Paul Krugman: There’s No Debt Crisis, Only A Political One

To some he's controversial, to others he's the voice of reason.

While not everyone may agree with his views, most would agree with Nobel Prize-winning economist Paul Krugman that the U.S is in a financial crisis.

However, Krugman strongly believes the United States' financial woes are due not to a debt crisis -- but rather a political one.

As time runs out for the so-called fiscal cliff negotiations between the White House and Congress, doubts linger as to whether Democrats and Republicans will be able to reach a budget deal that would prevent the fiscal cliff's harsh budget reduction measures -- hundreds of billions of dollars in automatic federal spending cuts and tax increases set to take effect in January 2013.

Republicans have called for increasing revenue by $800 billion by closing unspecified tax loopholes. President Barack Obama wants more than $1 trillion in new revenue, including higher tax rates for married couples making more than $250,000 a year and individuals making more than $200,000. The Republicans want entitlement reform. The president is willing to make more cuts, but he doesn't want the cuts to affect senior citizens.

Some are hopeful that Obama and House Republicans will be able to beat the Dec. 31 deadline -- possibly in a scenario that would echo the chaotic, reckless, 11th-hour agreement that was made in the summer of 2011 to raise the U.S. debt ceiling. Krugman said it shouldn't come to that, in part because the situation is not dire and because there is no fiscal cliff.

“We are not having a debt crisis,” Krugman wrote in his Dec. 13 column for The New York Times. “It’s important to make this point, because I keep seeing articles about the ‘fiscal cliff’ that do, in fact, describe it -- often in the headline -- as a debt crisis. But it isn’t."

“The U.S. government is having no trouble borrowing to cover its deficit,” Krugman continued. “In fact, its borrowing costs are near historic lows. And even the confrontation over the debt ceiling that looms a few months from now if we do somehow manage to avoid going over the fiscal cliff isn’t really about debt.”

The economist argues that there is, however, a political crisis, which results from the Republican Party reaching the end of a 30-year cycle. He further argued that the party’s “radical agenda lies in ruins” and that its members have no clue how to deal with its failure.

President Obama's re-election was a stunning upset in some Republican circles, in part because the GOP thought its vague campaign -- no specifics on what programs it would eliminate or how it would address longstanding social problems like poverty and the uninsured -- would lead to victory in November 2012. It did not. Mitt Romney's campaign failed in part because he was vague. Krugman argues that Capitol Hill Republicans are deploying the same problematic strategy.

“Why won’t the Republicans get specific? Because they don’t know how,” Krugman wrote. “The truth is that, when it comes to spending, they’ve been faking it all along -- not just in this election, but for decades.”

Krugman concludes that Republicans haven’t a clue regarding what they truly want, which leads to their lack of “specific demands.” He calls it “a dangerous situation” as the party’s control of the House gives it the “ability to do a lot of harm, as it lashes out in the death throes of the conservative dream.”

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