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Sunday, July 17, 2011

Krugman: US Debt, GDP v. Greece #austerity issue

July 17, 2011, 2:32 PM

Get Them From The Greeks

I’ve complained a lot about the Hellenization of our economic discourse — the insistence, in the teeth of evidence, that America is just like Greece in budget terms. Now comes Lindsey Graham to promote the fallacy. So let’s talk, again, about why it’s nonsense.
Here are net debt levels as a percentage of GDP; source here. Just to forestall the objections, these reflect all levels of government, not just federal:
So the US has much less debt than Greece. Also worth noting is the pattern over time. Greece ran up debt relative to GDP at a fairly good clip even during good times, while the United States — despite the Bush administration’s best efforts — did not. So America does not have a comparable record of sustained fiscal irresponsibility; we’ve only developed large deficits in response to the crisis, which happens to be exactly when we should be running large deficits.
And that’s not even to get into the issue of us having our own currency.
One more thing: even if you believe, despite all this evidence, that we resemble Greece, what does that say? Fiscal austerity in the face of a depressed economy does little to improve your long-run debt position, and may even hurt it. One thing the advocates of austerity never mention is that it isn’t working anywhere right now. Remember how Ireland’s early and savage turn to austerity was supposed to reassure markets and bring borrowing costs down?
Steve Benen has it right here:
If Graham sincerely believes his own rhetoric, he has no idea what he’s talking about. If Graham is just playing some kind of cynical game, he’s a hack.
I vote for both.

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