“A trillion here, a trillion there and soon you’re talking about real money.”
That’s New York Times columnist and Nobel Prize winning economist Paul Krugman’s philosophy about government spending. Never mind about the taxpayers who will foot the bill.
That figure did not include proposed bailouts for the automakers, state governments or an additional $700 billion stimulus plan.
But according to Krugman, the
“How much money can the government actually spend in rescuing the economy? The answer is a lot. It’s not unlimited. A trillion here, a trillion there and soon you’re talking about real money. Vast countries with stable governments, which is us, can borrow up to 100 percent, more than that of GDP, and you work that out – we probably have $10 trillion of running room if we have to use it. I don’t want to get there, but uh, we’ve got a long ways to go,” Krugman said.
But Gary Wolfram, the William Simon Professor of Economics at
“The ability to borrow depends upon the willingness of others to lend. Professor Krugman is probably correct that there is a relationship between the willingness of savers to lend and the size and stability of the borrower's economy. However, as Adam Smith pointed out, at some point lenders lose faith in the ability of the borrower to pay its debt and that sets a limit on how much a government can borrow,” Wolfram said.
“The recent inability of AIG or Citigroup to borrow should give us warning that there may be a sudden drop in confidence of lenders to what may at this point appear to be a stable and capable borrower. While it is unlikely that this could happen to lenders to the
Wolfram also pointed out the trillions in spending the government has already committed for Medicare and Social Security: “At least $50 trillion in spending on Medicare and Social Security that will have to be borrowed unless taxes are increased or
Another BMI adviser criticized Krugman’s claim. Don Boudreaux, chairman of the department of Economics at