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Thursday, August 15, 2013

Paul Krugman, "Moment of Truthiness": Americans Confuse "Deficit" with "Debt"

Can you imagine a non-economist confusing "deficit" with "debt"? Actually, I think such confusion is easily understood. Paul Krugman, however, is not so forgiving.

In his latest New York Times op-ed entitled "Moment of Truthiness" (http://www.nytimes.com/2013/08/16/opinion/krugman-moment-of-truthiness.html?_r=0), Nobelist Krugman whines that the American public has been misled. Krugman writes:

"In a well-known paper with the discouraging title, 'It Feels Like We’re Thinking,' the political scientists Christopher Achen and Larry Bartels reported on a 1996 survey that asked voters whether the budget deficit had increased or decreased under President Clinton. In fact, the deficit was down sharply, but a plurality of voters — and a majority of Republicans — believed that it had gone up.

I wondered on my blog what a similar survey would show today, with the deficit falling even faster than it did in the 1990s. Ask and ye shall receive: Hal Varian, the chief economist of Google, offered to run a Google Consumer Survey — a service the company normally sells to market researchers — on the question. So we asked whether the deficit has gone up or down since January 2010. And the results were even worse than in 1996: A majority of those who replied said the deficit has gone up, with more than 40 percent saying that it has gone up a lot. Only 12 percent answered correctly that it has gone down a lot."

Who, according to Krugman, is responsible for this misunderstanding? Those nefarious Republicans, of course.

Okay, the annual federal government budget deficit is the difference between government receipts and spending.

On the other hand, US public debt is the outstanding amount owed by the federal government.

The federal government deficit is currently down; however, US public debt is up. How much higher is US public debt? As of January 20, 2009, when Obama became president, US gross debt was $10.6 trillion. As of March 31, 2013, US gross debt was some $16 trillion and rising.

The American public is obviously confusing "deficit" with "debt."

But Krugman denies that he is calling Americans foolish:

"Am I saying that voters are stupid? Not at all. People have lives, jobs, children to raise. They’re not going to sit down with Congressional Budget Office reports."

So what did the nonpartisan Congressional Budget Office say in May 2013 (http://www.cbo.gov/publication/44172) about America's rising debt (my emphasis in red)?:

"Such high and rising debt later in the coming decade would have serious negative consequences: When interest rates return to higher (more typical) levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving, over time the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they would have if debt levels were lower to use tax and spending policy to respond to unexpected challenges. Finally, a large debt increases the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates."

Hey, is it possible that a concerned American public, which is confusing "deficit" with "debt," is not so foolish after all?

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