Coincidentally enough, Krugman is also claiming that the British government is not sufficiently Keynesian. (Apparently no one, save Paul Krugman, is sufficiently Keynesian for Paul Krugman’s tastes.) Jeremy Warner has had enough:
. . . the idea that you can more or less indefinitely keep putting off deficit reduction until the economy is firing on all cylinders again just looks like an excuse to me for continuing to spend at unaffordable levels. He accuses the Tories of being “ideological” in their single minded pursuit of deficit reduction, and of using the crisis to dismantle the welfare state, yet he conveniently skirts around the underlying issue, which is in essence that the country can no longer afford this expenditure.
[Chancellor of the Exchequer George] Osborne’s fiscal consolidation is aimed only at removing the structural deficit – which is the bit that won’t go away when the economy returns to normal. The Obama Administration’s reluctance to take similar action in the US is extraordinarily irresponsible, and one of the reasons why the Democrats are so hopelessly down in the polls.
[. . .]
The striking thing about my last two visits to the US is just how worried by the deficit most Americans are. Indeed they are ashamed by it, and rightly take the view that unless it is tackled soon, it will seriously undermine America’s long term economic prospects, not to mention its positions in the world. Obama’s failure to realise this, and to continue to force a minority liberal agenda down everyone’s throat, is the reason he’s lost the plot. To restore his presidency, he needs to move towards the centre, and that includes the construction of a robust deficit reduction plan that begins with dispatch.
Professor Krugman suggests that Britain has nothing to fear from excessive public debt, which is still as things stand below its long run historical average. He’s technically right about this, but like a lot of statistics used to support a particular, ideological position, it’s completely meaningless. Looking at the path of UK public debt as a percentage of GDP, there have indeed been quite long periods when it has been much higher than it is now, but these periods mainly coincided with prolonged and all embracing war – first the Napoleonic wars, then later the Boer war and the first world war. Britain had barely recovered from the financial consequences of the first world war by the time the second world war hit.
The big point missed by those who think elevated public debt doesn’t matter is that these periods of excessive debt utterly crippled the UK economy. Indeed, Britain’s decline through the twentieth century as an economic superpower directly correlates with increased indebtedness. Fighting wars is not good for economic health.
Both America and Britain are again technically at war, but these conflicts are relatively small affairs by past standards. What makes the current unsustainable trajectory of public debt so worrying is that it’s not military spending that is the problem this time around. We cannot rely on demilitarisation to come to the rescue of the public finances, as it has in the past. Public debt is excessive for entirely different reasons – the excess in public spending is not on fighting wars but on treating ourselves – and unless America does something about it soon, the US will decline economically and geo-politically over the next fifty years as surely as Britain did in the last century.