Over the weekend, Paul Krugman wrote a blog post titled, “Does Fiscal Authority Reassure Markets?” To answer the question, Krugman decided to compare two countries in debt-crisis-stricken Europe: Ireland and Spain. Ireland has embraced austerity, and Spain has not, yet Ireland’s CDS spreads (a measure of investor confidence, wider spreads meaning less confidence) are wider than Spain’s. Thus, Krugman concluded, austerity does not reassure markets.

Amazingly, Krugman ignored the question that comes so readily to mind: Is there anything else that might account for the difference? As I explain on the home page today, there is: Ireland is more indebted than Spain, and has the highest budget deficit of any of the troubled PIIGS (Portugal, Ireland, Italy, Greece, Spain). Portugal, like Spain, has an iffy austerity plan, but it also has a larger debt load (86 percent) than Ireland (77 percent) or Spain (65 percent). As one might expect, its CDS spreads are not just wider, but disproportionately wider, as illustrated by the chart below:

To better demonstrate just how tendentious Krugman’s post was, allow me to compare two of the other PIIGS — Italy and Portugal — and tell a different story. Italy (debt-to-GDP: 118 percent) has put together an austerity package that relies mostly spending cuts to do the heavy lifting. Portugal (debt-to-GDP: 86 percent) has put together an austerity package that relies mostly on tax increases. Because Italy is cutting spending instead of raising taxes, it has better economic growth prospects, and will bring down its level of indebtedness more quickly, than Portugal. That markets believe this is reflected in CDS spreads of 189 basis points for Italy, compared with 289 points for Portugal.

Now, have I supplied enough evidence to support my thesis? No! But, by taking relative indebtedness into account, I’ve supplied more than Krugman, who presents his evidence as some kind of great discovery that he really “should have [thought of] earlier.”

Krugman is too smart to be unaware of what he’s doing. In the world of economics, he is famous for his ability to model data, which is all about separating correlation from causation. We’re left with the explanation that he has contempt for his readers’ intelligence. That would offend me, but it doesn’t seem to bother his fans.