Michael J. Panzner
As if they didn't cause enough damage by espousing theories that failed to account for the inefficiencies and irrationalities of the real world, many economists are advocating aggressive spend-and-borrow policies to revive the financial crisis-hit U.S. economy that reflect an astonishing degree of naïveté and ivory tower hubris.
In a word, the Keynesian Kool-Aid drinkers are saying that debt doesn't matter.
As I see it, there are plenty of reasons to challenge the apparent indifference of Paul Krugman, Dean Baker, James Kwak, and others to the parabolic rise in public debt, including the fact that the latest crisis, like many of those before it, stemmed from a similar complacency about the risks of unrestrained borrowing.
But as someone whose long experience in financial markets helped him to anticipate the kinds of earth-shattering developments most economists didn't see coming, I find the popular argument that current low yields on government bonds are a vote of confidence on current policies to be utterly ridiculous.
For one thing, long-term rates are being influenced to an extraordinary degree by the Federal Reserve, which has been supplying copious amounts of liquidity to the financial sector. With banks unwilling to channel those funds into loans for Main Street, this cheap financing is effectively underwriting their massive purchases of Treasury and other securities, distorting prices (and yields).