skills improved immensely. If the tea party learned the concept of nuance, they would own the government since virtually everyone except the recipients of govt incompetence see both Dems and the GOP as wretched self serving lumps of human waste on legs.

    That being said, to paraphrase a criticized quote, “do you want to be right or do you want to make money?”

    I closed out my govt bond index fund for a couple of percent gain. I have no idea what will happen next week but the current bond flight to safety is a little too weird for my cash to be involved with. I expected it to be funded with stock money, not end of the world money. Will rates rise or will the US govt go Japanese with respect to long term rates? Beats me, but I chose to bail out with a gain and wait for a better re-entry point. Stocks are still a sucker bet at this time.

    My guess, at this time, is that rates will rise when the current mess is settled. Stocks will rise but stay in the range because nobody wants to run for the hills and lose commission, yet nobody is stupid enough to actually buy to hold in this economy. Greece will finally collapse and this will provide a nice bond gain. Rates may recover again and, then, we will see the stock flight to safety.

  14. Joel826 says:

    Krugman has repeatedly pointed out that “denominators matter” as a key way that those that which to point to anything compared to GDP can be exaggerated.

    Search of Krugman Blog and this one in particular, Special Bulletin: Fractions Have Denominators.

    The fact is that government spending as a p% of GDP has been hovering around 20% +/- 2% for decades. Recently, spending has increased not due to any new huge federal programs but because of the economic downturn.

    However, and to judge the two, Rosenberg is simply wrong when he wrote, “Government spending, in the United States, is simply out of control.” Krugman points out that most of that ‘out of control spending’ is in the social safety net. What should we do to ”control’ those costs, cut unemployment benefits in this time of severe unemployment? Or should we decrease spending on Medicaid, causing the unemployed, who lost their employer provided health care, to flock to the emergence rooms for primary care?

    No, the solution is to spend as much as needed to reverse this high unemployment so that these workers get jobs and start paying taxes again, while GDP rises.
    In the longer term, the largest challenge is health care costs. Unless HC costs can be brought down to at least the level of inflation, both government and private spending will rise.

  15. call me ahab says:

    “No, the solution is to spend as much as needed”

    talk about brilliant,

    let’s don’t stop now, let’s put the pedal to the metal and see just how fast we can get this bitch movin’

    plenty more trillions to spend

  16. dead hobo says:

    I said:

    My guess, at this time, is that rates will rise when the current mess is settled. Stocks will rise but stay in the range because nobody wants to run for the hills and lose commission, yet nobody is stupid enough to actually buy to hold in this economy. Greece will finally collapse and this will provide a nice bond gain. Rates may recover again and, then, we will see the stock flight to safety.

    Which brings us to the XMAS season and holiday cheer, and maybe some form of QE3 under the tree.

  17. techy says:

    anybody who says government is spending is not needed right now, but still thought that unwanted war was needed, and still gets angry that the unemployment keeps growing because the governments(predominantly states) keep laying off people and still thinks that the tax on a billionaire making money from his capital should be less than a hard working man…. oh well only in america…thanks to the religious propaganda..

  18. Petey Wheatstraw says:

    Strange that we (“we” in the interpersonal communications sense, not in the broader talking-head media/political propaganda circus sense), argue over both the debt we have taken on, governmentally, and the size to which government has grown, but somehow completely avoid talking about exactly where all of this money went/is going, or if the expansion of government bureaucracy and safety-net programs, alone, could possibly account for all of the spending.

    I imagine the addition of DHS and other expensive programs, such as our unfunded wars, might cause a spike, but I suspect that more of the money is being funneled into well-connected private/corporate hands than we’re aware of (to private contractors in the case of the wars, or private security firms contracted to DHS, for example).

    I’m not as concerned as much about how much money we’re “spending,” as I am in finding out exactly where it’s all going. It is obviously not making its way into broad circulation. Government spending — debt-based, or not — no longer benefits the average American. If it did, our schools, infrastructure, social security programs, publicly-funded and owned R&D (sciences and technology), and general economic situation would not be in such a sorry-assed and obviously lopsided condition.

    As Deep Throat allegedly advised Bob Woodward during the Watergate scandal: if you want to find out who is operating outside the law, you have to follow the money. If you follow the money since 2000, or so, it would seem we’ve been stealth privatized.

    The complete absence of investigation, probative, civil, or criminal, into our recent and current status as an international deadbeat beggar — despite our huge stock of national wealth — in itself is an indication that the looting continues, apace.

    By the time tis is over, the US government will be an LLC, incorporated in Delaware and dollars will represent voting stock.

  19. call me ahab says:

    techy = genius

    he’s not sophomoric, or one with intelligence a bit left of the bell curve, or one who throws out red herrings as arguments, is he?

  20. call me ahab says:


    what’s up bro?

  21. speaking of the 2x-check..

    one ‘u’ in putative


    to consider ‘techy’ “sophomoric” is an insult to “Freshmen”..~

  22. techy says:

    but anyways….even though I feel frustrated the way things are…..but actually this is the reality…..this is a divided country…..50% of the people are religious and they want laws made accordingly….and some of them hate the color people…well this is what we get in a democracy (better than most systems, IMO)
    Imagine if they were 60%, we would not be having a conversation…..we would have accepted the sharia like laws as status quo and maybe focussed on real day to day issues. Kind of weird that a developed country the leader of the world, could have laws based on religious beliefs

  23. A says:

    Have a look at this perspective of Taxation in America:

    U.S.: In state of denial over taxes?

  24. ToNYC says:

    100% of tax payers believe Government spending is out of control.
    100% of those who think music should be free never wrote a song.
    DR is pointing out structural defects in real time. The only thing that makes others call it early at some later date is when their eyes opened.

  25. techy says:


    not to mention, that the wall street got bailed out by multi trillions with no consequences…

    and here we are arguing that we need to cut social security even though its a benefit as a result of paying in to it.

    Maybe a person who makes 50 million as capital gain has worked harder than someone with full time job??

    If Bush Jr would have had his way….SS would have been blown out of the water by wall street by now..

  26. Joel826 says:

    call me ahab Says:
    July 30th, 2011 at 9:48 am

    “No, the solution is to spend as much as needed”

    talk about brilliant,

    let’s don’t stop now, let’s put the pedal to the metal and see just how fast we can get this bitch movin’

    plenty more trillions to spend

    My position is purely Keynesian. As Krugman points out, the federal stimulus, such as it was, barely covered the reverse stimulus the States were engaging in, namely slashing spending. What was needed was a bigger stimulus. Since we didn’t get one, we need more stimulus. As Krugman states in today’s blog:

    We have a deeply depressed economy — more deeply than we realized, according to the GDP revisions — which is clearly suffering from a lack of demand. Meanwhile, the government is able to borrow at very low interest rates…
    And what is the political debate about? Spending cuts — which overwhelming evidence now says will depress the economy further — to ward off those invisible bond vigilantes.

    Oh, BTW, it was the same position conservatives suggested before the Democrat moved into the White House.

    This is from the Weekly Standard, in 2005:

    WHEN DICK CHENEY SAID, “Deficits don’t matter,” economists took that as proof of the economic illiteracy of the Bush administration. But it turns out there is a case to be made that Cheney was onto something.

    On the deepest level, the vice president was echoing, in slightly exaggerated form, an idea put forward a few years ago by Irving Kristol, the Godfather of the neoconservatives who have had such a wide-ranging effect on Bush administration policy. Kristol wrote then, and still believes, that “We should figure out what we want before we calculate what we can afford, not the reverse.”

    The deficits that Bush ran up in the years in which the country was teetering on the verge of a serious recession had the beneficial effect of righting the economy. In that sense, deficits not only didn’t matter, but were a force for economic good.

  27. DeDude says:

    I think Rosie failed and Krugman called him on it. Rosie is using the worst Foxified talking point and propaganda approaches to obfuscate the truth and make a point that cannot really stand on it’s own merits.

    Rossie is Cherry picking the parameter (%GDP) that will best support the point of spending increases but is not that informative because it is a ratio and, therefore, can increase even if spending does not (i.e. if GDP fall).

    He hammers on a large number, out of context, again Cherry picked for effects by using per household rather than per person.

    He fails to get into details of what exactly increased and why. When Krugman correct this sloppiness, we see that the reason is that this would work against his conclusion (Rosie, you get a AAA for Foxification of facts).

    If you want a debate about spending you should compare us to other similarly industrialized countries (oh sorry, that would not support your conclusion). You should point to specific spending items where we are way out of line (oh sorry, that would suggest cuts to the military and private medical complexes and not where you want them). You should point out specific things where spending has gone up and why (oh sorry, that would not support the right wing narrative of an out of control gobinment spending spree). The overall conclusion is not supported by the facts so Rosie ignores and obfuscates reality in order to retain his conclusion. On contribution to the debate amongst adults he gets an F for Foxification.

  28. DeDude says:


    Sure as the raging flock of elephants are gaining on us from behind, why would we hit the gas – no lets hit the brakes – brilliant.

    And if we can have exchanges of brain dead one-line analogies, why would be take on something as hard as fact-based rational discussion. After all Fox is the role-model not a trap for idiots.

  29. NoKidding says:

    The same two people would be taking the same opposing positions whether there were national debt the topic of the day or not.

  30. call me ahab says:

    Hoffer ,

    what’s up my libertarian brother . . .keeping up the good fight?

  31. MayorQuimby says:

    Krugman is waaaaay off on this one.

    1. CBO estimates are not necessarily accurate.

    2. Regardless, he’s missing the key point – looking at m1 mult and velocity of 1.5, along with $400 billion in interest payments thanks to our enormous debt load shows that the US DID spend tons of cash but that deflationary forces along with debt interest have sucked away much of that effect.

    3. If his answer is to have overcome this effect by spending much more than we did, I have to laugh because gvmt can only weaken the dollar via dilution or borrow both of which simply shift purchasing power away from one group towards another. Any deficit spending comes at a net loss ie you spend $50k today at the expense of having lost $57k over the long term. And you can see this pressure velocity over time. The inability to sustain velocity via deficit spending is obvious and expected. That $57k loss results in $7k x velocity that is pulled from future economic activity so our debts grow and the required supporting GDP to overcome these losses grows exponentially!!,

    4. The ONLY way to heal is to either have a HUGE burst of real GDP to the extent that we essentially increase our GDP by fifty percent for a decade or more with OUT doing it via borrowing but via real economic growth. Or we should cut spending, default bad debts and allow deflation to correct over inflated prices for nearly everything. Aything else is a form of kick the can which comes at the expense of the future.

    Look….we’ve been papering over recessions and deficit spending like lunatics for almost FIFTEEN YEARS and THINGS ARE GETTING WORSE. At what point do you people accept that there is no way to simply print or borrow ourselves into prosperity?! Ie you fix an alcoholic by giving them TEN bottles of whiskey instead of FIVE.!

    A person has to be insane and entirely motivated by emotion and artisan bs and other bs to believe such utter nonsense!

  32. techy says:

    let me see;

    Cut Federal govt jobs
    State govts too

    Pvt sector has outsourced everything..

    and then whine about high unemployment and wonder why the tax collection keeps going down…and unemployment benefit keeps going up.

    maybe we need to just cut the UE benefits….and lets those bastards who dont have a job fend for themselves…..that will be the “R U feeling lucky” moment for the rich guys….when the unemployed hungry mob…looks at the mansions..

  33. DeDude says:

    Off Course ahab; when the elephants are stampeding after you – hit the brakes, not the gas.

  34. MayorQuimby says:

    Dude- more like when you are running low on fuel with the elephants catching up you are screwed either way.

  35. techy says:

    Mayor… who says we are running low on fuel… have you looked at the falling yield on UST?

  36. MayorQuimby says:

    HOW TO CURE OBESITY by Dr. Krugman-

    The truth that is so hard for some people to understand is that by overeating, the body actually increases it’s metabolic rate and as much as the ‘weight loss zealots’ crow about exercise and dieting they are proven wrong every time.

    So Eddie Lardass really should not go cold turkey on the Turkey Hill but should step UP his caloric intake. This will send a clear message to the body that it needs to increase its metabolic rate. Yes you CAN cure obesity by overeating!

    Pull the other one invictus and all the other free lunchers. What you all advocate is absurd and borders on the insane. Earth is flat scientists showed more open mindedness and humility in the face of the obvious when they were burning real scientists at the stake for pointing out the FREAKING OBVIOUS.

  37. MayorQuimby says:

    Techy there are a great many reasons why yields are low that have absolutely NOTHING to do with stability or economic potential.

  38. mark says:

    Continuing on Mark E. Hoffer’s theme I offer:

    “HOW TO CURE OBESITY by Dr. Krugman”

  39. MayorQuimby says:

    Where can I claim my free lunch?

    And btw…did you hear about this great new invention called flubber?!

    Pull the other one…

  40. call me ahab says:


    as if anyone knows what you are talking about,

    suggestion, work on your analogies:

    Analogies for Beginners

  41. rktbrkr says:

    It’s a bad time to implement austerity unless you really WANT a depression and I think we’re backing into that position.

    The high unemployment really takes a bite out of revenues and with two wars and (winding down) stimulus we have some extraordinary expenditures. (I’m not sure if undeclared wars should really be considered an extraordinary expenditure anymore since we’ve been in active conflict for about 30 years since the end of WWII).

    The US deficit is like a scissor motion in reverse with expenditures increasing while revenues decrease. Maybe extending the Bush tax cuts and SocSec tax cuts weren’t such a smart move if there was any real interest in reducing the deficit. Those revenue losses far exceed the spending cuts that are being debated.

  42. MayorQuimby says:

    It’s a bad time to believe in free lunches which is what the anti austerity crowd thinks.

    If we just whip out that credit card and dig a deeper hole we will somehow be able to climb out better…..

    Keep pulling!

  43. call me ahab says:

    As usual,my posts start disappearing . . .it appears BR just can’t handle my righteousness,

    carry on brothers

    Invictus: You take gratuitous, off-topic swipes at folks and wonder why comments may disappear? For the record, I’ve never deleted anyone’s comment and am not even sure I possess the authority to do so if I wanted to. That said, look in the mirror. Differences of opinion are one thing, being offensive for its own sake something else altogether.

  44. Petey Wheatstraw says:


    Nice to see your comments, again.

  45. Petey Wheatstraw says:

    Damn, now you’re leaving, again. Stay cool in this heat, man.

  46. DeDude says:


    You guys from may be wrong, but at least you are as consistent in your wrongness as you are consistently wrong. The real world may have proven time and time again that austerity and budget cuts fail to cure high unemployment, whereas stimulus of sufficient size and duration will stop and reverse the fall. But those facts shall not get in the way of your opinions.

    You understand monetary momentum (velocity x amount), but then you hold either velocity or amount constant in order to argue yourself away from real world observations. Just goes to prove that sometime knowing a little, is worse than the bliss of total ignorance. Your solution is to get rid of monetary momentum (by paying down debt and destroying “amount”) in order to cure the lack of monetary momentum?

    Your claim is that the destruction of money by paying down federal debt, and destruction of velocity by putting federal workers and suppliers out of a job, will somehow be countered by taking a small fraction of 400 billion in interest payment from a slow (non-productive) rent-seeker “bin” and put it into some fast productive bin. Would have to be one heck of a super-speed bin to have addition of 7K to that bin counter 50K loss of “amount” AND collateral damage to “velocity” of at least another 50K. Unless you can point to that super-duper speeding bin somewhere in the real world I think it is your theories not reality that is on the wrong track. Your approach will not only destroy monetary momentum as observed in the real world, but your own kind of theoretical calculations suggest the same outcome.

    Again, I do not suggest that we should NEVER take the foot off the gas pedal, just that we need to wait with doing that until after the stampeding hoard of unemployed elephants have found something more productive to do.

    Your suggestion is that although the gauge may say the tank is half full (OK call it half empty), who cares about the gauge, lets stop now and commit suicide. Because eventually we will run out of gas and we are convinced the Elephants will keep running forever.

  47. 尤伯杯男子 says:


    back at you, stay cool my brother, been one hot bitch on the East coast

  48. dedude,

    you make me so hot . . .

  49. MayorQuimby says:

    1. I’m not TRYING to cure high unemployment Dude! A person would have to be a complete idiot to thin that a gvmt that spends so many hundreds of billions a month on social programs can stimulate via austerity! Of COURSE it will mean a ramp in unemployment and economic pain. But it is faaaaaaaar better than detroying the entire monetary system and economic potential and stability of the nation as a whole!

    2. Re: velocity. You are misrepresenting my point. Thanks to usury the $50k costs $57k long term. So….assuming a velocity of 1.5 you are creating $75,000 of economic activity shorter term but REMOVING $77,500 from the future all things being equal! The economic system is not a perpetual motion machine. Money creation is efficiently absorbed by the top and while some is reinvested most is captured and diverted back into a repurchasing of the bottom via commodities speculation, real-estate investments and bond purchases. The bottom iow lives paycheck to paycheck so that stimulative effect of deficit spending runs out and throw the public right into the pockets of the Barry Ritholtzes of the world who then buy property, oil, gold, foreign currencies and cash FLOW via bonds and stocks. This process might take months years or decades but is happening quicker and quicker since monetary and political policy is sooooooo skewed towards the top.

  50. MayorQuimby says:

    I’m not saying we should stop anything!!!

    I’d support a plan that slowly phases in larger cuts to social programs, the military, everything. I’d get the 50 pct who pay no taxes to do so (or try). I’d raise taxes on the wealthy, restrict commodities markets to those who need to hedge ie airlines for fuel, farmers for food etc.. I’d cut all pensions and convert them into 401k plans. I’d get everything down to a realistic level but slowly to avoid shocks to the system. It would be BAD no doubt. But we could then try to address other structural issues such as outsourcing of jobs (very difficult to address), education, imprisonment, etc.

  51. MayorQuimby says:

    Meant $117,500 earlier….

  52. willid3 says:

    so raise the taxes on the rich? since in that 50% there are lot of folks who make millions or billions. is not all those who make 10K or 20K a year.

  53. DeDude says:

    1. OK so we are back to the Chicken little thing. The sky is falling and it will blow our brains out – so lets take a gun and blow our brains out.

    2. Yes “all things being equal” and assuming that the effect of money on velocity is the same in a slow moving economy as in a fast moving economy (and/or that all money has equal speed). I agree that “Money creation is efficiently absorbed by the top”, but let me add the qualifier IF WE ALLOW IT. The only solution to get long-term growth is to move money away from the investor class (where money is slow and non-productive) and into the hands of the consumer class (where it gains speed and productivity). Yes the money we put in the pocket of consumer class people eventually ends up in the pockets of investor class people, but nothing to prevent us from getting it moving again by increasing taxes on the rich (well there is a political problem until we begin electing progressive democrats). We may agree more than you think. I don’t see stimulus and pumping money into the system as the long-term solution to low growth- just as the only politically viable way to prevent a damaging collapse in the short-term (and the only thing with a chance to pass in the current right-wing political climate).

  54. willid3 says:

    replacing pensions with 401ks is among the biggest scams ever done. they don’t work as well. they depend on amateurs to invest money part time as well as professionals doing it full time. some how that will never work out. the biggest pension problem we have is the lack of investment, which will also doom the 401k. many companies and others will not make the investments in good years (just like employees will do in 401ks), which will underfund them.

  55. whskyjack says:

    I was looking at the top 400 returns report from the IRS, Their average tax rate was 18%, a self employed couple making $40,000 a year pay a 20% tax rate, the wife and I who came in just under $100,000 payed a tax rate of 25%( both of these count payroll and self employment tax)

    So talk about getting a free lunch


  56. wally says:

    Rosie is generally a pretty honest guy, but when he measures Federal spending as a percentage of GDP he is patently being dishonest. Nobody can make an argument that spending should decrease during a recession without being utterly blind to the purpose of government… but that’s what he is doing.
    On the revenue point, he is quite correct. You can’t stop collecting income and expect to not run a deficit.

  57. wally says:

    “It’s a bad time to believe in free lunches which is what the anti austerity crowd thinks.”

    Well, it’s boneheaded to think you can shrink your way out of a recession.

  58. theexpertisin says:

    On intellectual, ultra-high self esteem islands the Tea Party is villified.

    If a Tea Party was present a generation or so earlier, we would not have the current economic problem(s).Moreover, the cult of dependancy that permeates our society would likely have never materialized.

    As President Obama chortled when he and his progressive minions slammed the ObamaCare Health Fiasco down our throats on Christmas Eve not long ago, “Elections have consequences.”

    Yes, they certainly do, thank God.

  59. end game says:

    Re: “they both are right and they aren’t in conflict” – nonsense. Rosenberg bends over backwards to pin higher government spending on the President because the President isn’t from his political party. And when it comes to how to solve our problem, there is one important thing you need to know: Krugman will acknowledge all the facts that Rosenberg lays out, but Rosenberg won’t acknowledge the facts that Krugman lays out if they conflict with his conviction that liberals are to blame. I read both of these guys, and I don’t have nearly as much respect for Rosenberg as Barry does. Among current and former chief economists or chief investment strategists of major buy-side or sell-side investment firms, Rosenberg stands virtually alone in his view that the stimulus was unnecessary and ineffective, and it’s because he cherry-picks facts and arguments that support his preconceived conclusions.

  60. farfetched says:

    MayorQuimby Says:
    “But we could then try to address other structural issues such as outsourcing of jobs (very difficult to address)”

    An economy, like any other stable structure, must be built on a strong foundation.

    THIS outsourcing-manufacturing problem should be solved first. At the same time we could increase revenues by taxing imports of ‘American’ companies operating outside the U.S.

    The bleeding of jobs is the disease that must be cured.
    The wars and home buying programs for anyone with a pulse of the late 90′s-2000′s were nothing more than stimulus resulting from the outsourcing disease of other real production jobs. We have to stop the hemorrhaging of jobs to slave wage countries without environmental and labor standards. As long as we allow externalization of criminal corporate behavior in exchange for cheap tchotchskis from Walmart, we will continue to spiral down. We are trading Manhattan for trinkets, beads and Ipods.

    Home building employs vast numbers of people until it peaks and let’s ask ourselves, while we will save gobs of money bringing troops home, what will those people do for a living when they get home?

    Rather than fighting wars we should have invested those funds in building and modernizing our infrastructure to increase production for export and our own domestic consumption. At least we would have been left with some measurable product instead of a body count and poor international PR while employing those people.

  61. wally says:

    “On intellectual, ultra-high self esteem islands the Tea Party is villified.”

    It is. And other places, too, such as on the continent of common sense. They are economics idiots and they have set out to ruin their own country; they believe a cheap moralism will overcome facts.

  62. DeDude says:

    MayorQuimby@ 12:04, 12:08;

    Remember that right now we can get 5 year inflation adjusted loans for a negative real interest rate, even the 10 year TIPS comes at rate that is barely positive. So all your runaway amok “compound interest will destroy us” calculations are out of sync with reality. We are actually getting money for nothing (and chicken little’s for free). You can indeed create 75K of economic activity here and now and pay back less than 50K inflation adjusted in 5 years of about 55K inflation adjusted in 10 years.

    We agree that deficit spending is not a tool to solve structural problems. However, I think it has proven itself a great tool to overcome cyclical problems. The structural problems is that way to much of our productivity (and all our increased productivity in the past 3 decades) is going to the investor class. Any solution to our structural problems must, therefore, contain an element of redistributing wealth from rich to poor and middle class people. Taxing incomes of the low income people who “only” pay payrole and sales taxes is like shaving the bald people so you can use the hair to make pillows so we all can sleep comfortably at night – it’s not going to work. Inceasing minimum wages and indexing them to GDP growth would work.

  63. Thor says:

    AHAB -

    As usual,my posts start disappearing . . .it appears BR just can’t handle my righteousness,

    I would imagine your posts disappear because you constantly feel the need to lash out and call people names. If you don’t like being treated like a 14 year old, then stop acting like one. We’re all adults here, the mood in the country is already toxic enough without people like you making things worse.

    BR – I applaud your removing the derogatory and insulting comments as I’m sure the bulk of your readership does as well.

  64. rktbrkr says:

    The outsourcing of jobs will be solved by the devaluation of the dollar which is underway, it won’t come with a formal announcement uncle Ben will just keep pumping out more dollars. Why do you think third -worlders like Brazilians can afford Florida condos? Welcome to the new american peso.

  65. MayorQuimby says:

    Dude- if only it were that easy!

    Inflation isn’t something that can be sustained without supportive underlying growth in real productive capacity and GDP. The idea that you can “flip” debt has not only been proven false but is ridiculous!!!! Negative real borrowing costs are not indicative of an easy way out or a strong system but a failed one! It means the system is so broken that even 0 % credit isn’t enticing moves away from risk.

    You are once again trying to suggest that USA can simply print money, lower rates, deficit spend and….VOILA!!! No more pain!

    Sheeit….maybe I should go buy a block of houses in Cape Coral with 10% down on each and just WHAMMO wait for that cash to roll in!

    come on man….even if it is just on an instinctual level you have to realize this is silly.

  66. MayorQuimby says:

    Wally- What exactly do find problematic about the idea that we simply spend what we earn and no more?!

  67. MayorQuimby says:


    “Well, it’s boneheaded to think you can shrink your way out of a recession.”

    Wanna know what is even MORE boneheaded?! The idea that you can eat yourself thin.

  68. DeDude says:

    Mayor – We have flipped debt for 200 years so the suggestion that is false or ridiculous is – ridiculous. Negative real borrowing costs may be indicative of problems, but it sure makes borrowing cheaper (and debt a much lesser problem). You seem to be pointing first to the problems of inflation then the problem of deflation, and both times yelling “we are doomed”. We may have ONE of those two problems but to suggest we have both is a little – what can I say – ridiculous (as is your comparison of the federal debt to a housing bubble – I guess you are still trying to do kitchen table economics at a national scale).

  69. DeDude says:

    “You are once again trying to suggest that USA can simply print money, lower rates, deficit spend and….VOILA!!! No more pain!”

    I guess when you can’t argue with what people actually are saying your can always invent and “site” them for something they didn’t say but at least you can handle to argue against.

  70. theexpertisin says:

    Actually, there is not much to debate here.

    1. If there is a Bill by Tuesday, President Obama will sign it.
    2. If there is not a Bill by Tuesday, little will occur except in a media feeding frenzy.
    3. If Bill takes a few days longer to pass, it will probably be a better Bill.
    4. If it were not for Conservatives being true to their philosophy, the uber Progressives that swept into power in 2008 on smoke and mirrors (hope, anyone?) would have continued their incredibly inane policies that have made the recession much worse, and job prospects for millions more remote.

    Thank God Americans self-corrected the political landscape in 2010.

  71. BPotts00 says:

    You are being extremely charitable to Krugman, Invictus.

    You should make sure you point out the context of Krugman’s predictions: He was rolling out article after article at the time blasting Bush policies through the run-up to the crisis, and he was predicting a major vague disaster every 5-6 months throughout the 2000s. Then, following the stimulus and Obama election, he became one of the more vocal pollyannas during 2009-2010.

  72. willid3 says:

    MayorQuimby, for inflation to take hold, it requires that incomes increase also. otherwise it will fail to be sustainable. and it also requires the loosing faith in the currency. any currency can have that happen. and all of them depend on full faith and credit of government that issues. any thoughts as to whether there is any thing going on that can impact that?

  73. BPotts00 says:


    I’m gonna answer for Wally here: The government isn’t in the business of “earning”, despite some of the rhetoric of producing jobs and what not. The government, from the military and police through social programs, is far more analogous to an insurance company.

    And insurance companies plainly do not and cannot operate on the ideal of “spending what they earn and no more”. Insurance companies must consistently monitor investments and risks far in to the future, sometimes losing money in the occasional disaster, but hopefully coming out ahead in the long run through shrewd financial management.

    I have no doubt we share a lot of opinions on the current size and scope of government responsibilities and expenditures, and I certainly bristle at what is to me progressive hubris concerning government programs. But “spend what you earn, and no more” is a sophomoric and unreasonable standard for government.

  74. MayorQuimby says:

    Dude said…”You seem to be pointing first to the problems of inflation then the problem of deflation, and both times yelling “we are doomed”. We may have ONE of those two problems but to suggest we have both is a little – what can I say – ridiculous”

    And yet that is precisely the issue!

    Deflation and outsourced jobs is creating a loss of purchasing power at the bottom and middle income strata.

    Housing wealth destruction and job stability are exacerbating this.

    MEANWHILE in monetary land….inflation is being injected into the system by the Fed who lend money to rich people who then buy commodities, driving up prices, who buy bonds which lower savings rates and borrowing costs, and stocks which drives down dividend yields and increases cap gains.

    The positives here – higher equity prices and lower borrowing costs are more than offset by higher cost of living and stagnating wages!!! Sure j6p might have seen his 401k jump from $25,000 to $40,000 but at the same time, his driving costs are up $1,000 year over year. Food is up $1,500, his property taxes up $500. Clothes up $400. Rent is up $600 etc. Essentially, the top is taking all the new liquidity and nothing is improving. People on the edge are pushed over with higher costs of living. People recently laid off lose their apartments etc.

    Tis sort of centrally planned inflation runs out EVERY TIME!!! Inflation is SUPPOSED to occur when these very people create it at the local bank when they put a solid 25% down on a home or 50% down on a car with stable jobs, a stable currency and stable energy costs!

    The deficit spending is sopping up housing and rent supply which is great if you are the recipient but it comes at the expense of everyone else’s purchasing power.

    Despite your argumenst you STILL support the idea that we can paper over significant credit collapses and losses in GDP with deficits which, over the long term come at a NET LOSS thanks to usury and governmental inefficiencies which you know exist in spades.

  75. MayorQuimby says:


    I don’t seeANYTHING that suggests wages will rise in any significant way. On the contrary, I think more waste cuts are in the offing.

  76. edwards183 says:

    MayorQuimby Says:

    Wanna know what is even MORE boneheaded?! The idea that you can eat yourself thin.

    Last time I checked a globally based economy was not a biological life form that uses and retains energy from the input of other biological matter.

    Talk about your false analogies. Not even a good metaphor.

  77. DeDude says:

    Actually Ben’s pumping liquidity into the investment banks is not deficit spending. And we do agree that Ben’s actions are seriously hurting the small saver and consumer class at the expense of pumping up and saving insolvent banks.

  78. Greg0658 says:

    MayorQ @ 4:37p .. if no one else will I can dig that passion statement on duopoly deflation/inflation

    on that 401K .. am I offbase on a Facebook counterpost:
    JS says “If you have a 401K about now you should be wondering what it is going to be worth if the U.S. loses their good Credit Rating.”
    I counter “actually the question is if interest rates rise – will they pass on into your 401K – debasing the currency with more printing is anti-saving for savers”

  79. wally says:

    “Wally- What exactly do find problematic about the idea that we simply spend what we earn and no more?!”

    The fact that some people artificially limit what we earn. What we earn simply must be tied to what we need to provide. If you run a business you have to get a price for your product that lets you stay in business.

    Look, you’re not making any argument here from a basis of facts. This is the same moral righteousness and “I want, therefore it should be my way” attitude that characterizes the Tea Party. There’s a whole country full of people here, and mistreating them is no way to have a good future.

  80. MikeW says:

    While I understand that Mr. (Dr.?) Krugman has his bully pulpit at the NYT, and a shiny Nobel to boot, David Rosenberg always seems somehow the more serious and engaged economist. Plus Da-Ro’s being Canukistanian means the heady discourse remains civil, but still as light & frothy as an Iced Cappuchino Supreme from Tim Horton’s.

  81. jbaker655 says:

    The disagreement on how to fix the problem is basically a Keynesian/MMT vs. Hayek/debt repudiation difference. I believe both are “correct” in that there are 2 ways out of this mess.

    The first way to spend and print money completely debase the currency (and debt). Then start over. (ie Germany in 1920′s)

    The second way is massive defaults (or debt jubilee) and “redistribution of wealth” to prevent a large percentage of the population from being homeless and destitute (such a moritorium home foreclosures, etc.).

    Anyone who thinks there is a painless way out is wrong. If Keynesian theory worked, Japan would be on it’s feet by now. They are not. All that has been accomplished it to run up government debt. Unfortunately the Austrian school of economics is correct. The problem is what happens “before the crisis”. (Basically government and economic policy failure from 1964 to present, democrats and republicans.)

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