Paul Krugman book review in The New Yorker

[gristy]

A review of two books (one by Krugman and another by Joseph Stiglitz), this article is a good background on the mess we are in today and the bigger mess we are headed for.

GOODBYE TO ALL THAT
by JOHN CASSIDY
Who killed the boom? Two economists make their cases.

Government actuaries, like observant Jews, celebrate the New Year in the fall. In September, 2000, when the books closed on the fiscal year, the federal government had the biggest budget surplus in history, and it was predicted that the accumulated surplus for the next decade would be more than five trillion dollars. The big question during the election was what to do with the money; Al Gore, as you may remember, called for it to be put in a "lock box" for retirement benefits, while George W. Bush said that some of the money ought to be put back in Americans' pockets. Three years later, it all sounds like a debate between pre-Copernican astronomers. In the fiscal year that ends this September 30th, the deficit is expected to exceed four hundred billion dollars. And it is predicted that the accumulated deficit over the next decade will - in unhappy symmetry - be nearly five trillion dollars.

What went wrong? Two of the country's leading economists, Paul Krugman and Joseph Stiglitz, try to sort through the matter in their new books. Krugman, who teaches at Princeton, started writing for the Times Op-Ed page in January, 2000, and has hardly paused for breath since. "The Great Unraveling: Losing Our Way in the New Century" (Norton; $25.95) collects his Times columns, a few articles from elsewhere, and a smattering of new material. Despite the inevitable limitations of such a miscellany, it represents a harsh indictment of the Bush Administration, which Krugman holds responsible for ravaging the nation's finances and heading us toward a financial crisis. In the past two and a half years, the White House has reduced the top income-tax rates, lowered the taxes on corporate dividends, and prepared to abolish the estate tax. But Krugman is equally enraged by what he regards as the Administration's deceptive presentation of its decisions. "Bush has pulled the largest bait-and-switch operation in history," Krugman writes. "First he described a budget-busting tax cut, which delivered the bulk of its benefits to the very affluent, as a modest plan to return unneeded revenue to ordinary families. Then, when the red ink began flowing in torrents, he wrapped himself and his policies in the flag, blaming deficits on evil terrorists and forces beyond his control."

<snip>
...Krugman writes:
One of these years, and probably sooner than you think, the financial markets will look at the situation, and realize that the U.S. government has made inconsistent promises - promises of benefits to future retirees, repayment to those who buy its debt, and tax rates far below what is necessary to pay for all of it. Something will have to give, and it won't be pretty. In fact, I think the United States is setting itself up for a Latin American-style financial crisis, in which fears that the government will try to resolve its dilemma by inflating away its debt cause interest rates to soar.
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[RobertSeattle]

1. The one thing people tend to forget is

That wonderful feeling we all had back in 2000 that the Federal Government was going to finally get rid of all that debt. It was truly a great feeling. Then Bush comes in and just destroys that with the "great unravelling". That's what makes me angry.