Tuesday, January 3, 2012

Reason #102: Paul Krugman Says So

I'll step aside today and let the inimitable economist Mr. Krugman explain for me. Excerpts from this excellent editorial from Sunday's New York Times:

"Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. [...] Governments don’t [have to pay back their debt] — 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.

"...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. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years."

Let me restate one key part - the debt from World War II, that most unimpeachable of success stories, was never repaid. Nations don't erase their debts, they move beyond them. And they do so by growing their economies, not cutting them.

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