It starts with Paul Krugman...

...because of course it does.

So I spent the past few days reading and reviewing Paul Krugman's latest book, End This Depression Now!, as part of my project of reading only the contrary side for a year. It was on my "to-read" list anyway, so I figured I'd just bump it to the top of the list.

Anyway, here is Krugman's case in a nutshell. He argues that all the typical concerns you might have about massive government deficits don't apply when the economy is in a liquidity trap. (I really wish he would take care to note that he defines liquidity trap very differently from the way Keynes defined it, but let's not ask for the moon.) Because the Fed has pushed interest rates to near-zero, it can't do any more to stimulate the economy. And because private spending and investment are below a level that sustain full employment, the federal government can borrow and spend without crowding out private spending or creating inflation. Deficits and the national debt do matter, but not right now. We can - and should - worry about those issues once the economy is humming along again. And doing that doesn't even require massive debt payments. After World War II, the debt wasn't exactly paid off - it was kept level and as the economy grew the debt to GDP ratio correspondingly shrank. Because the federal government can borrow at very low rates, an additional $5 trillion in borrowing would cost about $125 billion a year in interest payments to sustain. Once we are restored to full employment, the deficit will shrink automatically, because tax revenue will rise and less will be paid out in unemployment benefits and the like, and the national debt can be both grown away and inflated away. Some mild inflation would be beneficial, because it makes workers cheaper to hire, as well as relieving the burden of private and national debt.