Paul Krugman in today's New York Times says there is no logic behind the current global austerity movement. He is among the liberals who say slashing government spending will hamper economic growth. And he scoffs at those who argue that investors will flee U.S. Government debt if there is additional stimulus spending. He refers to them as "bond vigilantes." Well, let's compare Paul Krugman 2.0, with Paul Krugman 1.0, circa 2004, during an interview on Australian television:
Long-term interest rates which should reflect all these things are actually quite low right now and it's an interesting thing when you try to talk to people in the bond market, why, you ask, doesn't the deficit worry you?
Don't you wonder that there's going to be a financing crunch?
And they say: "Well, we believe that next year Bush or whoever is in the White House is going to get responsible."
And you ask them: "What evidence do you have for that?"
And they say: "Well, I don't know but it's always happened before."
So right now again, the bond market is reflecting the credit built up in previous responsible governments.
Krugman sounded an awful lot like a "bond vigilante" in 2004, didn't he???