Wednesday, March 24, 2010

Our Banana Republic Rulers

Mankiw cites Krugman:
I think that the main thing keeping long-term interest rates low right now is cognitive dissonance. Even though the business community is starting to get scared — the ultra-establishment Committee for Economic Development now warns that "a fiscal crisis threatens our future standard of living" — investors still can't believe that the leaders of the United States are acting like the rulers of a banana republic. But I've done the math, and reached my own conclusions.
Krugman wrote this passage in 2003, and the point has never been so relevant as it is today. Krugman however appears to have himself a case of cognitive dissonance, as seen in this recent post. As a response to Krugman, Kinsley gives him some basic economic lessons:
I have been waiting for Paul Krugman to tell me how we are going to handle the debt, once we get this recession out of the way. ... Yglesias [for example] apparently believes that we can escape our fiscal dilemma without pain. I would like to know how. And if there is such a way, why have we denied ourselves for so long? Why do we ever bother to show fiscal restraint? Why have taxes at all? Why deny ourselves anything money can buy? If $15 trillion in debt can be a freebie, why not $30 trillion or $60 trillion?


Joseph said...

Unfortunately, the US government seems unwilling to face the reality that it will have to either 1) drastically increase taxes, 2) drastically decrease spending, or 3) print a hell of a lot of money in order to get the budget under control.

There's really no use hoping for an angry Republican backlash against the Democrats come November, because Republicans have proven that they are just as willing to mortgage the future of the US to pay for a host of silly things.

Joseph said...

Although I wouldn't go as far to say that our leaders are like leaders of Banana Republics. Democrat and Republican office-holders are generally well meaning, just woefully stupid.