Paul Krugman (Jan 1, 2012):
People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!
…while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.
…nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe.
Paul Krugman (March 11, 2003):
…last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.
…we’re looking at a fiscal crisis that will drive interest rates sky-high….But what’s really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government’s solvency.
…How will the train wreck play itself out? ….my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.
Now to be fair, Krugman covered himself in 2003 in a credible way he said “unless we slide into Japanese-style deflation, there are much higher interest rates in our future.” Thus, I do not fault Krugman’s forecasting ability. What I do fault is that despite a 180 degree about-face, one thing remains constant in all of Krugman’s writings, anyone who disagrees with him is portrayed as a mendacious idiot. In truth, Heritage today and Krugman 2003 both have legitimate concerns about the long-term debt situation of the United States and it would have been to the credit of Krugman 2012 had he acknowledged that point more fairly.
Addendum: Krugman responds pointing out that he has acknowledged this mistake. Fair enough, although I remain puzzled as to whether we did or did not owe the debt to ourselves in 2003.