We don't know for sure that New York Times columnist Paul Krugman and former Federal Reserve chief Alan Greenspan had each other in mind when they penned diametrically opposed op-eds, both of which ran today. But, we can hope.
Start with their titles. Greenspan's Wall Street Journal piece is dubbed "U.S. Debt and the Greece Analogy" (You can guess where that piece is headed.) Ever the Keynesian, Krugman's piece is titled, "That '30s Feeling."
The key issue for both Krugman and Greenspan, of course, is deficits and spending. For Krugman, the world's recent turn toward austerity, evinced by Congress's recent refusal to extend unemployment benefits and cutbacks in social services across Europe, is a sign that governments are afraid to spend enough to stimulate economic growth. "Suddenly, creating jobs is out, inflicting pain is in," he writes.
Greenspan, for his part, is more concerned with looming pain than current economic hardships. Noting that in the last 18 months, the U.S. deficit has ballooned to 8.6 trillion from $5.5 trillion, Greenspan argues that the world needs "tectonic shift in fiscal policy." And, growth, he posits can't and won't come from government spending. (Though, to be fair, other than budget cuts, Greenspan offers no alternative to government spending to boost the economy.) Here's Greenspan:
"We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force, if history is any guide, will not be able to consistently increase output per hour by more than 3% annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments. (We must avoid persistent borrowing from abroad. We cannot count on foreigners to finance our current account deficit indefinitely.)"
Krugman -- nor any major economist following the crisis -- has ever argued that we can continue to borrow cheaply from foreign countries indefinitely. The larger problem, he suggests, is that here in the states politicians are deeply inconsistent about which benefits get cut in the continuing push to trim Federal spending. Here's Krugman.
"In America, many self-described deficit hawks are hypocrites, pure and simple: They're eager to slash benefits for those in need, but their concerns about red ink vanish when it comes to tax breaks for the wealthy. Thus, Senator Ben Nelson, who sanctimoniously declared that we can't afford $77 billion in aid to the unemployed, was instrumental in passing the first Bush tax cut, which cost a cool $1.3 trillion. "
Greenspan warns of "growing analogies to Greece" -- a comparison Krugman has refuted more than once. The economic recovery should, in fact, bring the deficit down, Krugaman wrote in May, adding in an interview NPR that austerity should come only after the economy has begun to trend upward.
What do you think? Who do you side with, Krugman or Greenspan?