Paul Krugman: Delusions About Debt Dynamics

Via Mark Thoma, Dean Baker catches Erskine Bowles vastly overstating future federal interest payments. This reminded me of Dan Senor’s similar blooper regarding Japanese interest payments. And I think they have a common cause.

Both Bowles and Senor want to scare us about the short-run deficit (as opposed to longer-run budget concerns). And both are turning to an argument that sounds compelling: debt dynamics. The story goes like this: the more the government borrows, the more interest it has to pay, which requires even more borrowing, and before you know it the debt explodes.