Krugman on Detroit: Move Along, Folks; Nothing to See Here!Scott Shackford|Jul. 22, 2013 11:53 am
Credit: dreaming_of_rivers / Foter / CC BY-NCWe know economist Paul Krugman has taken to avoiding reading competing economic and political theories, but has he given up all reading altogether in order to perhaps avoid accidental exposure? In Sundays New York Times, Krugman tackles the Detroit bankruptcy and determines that the important thing is that we stop comparing Americas various fiscal problems with Greeces:
As you may recall, a few years ago Greece plunged into fiscal crisis. This was a bad thing but should have had limited effects on the rest of the world; the Greek economy is, after all, quite small (actually, about one and a half times as big as the economy of metropolitan Detroit). Unfortunately, many politicians and policy makers used the Greek crisis to hijack the debate, changing the subject from job creation to fiscal rectitude.
Now, the truth was that Greece was a very special case, holding few if any lessons for wider economic policy and even in Greece, budget deficits were only one piece of the problem. Nonetheless, for a while policy discourse across the Western world was completely Hellenized everyone was Greece, or was about to turn into Greece. And this intellectual wrong turn did huge damage to prospects for economic recovery.
What made Greece such a very special case? Why is it so different from, say, Spains economic situation? Or even Detroits? Why is an economist saying theres little to learn about economic policy from a failing state? All of this is simply asserted.
Krugman, amazingly, pivots to argue that Detroits budgets and pension obligations are not part of the problem:
Never mind the repeated failure of the predicted U.S. fiscal crisis to materialize, the sharp fall in predicted U.S. debt levels and the way much of the research the scolds used to justify their scolding has been discredited; lets obsess about municipal budgets and public pension obligations!
Or, actually, lets not.
Are Detroits woes the leading edge of a national public pensions crisis? No. State and local pensions are indeed underfunded, with experts at Boston College putting the total shortfall at $1 trillion. But many governments are taking steps to address the shortfall. These steps arent yet sufficient; the Boston College estimates suggest that overall pension contributions this year will be about $25 billion less than they should be. But in a $16 trillion economy, thats just not a big deal and even if you make more pessimistic assumptions, as some but not all accountants say you should, it still isnt a big deal.
unreal....
