Ken "Ain't Different" Rogoff Crushes The Infinite Dream Of Crude Keynesian Stimulus

Tyler Durden's picture

Following today's dismal GDP print, the massive ongoing borrowing being undertaken by our government, and the Bernankian policies which appear inescapable (and entirely ineffective for anything but the market), we thought Ken Rogoff's recent op-ed from the FT was extremely appropriate.

Authored by Ken Rogoff, originally posted at The FT,

Many foreign observers look at the US budget shenanigans with confusion and dismay, wondering how a country that seems to have it all can manage its fiscal affairs so chaotically. The root problem is not just a hugely elevated level of public debt, or a patently unsustainable trajectory for old age entitlements. It is an electorate deeply divided over the direction of government, with differences compounded by changing demographics and sustained sluggish growth. It is hard to escape the notion that today’s budget battles are but a skirmish in a much longer-term war that won’t be settled soon.

America must shortly answer a series of fundamental questions. For example, as its share of global gross domestic product shrinks from about 20 per cent today to as little as 10 per cent in five decades, should it try to continue to play the role of global policeman? The US spends more than 4 per cent of GDP a year on defence, roughly twice the global average. The Obama administration’s fiscal plans anticipate a peace dividend after withdrawals from wars in Iraq and Afghanistan. The Republican party has reasonably argued that it is unrealistic to expect this quiet to last. At the very least, if military expenditures continue to fall, it becomes more important to have the fiscal capacity to ramp them up in response to new threats. It is also worth noting that if the US were ever forced to surrender the mantle of world policeman to, say, China, foreigners may no longer have quite the same desire for its debt.

Another huge area of disagreement surrounds the question of what services should be provided by the federal government versus the states or the private sector. There is a lot of “low-hanging fruit” here. Productivity improvements in government services have been glacial compared with many other sectors of the economy. A visit to a primary school classroom in many US cities is the closest thing one can get to time travel. One idea that economists have been enamoured with for years is school vouchers but there is strong resistance from entrenched interests. How long will these same interests forestall online classes and computer-graded feedback, initially as a supplement for traditional education structures but eventually as a significant substitute. The fiscal implications are huge, as are the disagreements.

In contrast, infrastructure should be a place of common ground but again there is paralysis. Aside from funding priorities, there is a wide chasm between those who see union domination of infrastructure as key to ensuring high-paying jobs versus those who want infrastructure built, but at reasonable rates. There is the joke about the visiting Chinese group that asks their New York tour guide how long it will take to finish the Second Avenue subway. On being told two years, the Chinese translator hesitates before conveying the response and asks: “Wait a second, you mean two weeks, right?”

One of the US’s greatest assets is its ability to expand immigration without running into land or resource constraints anytime soon. But US immigration policy has long been dominated by emotion, not the cold-blooded, rational economic calculus many other countries apply. There are rigid visa restrictions aimed at keeping out terrorists, some of which remain incredibly counterproductive. Immigration policy has large implications for US debt and the sustainability of entitlements for the indigent population, yet the link seldom receives serious attention.

And of course, healthcare is the mother of all fiscal challenges, as costs rise and the population ages.

The idea that one should just ignore all these problems and apply crude Keynesian stimulus is a dangerous one. It matters a great deal how the government taxes and spends, not just how much. The US debt level is a constraint. A growing number of empirical studies, including my own joint work with Carmen Reinhart, suggest that the US has already reached a debt level that has been associated with slower growth in advanced countries. The fact interest rates are low today does not necessarily mean the US is an exception to this rule – take one look at stagnant Japan’s rates. The dollar’s reserve currency status buys America more room, but how much and for how long? A high debt burden is a problem precisely because it reduces a country’s capacity to deal with future shocks.

The US remains an incredible franchise with many remarkable strengths. The world’s overwhelming presumption is that Americans will find a path to budget sustainability. Nevertheless, it is hard for many in the US to escape the nagging feeling that just maybe this time we won’t. With more than $5tn of US Treasury debt, and memories of the huge inflation of the 1970s and default on gold clauses in the 1930s, foreigners would be right to worry a little.

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zorba THE GREEK's picture

The U.S. is now run by Idiots and thieves. When the rest of the world figures that

out, things will change rapidly and not for the better.

TotalCarp's picture

Aside from the obvious crudeness of current Krugfuck and Co's thinking, an even bigger problem i have is their utter lack of understanding of real world and keynsian counter cyclicality.

Would Krugfuck or his beloved politicians ever promote as agressive counter trend policies during an expansion as they do during a contraction? Never! They only want to spend the money none of them earns, all the time. That to be honest is not keynsianism. That is just bull. Or one may call it amerikan brand of demokracy.

Cult_of_Reason's picture

Krugfuck admires Keynes ("Keynes Was Right" by Paul Krugman) without even realizing that Keynes was an anti-Semite and a Nazi sympathizer.

John Maynard Keynes on 'repulsive', 'impure', 'ugly' Jews

 Keynes admired the Nazi economic program, writing in the foreword to the German edition to the General Theory: "[T]he theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under the conditions of free competition and a large measure of laissez-faire."

Hitler's economists admired Keynes. Similarly, the Keynesians admired Hitler.

George Garvy, "Keynes and the Economic Activists of Pre-Hitler Germany," The Journal of Political Economy, Volume 83, Issue 2, April 1975, pp. 391—405).

TotalCarp's picture

Well he claims he admires the old jew hating Keynes. But does he really? I am actually not convinced the old fart would be advocating the policies to which his name has been attached.

Not that i am a fan of incessant govt medling in the markets, but i possibly naively suspect that Keynes advocated counter cyclicality rather then the current neo-K approach of "in order to get out of the ditch we need to dig an even bigger ditch"

economics9698's picture

The GDP formula needs to be changed from:

Y = C + I + G + NX


Y = C + I - G + NX

When that happens maybe we will begin to have some success against the kleptocracy governments around the world.

TotalCarp's picture

Not convinced about -G but scaling it by net debt creation in the economy certainly looks sensible. The note here last nite about the debt issuance cost of getting gdp to -.1% in q4 says it all really.

NidStyles's picture

How about we just stop using GDP as a measure of anything?

akak's picture



And if we MUST use GDP at all, can't we all acknowledge reality and SUBTRACT the term "G" from it instead of adding "G" to it?

Laser Shark's picture

Paul Krugman in 2003: Don't Look Down

What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

None of those things are better now.  In fact, they are much worse.  I also like that he cites a Lehman Bros. model.

Krugman's a Democrat.  He makes a great living being a Democrat.  His only concern is selling his books and making a [very good] living (can't really blame him for that).  He probably is delusional and actually believes much of what he says.  Even if he's not delusional, it's hard to admit your life's work is a fraud. 

When there's a Republican in the White House, he can tell the truth to sell his books.  When there's a Democrat in the White House, he can't.  If he came out and told it like it is, his cult-like followers would just find someone else to tell them what they want to hear and buy books from.

economics9698's picture

Krugman is very delusional.  Liberalism is a mental disorder.

fourchan's picture

terry gross and krugman were jacking it on npr the other day, unopposed.

TotalCarp's picture

Yes sir, spot on, very good quote. When economic theoretizing gets combined with modern american politics, mental poo comes out. You are spot on.

wisefool's picture

correct. American democracy. 51%. Mob Rule. No constutional restraint, no legitimate difference between the political parties. revolving door between washington, wall street and K-street.

WRT to krugman, he was on tour in NYC MSM this week. Kept explaining that "deficits don't matter. Deficits don't matter. In 20 years I'll be a hawk." The same standard schtick he has mouthed for his entire career and wrote book after book after rerun book on regardless of where the economy was in the cycle.

So, to actually maybe accomplish something new, On several different opportunities during the 2 hours on bloomberg. the hosts asked (para) "Well, if deficits don't matter, then is now the time for tax reform?" He acted like a 35 year old woman does if somebody asks her age. Not sure whether it is complementary, inquisititve, or derogatory. He literally froze up several times at this question.

That to be honest is not keynsianism. That is just bull. 

Correct. He'd have to fail his own students if they responded that way he does. even in keynesianism 101.

TotalCarp's picture

Cheers wisefool, i have actually been living outside of US for a while so missed most of the Krugfuck's msm campaign. Thank fk really, with my high blood pressure that would have done me in i suspect.

I watched a clip on where he was explaining to some idiot bimbo how US should be more like France etc. i almost chocked. It was on the day when the frenchie minister let it slip out they are "totally broke" too.

wisefool's picture

That was the day, he was actually on for two hours in that segment. The france point was also fantastic.

I wont defend Krugman, But as far as financial bimbo's go, Trish is not too bad. she actually had to learn things the hard way when working for years on CNBC for the anti-Krugman = Kudlow, who bastardizes free-market/Hayek as bad as krugman does Socialism/Keynes.

Well met freind!

TotalCarp's picture

I think the poison of modern day financial media is in its focus on extremely linear thinking. What people fail to attempt to understand are the cash flows, the direction and the velocity and in todays very complicated world its not easily understood by poliiticized thinkers. history remains a good teacher. If you are not reading him already, i would recommend martin armstrong's site and blog to anyone here.

He is not a great writer and is frequently difficult to follow but he certainly knows history and helps you to take the money flows into consideration, specifically discussing the coming inflection between public and private money flows.

Good speaking to you.

kalasend's picture

"The U.S. is now run by idiot-looking thieves."

There. Fixed it for ya.

kchrisc's picture

Kudos to you.

I hate it when people describe these psychopaths as "dumb."

They KNOW exactly what they are doing, the same as any thief and con.


ArkansasAngie's picture

The world is run by idiots and theives. 

Fourth grade kickball rules.  You make a line.  The first person in line kicks.  If he kicks it, he runs around the bases.  If he misses ... well ... he goes to the back of the line and somebody else gets a crack at it.

The idea that they get to kick and kick and never give up their spot even if they make an out ... just ain't fair.


falak pema's picture

apply crude Keynesian stimulus is a dangerous one. It matters a great deal how the government taxes and spends, not just how much. The US debt level is a constraint.

ANything infinite is infinitessimally intelligent...

and don't blame it on crude K but on crude oil, the mother of our fiat expansionisms.

GNWT's picture

f*** keynsians...austrians jam...


party like it's 1999...


with the Silver Liberation Army...


GNWT's picture



trivialize the bastards





piliage's picture

Patty Hearst was a member of that group, right?

DavosSherman's picture

Hoocudanode? ***sarc!

LongSoupLine's picture

As long as bankers and corrupt politicians continue to run this fucked up country, we will continue to flush into the shit soaked sewer.


Fuck you Bernanke, Congress, Obama and all fucking banks, regulators and shill MSM fucktards.  All of you fucking jump head first int o a fucking vat of hot fucking shit and razorblades.  Fucking ass licking fucks.

10PastMidnight's picture

I like the way you put that and for some reason your choice of swear words are in just the right order to make me smile.

Mr. Hudson's picture

: "In contrast, infrastructure should be a place of common ground but again there is paralysis."

The "paralysis" is that when infrastructure projects are created money is borrowed but spent on other stuff, leaving the project unfinished and underfunded. But, people should research how the mad, evil Adolf Hitler turned Germany's economy around. He did it by creating infrastructure projects, and by doing so, he created a very strong currency; stronger than even the dollar and gold. A strong currency brings in foreign investors. That is why the world's investors invested in Nazi Germany. Investors didn't care that Hitler was evil.


NidStyles's picture

Yeah and we can all see how that turned out in the end...

Börjesson's picture

"should it try to continue to play the role of global policeman?"

The role of global policeman is a duty and a privilege that is closely associated with having the reserve currency, and essentially getting free stuff from the rest of the world. Having to be the one to keep the global trade routes open and safe comes with that privilege. The one role will end when the other one does. (And not all that far into the future, I should think.)

AldoHux_IV's picture

2 fundamental flaws in his basis for analysis or at least his prognosis are that 1.he assumes these tough decisions should be made by a centralized form of power 2. the world needs a police-state. Furthermore foreign financing of a police-state doesn't make the world better or safer, but allows the privileged few to run a muck with a nation's resources: men, women, and might behind ill conceived escalations that wind up doing more harm than good. It's an excuse for those privileged few to squander resources in the name of profit and not peace.

LynRobison's picture

Hmm. An "electorate deeply divided over the direction of government"? No, I think the electorate is all united in favor of a bigger, more powerful nanny state. The real problem is how to keep the ponzi scheme going. 

gould's fisker's picture

I'm just glad that the study of economics has progressed to such an extent that leading practitioners still rely on a guy famous from the 1930's who fucktards like Krugman cite to support the deep idea of "spend moar public funds, spend spend spend, death star, hurricane, bad storm, hail storm, sinkhole, etc., etc. etc." That's some heavy braniac shit Paul, asshole.

NidStyles's picture

That is Sophistry not Economics. Those people practice what is called Political Economy, which essentially is code for rent-seeking.

nmewn's picture

In other words...socio-economics.

NidStyles's picture

That would be Social Engineering.

pirea's picture

"The US spends more than 4 per cent of GDP a year on defence". I would say bulling not defence.

akak's picture

I think the last time that US military forces actually defended the USA was during the war of 1812 --- everything else was offense, pure and simple (yes, including WWII, as Roosevelt and Churchill together did everything within their power to both provoke Japan's attack and preclude any pre-emptive deterrence of that attack).

wisefool's picture

The best enforcers are the guys like Andre the Giant. Normal people with extraordinary advantages, kind hearts.

You just have to manipulate them in to thinking the fight is important. Your point is correct. After the invention of steam ships the USA was invincible on defense militarily and economically. But the good global capitolists just followed the mantra "Resources are there to be consumed, especially for war making"

NidStyles's picture

The problem is that the US reached and hit fiscal trouble in the middle of it's progressive/socialist indoctrination. The CONversion wasn't complete, and there was/is a lot of resistance to this conversion that conversion is being supported by the federal government btw.


The apparent chaotic mess is actually the establish progressive/socialist media and proponents freaking out about the situation. They honestly do not know what to do, as all of their theories and ideas are based upon willing guilt based coercion that maximizes the transfer of Political Economy, rather than that of Real World Economy. Real Economics disagrees with what they are trying, and that is why Real Economics hasn't been taught in the US for over 60 years.


When someone tells you that they understand Political Economy, or are mentioning Political Economy, what they are really saying is that there is something that they can (or want to) get away with through political graft. Which usually means theft or rent-seeking.



Teamtc321's picture

+1000 Nice post. Thank you.

sschu's picture


Pretty good article.  But do not expect such critical thinking out of our present leadership in Washington.  Some states have begun the process of putting their fiscal situation on a more sustainable level ... with some notable success.  However, there are some huge and serious basket cases, NY, Cali and Illinois will likely more than offset any gain by the Wisconsin’s of the country.

The leadership, especially at a federal level, is focused on lining their pockets, gaining short term political advantage (next news cycle), borrowing and spending massive amounts of free dollars and winning the next election.  Do not expect much more than that right now.

We know where this leads us, guys like Rogoff, who were pretty good with their analysis in 2008/09 have no place in the discussion right now.  They write good editorials for the FT, but who listens or even cares?  Some people close to me, when confronted with reality, just have eyes glazed over and deny or obfuscate.      

The piper will eventually need to be paid.  Whether we have a republic left when the dust settles is the real question.  More and more it appears not to be so.  Very sad.




tony bonn's picture

let's be careful with our analysis.....the keynesians have pushed the envelope of debt to the point where the marginal productivity of debt is negative....debt - and at these staggering levels - is an incurable cancer.....liquidations and a year of jubilee must be declared and enacted to restore health.....

G_T_A_44's picture

There is NO exit~

There is NO painless way out~

Rates rise and it's 2008 2.0 with 10X Multiplyer~

Atomizer's picture

Do you remember the days when...


  • You need to spend money to make money.
  • If the US GOVERNMENT sneezes, the whole fiat system collapses. 
The second triggers the first. This is cowbell tactics.