Quick! Hide the money in the mattress

Paul Krugman has an op/ed piece in the Times today about an economic model called "Damocles," which measures the likelihood that a country will suffer an economic crisis. Being who he is, he takes it as an oppportunity to rip the administration. Still, even he admits that there are problems with using a model designed to evaluate emerging economies on the US. He notes three:

1. The inherent weakness of economic modeling;

2. The fact that, unlike emerging countries, our current account deficeit is in our own currency (for more on this see here); and

3. Markets react differently to problems in an estsblished economy than they do to an emerging economy (problems in the US don't trigger the same panic as problems in Egypt, say).


If you look at this list of caveats, you really wonder what is left. Damocles is left pointing out that there is a gap between revenue and spending in America. That is true, and it is a problem, but it hardly seems likely to generate an economic crisis, especially given that, as Krugman admits, "there's no question that the U.S. has the resources to climb out of its financial hole," and "the crisis won't come immediately."

Now Krugman is a smart guy, and far more knowledgeable than I in economic and financial matters. But given that he has previously described Bush as the "leader of a movement that wants to smash the system as we know it, the social contract, the safety net that was built up since Franklin Roosevelt," you have to wonder whether he is stretching just a bit with this one.
- posted by Anonymous @ 9:08 AM