Great exchange between Krugman and Rogoff on Fareed’s GPS yesterday. Here’s the money rumble:
FAREED ZAKARIA: Paul, you had a column and a really striking graph, where you point out that if you’d asked yourself what has the market told us over the last three years, you know, the market’s verdict has been that the United States, which engaged in a big stimulus program, and then the Fed did quantitative easing and quantitative easing to – has found that its borrowing costs have just fallen and fallen and fallen.
PAUL KRUGMAN: That’s right. People are actually willing to basically pay the United States government to keep their money safe, which suggests that the market, at any rate, is not at all worried about U.S. solvency, which suggests that even leaving aside the whole question of multipliers and whether you can create lots of jobs, this would be a really good time to being doing a lot of public investment, because you can borrow the money for zero or actually negative cost. So it’s a pretty spectacular contrast with the rhetoric in Washington….
KEN ROGOFF: Well, for one thing, interest rates are not an incredibly great predictor of what’s going to happen in the future. Iceland was borrowing at very low interest rates in 2006. You can point to lots of other examples. This has been studied a lot, and it’s hard to find evidence that they really can predict what’s going on.
And, of course, debt levels are surging, not just the United States, but across the advanced countries. And I think that’s really important, not just to look at public debt, but to look at the total picture on debt, which just looks like nothing we’ve ever had before.
We’re already a general government debt above World War II, but if you throw in private debt, which often becomes public debt, we’re very familiar with that. I mean, I don’t think it’s nuts to be worried about debt and to just point at the interest rates and say, well, this isn’t a concern. I think it’s too easy.
And the there you have it, folks, TheTale of the Two Tails, and one of the major factors driving global volatility. Check out the rest of the interview. Two heavyweights going at it – in a civilized way.
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Where’s the disclaimer that Krugman’s track record for investment advice is as bad as Greenspan’s?
Exactly! How the guy gets away with saying he predicted the housing bubble collapse amazes me. Friends tell me they heard P.K. pound the table at a Q.& A. at the 92nd Street Y that “there is no housing bubble.’….Go figure…
Really? There are several articles documenting his analysis of a likely housing bubble in 2005 and 2006. And he was one of the few economists dismissing the likelihood of rising rates and soaring inflation in 2011.
This is an NY Times editorial in which Krugman criticizes Greenspan’s unwillingness to acknowledge a housing bubble: http://www.nytimes.com/2005/08/29/opinion/29krugman.html.