A Rare Event: The Sharp and Thoughtful Ryan Avent Gets One Wrong...
He writes:
Sovereign debt: Where's the deficit news?: Look, I think that the immediate priority should be economic weakness rather than deficits (although these needn't be mutually exclusive—you can always pass budget fixes now that take effect several years down the road). But it's just not true to say there is no news driving the interest. There is actually quite a bit of news on the risk of sovereign debt crises, driven by developing conditions in Europe. Here is just one of the stories describing the deficit worries sweeping Europe. Mr Krugman has been arguing that Europe's debt troubles don't have anything to do with fiscal irresponsibility, but that's also wrong. As you can clearly see at right, Europe's deficit troubles began well before the global economic collapse.
The problem is that this isn't a graph of government budget deficits, this is a graph of current account deficits.
Krugman's graph showing that the countries that have seen increasing debt-to-GDP ratios over the decade before the crisis are not the PIIGs but are Korea, Poland, Norway, Hungary, and Japan:
is more relevant.
Now just because the large current-account deficits of the PIIGs were not a reflection of spendthrift feckless governments does not mean that they are now a problem. They were (and are) a big problem. The claim that private sector-driven current account deficits are not a problem is the infamous "Lawson Doctrine," and I know nobody who has advocated it since the Thatcher administration in which he was Chancellor of the Exchequer.
But they are a different problem and a different kind of problem than a standard government-debt explosion problem. That's Paul's point.
