Don't Fear Debt —Failed Reform Is Scarier

Krugman: We need deficits in a recession; they 'saved the world'

By Jason Farago, Newser Staff

Posted Aug 28, 2009 6:19 AM CDT

(Newser) – Paul Krugman isn't surprised that the projected $9 trillion deficit over the next decade is being greeted as a sign of economic apocalypse—and that commentators think it proves health care reform should be scuppered. In fact, he writes in the New York Times, it's good to run a deficit during a recession; if anything, Washington should run "even larger deficits over the next year or two" to combat unemployment. Debt may be scary, but for political rather than economic reasons.

Right now the US can borrow at below 3.5%, and there's no real chance that the country's credit rating will suffer even with debt at 70% of GDP. What worries Krugman are politicians who may block efforts to bring down debt through reform, especially of health care costs. "That won't happen, of course, if even the most modest attempts to improve the system are successfully demagogued—by conservatives!—as efforts to 'pull the plug on grandma.'"

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Demonstrators outside a town hall meeting on health care reform hosted by former Vermont Gov. Howard Dean and Rep. Jim Moran, D-Va., in Reston, Va., Tuesday, Aug. 25, 2009. (AP Photo/Charles Dharapak)

Supporters and opponents of health care reform argue before the start of a town hall meeting hosted by Howard Dean and Rep. Jim Moran, D-Va. (AP Photo/Charles Dharapak)

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Deficits here and in other major economies saved the world from a much deeper slump. The longer-term outlook is worrying, but it’s not catastrophic. The only real reason for concern is political. - Paul Krugman

If governments had raised taxes or slashed spending in the face of the slump, if they had refused to rescue distressed financial institutions, we could all too easily have seen a full replay of the Great Depression. Deficits saved the world. -

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Don't Fear Debt —Failed Reform Is Scarier