Two excellent posts from Paul Krugman today and yesterday about why for substantive and technical reasons the federal deficit and debt aren't the threats to the economy some say they are.  I agree; substantively there is little to complain about.  The fiscal policy in place over the past year has been a success by any objective measure.

But the next to last word in that last sentence -- "objective" is the key.  No matter how much we might wish it to be otherwise, this is anything but an objective discussion. The federal budget deficit and debt are political rather than technical issues and that means dealing with fact isn't likely to change many minds.

I agree with Andrew that as illuminating as Paul Krugman's Sunday New York Times Magazine article was regarding the internecine warfare between "saltwater" and "freshwater" economists, it didn't answer the basic question in the title of the article: "How Did Economists Get It So Wrong?"

One thing you learn if you study advanced physics is that what you observe is crucially dependent upon your point of observation.  The same is true in economics.  I can't fault Paul Krugman for viewing the world from academia.  I would note, however, that the financial market crash of 2008 resulted from Washington policy and financial market decisions that went badly awry.  We deregulated financial markets and promoted derivatives in ways that we believed extinguished risk, when, in fact, we just shifted the risk off balance sheet and pretended it didn't exist.  To our dismay, we proved that markets can consistently ignore financial risk and overvalue housing assets for years, and hardly any economists, except Robert Schiller, noticed.

Paul Krugman doesn't believe that the stimulus bill is likely to be enough to get the job done and seems almost despondent about the fact that the compromise that will allow something to pass the Senate made it even smaller.  Krugman thinks this bill will be it, nothing more will get enacted, this was a one-time all-you-can-eat offer, etc.  Here's the money quote:

The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.

I have no quarrel with Krugman's numbers, just his reading of the political tea leaves.  In fact, and as I'm planning to discuss in more detail in my "Fiscal Fitness" column this week in Roll Call, even if the president doesn't make a request for additional fiscal stimulus, there will a number of already scheduled opportunities for more stimulus to be enacted.  I'm even willing to predict that more will be adopted in the not too distant future if it is needed.

Paul Krugman correctly points out the flaws with an argument of the form, "there is no trust fund, so the system will be in crisis in 2017."  But his response is not a good argument against reforming the system now.