Mis-Understanding Debt

In a column ironically titled "Nobody Understands Debt", Krugman argues that national debt is not "like a family that took out too large a mortgage, and will have a hard time making the monthly payments" for at least two reasons: "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," and "an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves"

The first reason is, inescapably, the logic of a Ponzi scheme.

There is some truth to the second reason. National debt held domestically is less dangerous for the obvious reason that paying it down does not directly shrink the national economy, but also, and more importantly, because citizen-debt holders are "stickier" than other investors: If Greeks were willing and able to purchase Greek sovereign debt, it would not be in crisis now.

In any case, he clarifies this as not even being true: "Foreigners now hold... a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners." In other words, paying down the debt will shrink the national economy (unless these 89 cents worth of U.S. claims are simultaneously called in), and U.S. debt is not in (or roll-over-able into) stickier hands.

Complementing the column's hollow argument, is Krugman's habitual bombastic dismissal of opposing views. Those he disagrees with are "disconnected... from the suffering of ordinary Americans", "have no idea what they're talking about", are "repeatedly, utterly wrong" and, in case the nuance here was too subtle for the gentle reader, are guilty of "wrongheaded, ill-informed obsession." This sort of political rhetoric is, obviously, designed to minimize analysis or reflection and very effective -- taken seriously, it can tie one's sense of self-worth to particular political conviction: by aping Krugman, one demonstrates being informed and right-minded.

While there is, of course, no shortage of equivalent rhetoric on the right, Ann Coulter, for example, doesn't carry anything like the academic or intellectual pretension of Krugman.