It’s truly amazing that Washington debate is dominated by fear of the bond market. And it’s also truly amazing that nobody is suggesting that a government able to borrow long term at a real interest rate of 0.7 percent really should be taking advantage of those rates to finance some much-needed infrastructure investment. (my emphasis)On the other hand, it's also quite sad. I'm convinced that one day, say, thirty or forty years from now, economists will look back at today's policymakers and be astonished by the lack of action on their part. Talk about a missed opportunity.
That being said, if you agree with Prof. Krugman but believe that, unfortunately, the US government is already overburdened with debt and therefore should refrain from spending any further, I suggest you read this recent brief by economist James Galbraith on the myth of the unsustainability of US government debt. The brief does an excellent job at exposing the flawed assumptions used in the economic forecasts of doomsayers such as the US Congressional Budget Office who claim that US federal government expenditures are on a "reckless" and unstainable path. According to Galbraith,
[t]he CBO’s assumption, which is that the United States must offer a real interest rate on the public debt higher than the real growth rate, by itself creates an unsustainability that is not otherwise there. It also goes against economic logic and is belied by history. Changing that one assumption completely alters the long-term dynamic of the public debt. By the terms of the CBO’s own model, a low interest rate erases the notion that the US debt-to-GDP ratio is on an “unsustainable path.” (my emphasis)I also leave you with this excerpt from economist Abba Lerner's classic piece, "Functional finance and the federal debt". In my opinion, it offers one of the most powerful explanation for why, barring the improbable event of a complete breakdown of the economy due to hyperinflation or other catastrophic occurence, it is very unlikely that US government debt will grow infinitely if focus is placed on promoting full employment and growth:
"...as the national debt increases it acts as a self-equilibrating force, gradually diminishing the further need for its growth and finally reaching an equilibrium level where its tendency to grow comes completely to an end. The greater the national debt the greater is the quantity of private wealth. The reason for this is simply that for every dollar of debt owed by the government there is a private creditor who owns the government obligations (possibly through a corporation in which he has shares), and who regards these obligations as part of his private fortune. The greater the private fortunes the less is the incentive to add to them by saving out of current income. As current saving is thus discouraged by the great accumulation of past savings, spending out of current income increases (since spending is the only alternative to saving income). This increase in private spending makes it less necessary for the government to undertake deficit financing to keep total spending at the level which provides full employment. When the government debt has become so great that private spending is enough to provide the total spending needed for full employment, there is no need for any deficit financing by the government, the budget is balanced and the national debt automatically stops growing." (my emphasis)Lerner, A.P. (1943), ‘Functional finance and the federal debt’, Social Research, 10: 38–57.