Tyler Cowen joins the fray:
Krugman writes: "Belgium is politically weak because of the linguistic divide; Italy is politically weak because it’s Italy. If these countries can run up debts of more than 100 percent of GDP without being destroyed by bond vigilantes, so can we."
I would interpret this evidence differently. A high deficit often is an unfavorable symptom of bad politics, even if you think the high deficit is economically OK on its own terms. It's a sign that you have dysfunctional institutions and decision-making procedures, as indeed they do in Belgium and Italy. I believe that the not-always-swift American voter in fact understands high deficits -- correctly -- in this light. They don't hold theories about "crowding out," rather they sense something in the house must be rotten. And so they rail against deficits, as do some of their elected representatives. It's a more justified reaction than the pure economics alone can illuminate.
When water regularly overflows from your toilet, you want the toilet fixed, whether or not the water is doing harm.
I'm a worry-wart on this as readers know. I understand the dangers of deficit reduction when demand is so vulnerable. But the dangers of the kind of debt the US is now holding are immense. It's textbook imperial collapse/welfare state sclerosis combined.
And it's driven in my view by three interest groups: corporate America, the elderly, and the military. Until conservatives tackle all three - ending corporate welfare through radical tax reform and simplification, controlling middle-class entitlements by raising the retirement age, and ending defense expenditures that underpin an unsustainable global hegemony - their message will not convince.