Paul Krugman has a terrific column in the New York Times about the way conservatives are trying to turn the story of Detroit’s decline into a moralistic tale about public debt. Excerpt:

So now the deficit scolds have a new case to misinterpret. Never mind the repeated failure of the predicted U.S. fiscal crisis to materialize, the sharp fall in predicted U.S. debt levels and the way much of the research the scolds used to justify their scolding has been discredited; let’s obsess about municipal budgets and public pension obligations!

Or, actually, let’s not.

Are Detroit’s woes the leading edge of a national public pensions crisis? No. State and local pensions are indeed underfunded, with experts at Boston College putting the total shortfall at $1 trillion. But many governments are taking steps to address the shortfall. These steps aren’t yet sufficient; the Boston College estimates suggest that overall pension contributions this year will be about $25 billion less than they should be. But in a $16 trillion economy, that’s just not a big deal — and even if you make more pessimistic assumptions, as some but not all accountants say you should, it still isn’t a big deal.

So was Detroit just uniquely irresponsible? Again, no. Detroit does seem to have had especially bad governance, but for the most part the city was just an innocent victim of market forces.

What? Market forces have victims? Of course they do. After all, free-market enthusiasts love to quote Joseph Schumpeter about the inevitability of “creative destruction” — but they and their audiences invariably picture themselves as being the creative destroyers, not the creatively destroyed. Well, guess what: Someone always ends up being the modern equivalent of a buggy-whip producer, and it might be you.

Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem. Decline happens.

One of the most infuriating things that have happened to our politics in recent times is the way utter nonsense — whether about Western policy in Afghanistan, or economic policy at home — is not only peddled by governments, but believed by their credulous citizens. In the case of Afghanistan, for example, even a half-wit can see that the US-NATO campaign has been a disastrous failure; and yet ministers (and generals) continually claim the opposite (while no doubt confiding the truth to their diaries in preparation for later memoirs).

In economic policy, the public has apparently swallowed the falsehood that the current dire state of our economies is a punishment for welfare states living way beyond their means. In fact, the reason we’re having to endure “austerity” is because commercial banks — i.e. private, not public institutions — went berserk and had to be bailed out by governments with public money.

As Robert Kuttner puts it in “The debt we shouldn’t pay”,

Public debt was not implicated in the collapse of 2008, nor is it retarding the recovery today. Enlarged government deficits were the consequence of the financial crash, not the cause. Indeed, there’s a strong case that government deficits are keeping a weak economy out of deeper recession. When Congress raised taxes in January at an annual rate of over $180 billion to avoid the so-called fiscal cliff, and then accepted a “sequester” of $85 billion in spending cuts in March, the combined fiscal contraction cut economic growth for 2013 about in half, according to the Congressional Budget Office. Moreover, some of the causes of public deficits, such as Medicare, reflect to a large extent inefficiency and inflation in health care rather than profligacy in public budgeting.

It was private speculative debts—exotic mortgage bonds financed by short-term borrowing at very high costs—that produced the crisis of 2008. The burden of private debts continues to hobble the economy’s potential. In the decade prior to the collapse of 2008, private debts grew at more than triple the rate of increase of the public debt. In 22 percent of America’s homes with mortgages, the debt exceeds the value of the house. Young adults begin economic life saddled with student debt that recently reached a trillion dollars, limiting their purchasing power. Middle-class families use debt as a substitute for wages and salaries that have lagged behind the cost of living. This private debt overhang, far more than the obsessively debated question of public debt, retards the recovery.

The debt debate reminds Kuttner of Tom Stoppard’s Rosencrantz and Guildenstern Are Dead. “In a grand inversion, minor characters have usurped center stage, while the more important ones are out of sight.”

Yep.

One of the least-discussed aspects of the Snowden revelations is the catastrophic damage they are doing to US foreign policy in one important area, namely Internet governance.

This is one of the big unsolved problems in the international arena because of the disproportionate power that the US wields in the governance of the Net. The reasons for this are largely historical: the Net was an American creation, and it emerged from a Pentagon project, the Arpanet. In the beginning it was largely an American — and, to some extent, European — project, and so it made sense for the informal governance arrangements (under which, for example, domain names were managed) set up in the early days to continue.

But as the Internet became a truly global system, the old arrangements began to look increasingly odd. They also began to irritate some of the bigger powers like China and Russia, who couldn’t see why a global system should continue to be run by a single, ageing superpower. Why shouldn’t the Internet be governed by an international body — like the United Nations, through one of its agencies, the International Telecommunications Union (ITU)? These stirrings reached a peak at the World Conference on International Telecommunications held last December in Dubai, where there were attempts to loosen the grip of the US on Internet governance. These attempts were robustly rebuffed by the US and its allies, but it was clear that this is an issue that won’t go away.

The problem is that while the current governance system is absurd in a global context, nobody has yet come up with a convincing alternative. Or, to put it another way, it ain’t broke but it still needs fixing. The ‘obvious’ solution — to hand the responsibility over to the UN — would be nuts, because it would mean handing over the Net to a sclerotic, incoherent institution in which Robert Mugabe’s government and a host of other unsavoury regimes have a vote that counts as much as a vote from a democracy. It would be like giving a delicate clock to a monkey.

But, in the end, we will have to have new governance arrangements that meet two criteria: reflecting the truly global nature of the system; and protecting its essential features from the tampering of unsavoury regimes.

Which is where the NSA revelations come in. They demonstrate to the world that the US is an unsavoury regime too. And that it isn’t a power that can be trusted not to abuse its privileged position. They also undermine heady US rhetoric about the importance of a free and open Internet. Nobody will ever again take seriously US Presidential or State Department posturing on Internet freedom. So, in the end, the NSA has made it more difficult to resist the clamour for different – and possibly even more sinister – arrangements for governing the Net.

[HT to Robin Stenham for his comment.]