Nobel prize-winning economist Paul Krugman on Monday attempted to give the panelists on MSNBC's Morning Joe a lesson about why austerity and drastic spending cuts were the wrong solution in tough economic times.
"Our track record is actually not bad, we've tended to reduce our debt at least relative to GDP when the economy was strong," Krugman told host Joe Scarborough. "We tend to increase when the economy is week, but that's what you should do. So this is not a hard call. I mean, as long as we have four million people who have been unemployed for more than a year, this is not a time to be worrying about reducing the budget deficit. Give me something that looks more like a normal employment situation and I'll become a deficit hawk, but not now."
"I think we can begin to address our entitlement problems without putting on the brakes, without austerity," Council on Foreign Relations President Richard Haass asserted. "If we don't, what worries me about what people like Paul Krugman and others are recommending is we leave ourselves incredibly vulnerable to higher interest rates, to future Hurricane Sandys, to future wars, to bond markets, that we put ourselves in an incredibly vulnerable position."
"Washington doesn't work that way," Krugman pointed out. "If you spend a lot of your time talking about the debt and the entitlements are the big problem, the message that actually what we need to is promote jobs gets lost. And in fact, we spent the last two and a half years focused entirely on arguing about the long-term deficit and entitlements and doing nothing for employment right now. That balance has got to shift."
Former Pennsylvania Gov. Ed Rendell (D), who co-chairs the corporate-sponsored Fix the Debt campaign, insisted that Krugman's argument "makes no sense" because the Simpson-Bowles deficit-reduction plan "said we can do both," cut the debt and spur the economy.
"So two guys can write a report that calls for all kinds of good stuff and they can't even get their own commission to agree on the report," Krugman laughed. "And you're saying this should be our policy? We need to focus on what is urgent right now, which is creating jobs and getting this economy back to full employment."
"But the way you do that is to build a political coalition to do something about the long-term debt," Rendell declared.
"Have you been living in the same country as I have these past five years?" Krugman quipped.
"My message is, we've got a coming collapse if we don't take care of our entitlements," Scarborough remarked.
"It's a long way off, it's not necessarily even true," Krugman replied. "All you're saying is that we should lock in now the health care changes that we think we would have had to make within 15 years."
"Not just lock in changes," Haass interrupted. "We've got to make real cuts over the next decade."
"No we don't," Krugman shot back.
"Yes, we do," Haass said. "We have got to find another $2 trillion [because your argument is] based upon rosy assumptions you're right. But what if those assumptions are wrong? You're basically willing take enormous risks with the American economy."
"People like me have been saying for five years, don't worry about these deficit things for the time being, they're a non-issue," Krugman observed. "Other people have been saying, 'Imminent crisis, imminent crisis!' How many times do they have to be wrong and do people like me have to be right before people start to believe this?"
"You're right until the day you're wrong, and that's a bad day," Haass grumbled.