8.29.2009

The tangled webs

Paul Krugman has chosen to wax blasé about the pile of debt the US is building today, claiming that because Belgium and Italy, of all the powerhouse economies of the EU, haven't faced economic ruin, the US should dig its own hole a bit deeper. After all, now the government owns more stuff!
[T]here have been large outlays on financial rescues. These are counted as part of the deficit, although the government is acquiring assets in the process and will eventually get at least part of its money back.

For a country rooted in the idea that government should really not own businesses, it seems odd to suggest now that, wait, sure -- let's have the government just buy up any old thing it pleases. And that moral hazard is indeed playing out -- or maybe Krugman just doesn't read the news:
A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.

But back to Krugman. He goes on to argue that passing the so-far-vaguely-defined health care reform package will help to lower government spending:
Over the really long term, however, the U.S. government will have big problems unless it makes some major changes. In particular, it has to rein in the growth of Medicare and Medicaid spending.

That shouldn’t be hard in the context of overall health care reform.

My mathematical mind fails to grasp how expanding medical coverage to everyone, not just senior citizens, and having the government pay for it, will in fact lower costs to the government. But that doesn't seem to matter in Krugman-land. Indeed, in his magical realm, this European counter-example doesn't seem to have any relevance, even though it serves to give the lie to the idea that more governmental spending is inevitably a good thing. Meanwhile, the Japanese seem to be taking to its logical conclusion what America has just begun:
"It is not clear that either party has an economic philosophy, besides let’s spend more money," said Robert Feldman, an economist in Tokyo for Morgan Stanley.