SPIEGEL: More stimulus also means more debt. Many European nations, as well as the US, are already drowning in debt.
Krugman: I’m not saying that I don’t ever care about debt, but not now. If you slash spending, you just depress the economy further. And, given the low interest rates and what we now know about long-run effects of high unemployment, you almost certainly actually even make your fiscal position worse. Give me a strong-enough economic recovery that the Fed is starting to want to raise interest rates to head off inflation — then I become a deficit hawk.
SPIEGEL: So, for now, we should just ignore the huge debt burdens?
Krugman: That’s right. It’s quite amazing that we’re giving priority to the imagined threat that the bond markets might lose faith even though they give every indication of not being worried at all, given the reality that millions of people have been unemployed for more than a year and the almost certain long-term damage that that’s inflicting.
SPIEGEL: But we can’t just kick the debt can down the road and let future generations deal with it. The debt has not been shrinking even in good economic times.
Krugman: That’s not true. We went into huge deficits when the economy plunged, and this is the time for huge deficits, not later. And it’s not a date; it’s a condition. When the economy has recovered sufficiently so that we’re no longer in the liquidity trap is when you start to worry about debts again… >continue<