The problem with deficits

Paul Krugman in the NYT:

The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.

Firstly, what does "make the economy poorer in the long run" mean? A fall in GDP? A fall in real wealth? A general fall in prosperity? Or that we'll tend to be poorer than we otherwise would be. Secondly, the crowding out argument is not the sole reason why deficits can reduce prosperity. Another is that deficits need to be paid for, and this typically involves monetising the debt. This leads to expansionary monetary policy that fuels asset bubbles and increases systemic risk. In other words, fiscal imbalances aren't the solution to the credit crunch, the credit crunch is the consequence of fiscal imbalances. Thirdly, he finishes up with:

The bottom line, then, is that people who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.

Who would disagree that the "best course of action... is to... get this economy on the road to recovery"? I dislike the rhetorical ploy of projecting bad intentions on intellectual opponents.

Also, Sheldon Richman lays into Krugman's history and intellectual honesty:

Krugman here leads his readers to believe that Hoover tried to balance the budget by slashing spending. In fact, Hoover did not reduce spending. On the contrary, he increased it. If he aimed at balancing the budget, it was through tax increases not spending cuts. For example, the top marginal income-tax rate jumped from 24 to 63 percent. Anyway, he actually ran large budget deficits.

And finally, whilst I'm at it (and this belies the fact that I actually like a lot of what Krugman does), here's Peter Klein:

Some years ago Krugman wrote a rather silly and superficial piece on the Austrian theory of the business cycle, which he called the “hangover theory” of recessions. Krugman’s essay provoked strong reactions from Roger Garrison, John Cochran, David Gordon, and Bob Murphy, all of whom have considerable expertise regarding this particular theory. Naturally, Krugman didn’t read any of these responses because they weren’t written by, well, Paul Krugman.

Paul Krugman is incredibly bright, deserved his Nobel, and inspires many young economists to pursue the discipline. But he is also partisan, uncharitable, and unscholarly. When was the last time you learnt anything from reading him?