Krugman on Regime UncertaintyPeter Klein • Friday December 21, 2012 8:04 AM PDT •
Speaking of regime uncertainty, even distinguished mainstream economists get it. Here’s Nobel Laureate Paul Krugman:
I think that the main thing keeping long-term interest rates low right now is cognitive dissonance. Even though the business community is starting to get scared—the ultra-establishment Committee for Economic Development now warns that ”a fiscal crisis threatens our future standard of living”—investors still can’t believe that the leaders of the United States are acting like the rulers of a banana republic. But I’ve done the math, and reached my own conclusions—and I’ve locked in my rate.
Yes, that’s Paul Krugman—writing in 2003, when the despised George W. Bush, not Krugman’s beloved Barack Obama, was ruling the banana republic (and presiding over huge budget deficits, which Krugman now endorses). As I remarked on Facebook, for Krugman, “analysis” is what helps your guy and hurts the other guy. Oh, and the 2003 Krugman was “terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.”