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A leading economist recently summed up one reason why: “When the government reduces saving by running a budget deficit, the interest rate rises.” Yes, that’s from a textbook by the chief administration economist, Gregory Mankiw.

But what’s really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government’s solvency.  Paul Krugman March 11, 2003

But there’s no reason to panic about budget prospects for the next few years, or even for the next decade. Consider, for example, what the latest budget proposal from the Obama administration says about interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush. Paul Krugman February 5, 2010

HUH?  Why were big government deficits a bad thing in 2003, but they are benign in 2010? Is the economic situation that different? Yes, the deficit that Krugman was terrified about in 2003 was much smaller than the “benign” deficit we are burdened with today.

IBD compares the two deficits

The fiscal 2003 deficit was about $377 billion, or 3.4% of GDP. Krugman worried “that the 10-year deficit will be at least $3 trillion” and about “the future liabilities of Social Security and Medicare.”

Cut to the present. The deficit hit $1.4 trillion in 2009, or 9.9% of GDP. It’s expected to climb to $1.6 trillion in 2010, part of an $8.5 trillion shortfall over a decade. With baby boomers now starting to retire, the liabilities of Social Security and Medicare aren’t much in the future anymore. But now Krugman claims, “The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.”

He counsels us that “there’s no reason to panic about budget prospects for the next few years, or even for the next decade.”

In 2003, Krugman lived in Panic City: “The accident — the fiscal train wreck — is already under way.” He worried that when “the government reduces saving by running a budget deficit, the interest rate rises.” So why won’t the current deficit drive interest rates up? Krugman doesn’t explain. But a key difference, of course, is that now there is a stimulus package — i.e., government spending — to defend. As Krugman said in an earlier column, “What we need right now is more government spending…. Now is not the time to worry about the deficit.”

In 2003, though, there was a tax cut that needed defeating, so “big permanent tax cuts (were) completely crazy” and we had to worry about how a deficit-induced “train wreck (would) play itself out.”

He’s following an iron law of modern liberalism: Liberals only care about budget deficits insofar as they are useful in defeating tax cuts. When it comes time to unleash government spending, deficits can be largely ignored. (Conservatives often take the opposite stance).

Near the end of Friday’s column, Krugman surveyed the political landscape and declared that “the hypocrisy is breathtaking.” Indeed.

This is not the first time Krugman has let his bias show. Last month Krugman claimed the reason Obama’s programs are unpopular was that he didn’t blame George Bush enough.

….I disagree. The Obama administration’s troubles are the result not of excessive ambition, but of policy and political misjudgments. The stimulus was too small; policy toward the banks wasn’t tough enough; and Mr. Obama didn’t do what Ronald Reagan, who also faced a poor economy early in his administration, did — namely, shelter himself from criticism with a narrative that placed the blame on previous administrations.

Obviously Krugman hasn’t heard many of Obama’s speeches.  If I had a dollar for every time Obama blamed something of George Bush, I would be able to make a dent in that federal deficit which Krugman now says is nothing to worry about.

The two-faces of Mr. Krugman serve to make all economists look bad. At least elitist ones from MIT.  The NY Times columnist has shown that he will do anything, including a 180 degree in his “expert commentary” to sell the populist position.

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