Posted 10:46 PM by Robert

The Insolvency of Herr Doktorprofessor Paul Von Krugman

Just weeks ago, Paul Krugman breathlessly warned:

With startling speed, we've blown right through the usual concerns about budget deficits — about their effects on interest rates and economic growth — and into a range where the very solvency of the federal government is at stake[!!!!!!!] (Exclamation points - no doubt deleted by overly conservative Times editors - are here imputed and restored to reflect properly the tone and sense of Herr Doktorprofessor's warning!)

Yes, that all sounds very immediate. We've blown right through the usual concerns about budget deficits - Herr Doktorprofessor huffs - and looming federal government insolvency is now as immediate as the dire wolf at the door! Argentina, here we come!

But what about the Damocles column that had appeared only a few days before? Despite its flashy allusion to the Sword of Damocles and Herr Doktorprofessor's de facto willfull misapplication of the Damocles index for political effect, that column actually backed off on the immediacy issue:

The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

Today we are further comforted by Herr Doktorprofessor with the assurance that the federal government is in no immediate danger of running out of money. In fact, the entire federal solvency issue - that onrushing Argentina-like future - is pushed off into some remote future, a mere figment of Stein's law - itself a bogus, essentially humorous, quip:

Academic economists often cite Stein's Law, a principle enunciated by the late Herbert Stein, chairman of the Council of Economic Advisers during the Nixon administration. The law comes with various wordings; my favorite is: "Things that can't go on forever, don't." Believe it or not, that's a useful reminder. .... The prime example I have hammered on in this column is, of course, the federal budget.

Whether it's a useful reminder, of course, depends on who you are and how much you need "reminding." Herr Doktorprofessor suggests that its the Bush Administration who need the reminding. No surprise there.

However, it's Herr Doktorprofessor who requires the reminding. He requires reminding that it was variant (precursor?) of this "Stein's law" that provokes Keynes' famous quip: "In the long run, we'll all be dead." That quip didn't put an end to the objection it opposed, but Keynes did correctly point out that serious economic arguments need to be more than mere objections that particular government policy cannot go on "in the long run." Herr Doktorprofessor also requires reminding that his deficit jeremiads have been wildly overblown and protracted. He requires reminding that he has been predicting the collapse of the celestial dome for so long that that it's increasingly hard to look at that strange little photo of him that the Times runs and not imagine his growing resemblance to Chicken Little.

But his still-overheated rhetoric should not obscure the erratic, inconsistent but still real trend. He is backing down. The sky, Herr Doktorprofessor now says, will not fall today, as he asserted so recently. It will not necessarilly fall even in a few years. We are now told that the sky will now fall at some point in the future determined only by Stein's Law.

One is reminded of the question asked by the Professor of Spanish of the Professor of Gaelic: "Does Gaelic have any word that captures the meaning of the Spanish word "manana?" To which the Professor of Gaelic responds: "Yes, .. almost ... but not one with the same sense of urgency."

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