Economist and columnist Paul Krugman declared personal bankruptcy today following a failed attempt to spend his way out of debt.
In a Chapter 13 filing to the United States Bankruptcy Court in the Southern District of New York, lawyers for Krugman listed $7,346,000 in debts versus $33,000 in assets.
The majority of his debts are related to mortgage financing on a $8.7 million apartment in lower Manhattan, but the list also includes $621,537 in credit card debt and $33,642 in store financing at famed jeweler Tiffanys and Co.
The filing says that Krugman got into credit card trouble in 2004 after racking up $84,000 in a single month on his American Express black card in pursuit of rare Portuguese wines and 19th century English cloth
Rather than tighten his belt and pay the sums back, the pseudo-Keynesian economist decided to "stimulate" his way to a personal recovery by investing in expenses he hoped would one day boost his income.
Cockroaches and Creditors
Between 2004 and 2007 Krugman splurged on expensive cars, clothes, and travel in hopes that the new lifestyle would convince his bosses at the New York Times to give him a giant raise.
"They say always dress for the job you want," Krugman explains. "So I thought maybe if I showed up in $70,000 Alexander Amosu suits they would give me ownership of part of the company. If I had only been granted a sliver of the New York Times Co., I could have paid everything back."
Even after he realized an equity stake was not going to happen, Krugman continued to spend wildly hoping his bling and media appearances would increase demand for his personal brand and lift his book sales.
His biggest mistake came in 2007, when at the height of the financial bubble he decided to invest in high-end real estate in New York City. His multi-million dollar apartment lost 40 percent of its value just months after its purchase, and has been underwater ever since.
"You'd think a Nobel Prize winning economist could recognize a housing bubble," says Herman Minsky, a retired television executive who purchased Krugman's home at a huge discount. "But hey, I'm not complaining."
Conscience of a Fraud
Krugman, a renowned trade economist, joined the New York Times as a columnist in 2000. Since the start of the financial crisis he as used the platform to argue vociferously for what he terms Keynesian deficit spending.
However, Keynes did not advocate using debt financing to stimulate the economy. Rather, he argued that government should save in the good times and spend in the bad.
Through his lawyer, Bertil Ohlin, Krugman explains that despite his travails with spending and debt in his personal finances, he stands by his pseudo-Keynesian policies.
"I still defend my analysis that on the macroeconomic level sovereign debt crises can be fixed by increasing government borrowing to lift aggregate demand. I admit, however, that on the microeconomic level this strategy has failed spectacularly."