It appears that the deficit vultures are in the ascendency. As their position is backed neither by economic theory or the raw numbers, one must conclude that they have an alternate, but unspoken, agenda. I have no idea what it could be.

Paul Krugman is similarly nonplussed. His version of a typical dialogue between himself and a German deficit vulture is all too representative of what passes for most political argument that goes on today:

German hawk: “We must cut deficits immediately, because we have to deal with the fiscal burden of an aging population.”

Ugly American: “But that doesn’t make sense. Even if you manage to save 80 billion euros — which you won’t, because the budget cuts will hurt your economy and reduce revenues — the interest payments on that much debt would be less than a tenth of a percent of your G.D.P. So the austerity you’re pursuing will threaten economic recovery while doing next to nothing to improve your long-run budget position.”

German hawk: “I won’t try to argue the arithmetic. You have to take into account the market reaction.”

Ugly American: “But how do you know how the market will react? And anyway, why should the market be moved by policies that have almost no impact on the long-run fiscal position?”

German hawk: “You just don’t understand our situation.”

So on it goes. I blame most of this idiocy on total ignorance of economic history. If anyone has a better explanation, please enlighten us in the comments.

Tags: Krugman, Recession, Deficits