Please Don’t Feed the Debt Scolds

By Paul Krugman,

In March 2011 Erskine Bowles and Alan Simpson, chairs of a White House deficit-reduction commission, issued a frightening warning about U.S. government debt. Unless America took major steps to rein in future deficits, they warned, a fiscal crisis could be expected within around two years.

Bowles described what he thought would happen: Foreigners would stop buying our debt. And then, he asked: “What happens to interest rates? What happens to the U.S. economy? The markets will absolutely devastate us.”

That was 12 years ago. At the time Bowles issued his warning, the interest rate on 10-year U.S. bonds was about 3.5 percent. Not much was done to reduce deficits, aside from a squeeze on discretionary federal spending that probably delayed economic recovery. But at the end of last week the 10-year rate, which has gone up substantially over the past year as the Fed raises rates to fight inflation, was … about 3.5 percent.

The point is that in the early 2010s, the last time we faced a potential crisis over the debt ceiling, there was an elite consensus that budget deficits were a severe, even existential threat. This consensus was, in retrospect, completely wrong.

More From The New York Times (subscription required):