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Ironic observation
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| Shakka |
Isn't it ironic that when Bush was president, a major criticism was that he was not a fiscal conservative and was spending too much....now Obama is president, we're caught up in the world of "Keynesian" economics, the deficit has ballooned, yet the argument now is that we're not spending enough...
Thoughts?
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Krugman: The Third Depression
From Paul Krugman’s latest column in The New York Times:
Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.
Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.
And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.
But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.
In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.
As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.
Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.
It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.
So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.
And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again. |
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| DjWhooCares |
it takes spending money to make money
/obligatory |
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| Arbiter |
| I do not see any irony in treating unlike things unlike. |
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| atbell |
| quote: | Originally posted by DjWhooCares
it takes spending money to make money
/obligatory |
Since 1975 the US has been growing in an aproximately linear patern, as measured by GDP. This means that output from year to year has grown at a steady pace.
A way to think of this is as a car covering distance going at a constant speed, the distance covered in a car changes in a linear (straight line graph) way.
Since 1975 the US has seen consolidated debt (the sum of debt held by all sectors of the US economy) grow at an exponential rate.
Going back to the car analogy, the debt car is not moving at a constant speed, it is experienceing constant acceleration.
So while the output car is going the same speed, the debt car is getting faster and faster. This has been the case for 35 years now.
Yes, I agree you have to spend money to make money but the US economy has been spending $100 to make $10 for as long as I've got data to analyse. Thinking in a business perspective, would you loan anyone $100 if they told you they could make a full $10 with it? |
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| atbell |
| quote: | Originally posted by Shakka
Isn't it ironic that when Bush was president, a major criticism was that he was not a fiscal conservative and was spending too much....now Obama is president, we're caught up in the world of "Keynesian" economics, the deficit has ballooned, yet the argument now is that we're not spending enough...
Thoughts? |
Oh boy, lots of thoughts.
Firstly, Krugman is a bright and observant person ... but did he read anything the G20 put out or did he just cruis by CNN and read the sound bite?
The failure of Obama and Timmy G. to get thier policy of spending accepted by any nation is pretty evident in the wording of the communique (spelling?), but there was a lot more in the G20 report than just 'do we spend more or do we cut debt?'
The meeting seemed to concentrate more on global financial systems than on individual government tactics. There were sections on Financial Sector Reform, International Financial Institutions, and Fighting Protectionisim.
Contained in the annex section there is also talk of debt relief, complete and total, for Hatia (which sounds like it passed), and a major section on the 'resolution of financial institutions'.
So Mr. Krugman seems to be pandering a bit as he focuses on simple issues spun with warped "Keysian" ideology. Reducing the complex negotiations going on behind that there security fence, away from the flaming cop cars, really does no one any favors and further fans the fires of meaningless partizan / ideological retoric.
Getting back to Krugman's article, I agree that what we are experienceing is a depression, as I have since bringing up the word in December 2008 (leading Canadian Prime Minister Harper by about 1 month). I just came up with a catch title for it too - we are now in the middle of .... wait for it ....
The American Depression.
Yes, this is a US problem primarily. That is why the G20 didn't addopt what Obama and Tim G. brought to the table. The language of 'delivering fiscal sustainability', a 'recovery [that] is uneven and fragile', 'unemployment ... at unacceptable levles', and a number of other lines are fairly clearly directed at the US. This is a rather blunt statement that the rest of the world is not willing to support increase US spending through debt.
Now we get to see if the US system is a Ponzi schem or not.
If the Bush / Obama adminstrations did thier research into Keynes before trowing money around they will have invested in productive assests with those stimulus packages, not just make work projects. For example, the interstate system in the US is the best example I can think of as a publicly financed infrastructure investment. It employed millions and it set the stages for a two decade long expansion in the US.
Going back to Krugman once again, the Europeans talking of taxes and belt tightening have it right. Research on economic crisis repeatedly points to addressing debt problems early, taking the hard steps with a stiff upper lip, and moving on. Delay simply makes problems worse.
What I find ironic is that US households seem to have picked up on this before the government. I read recently that private savings rates have been picking up recently, this is great unless inflation sets in ... |
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| Capitalizt |
thoughts?
Krugman is an idiot. |
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| pkcRAISTLIN |
| Coming from you I’m sure he’d take that as a compliment. |
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| Comrade Stalin |
A government which deficit spends in both expansionary and recessionary economic cycles is not following Keynesian economics. The problem isn't the theory itself. It's the government which finds Keynesian policy convenient during a recession, but not when constraint is called for during economic expansions.
I think Krugman is queing in on something Pimco's El-Erian called, "The New Normal". A period of slow growth and relatively high unemployment. |
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| atbell |
| quote: | Originally posted by Comrade Stalin
A government which deficit spends in both expansionary and recessionary economic cycles is not following Keynesian economics. The problem isn't the theory itself. It's the government which finds Keynesian policy convenient during a recession, but not when constraint is called for during economic expansions.
I think Krugman is queing in on something Pimco's El-Erian called, "The New Normal". A period of slow growth and relatively high unemployment. |
Exactly.
"The New Normal" is a depression, it will pass but it's not going to be fun.
My only concern is that the last one ended in a global war. |
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| LazFX |
| quote: | Originally posted by pkcRAISTLIN
Coming from you I’m sure he’d take that as a compliment. |
What you in now boy?? ;) |
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| pkcRAISTLIN |
| Laz! How you doin buddy? Hope is good. |
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| Capitalizt |
| quote: | Originally posted by pkcRAISTLIN
Coming from you I’m sure he’d take that as a compliment. |
Krugman is a hack and a hypocrite who contradicts himself whenever it suits his agenda.
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http://www.americanthinker.com/2010...fcontradic.html
Paul Krugman, the Self-Contradicting Economist
By Arvind Kumar
An argument that questions the credibility of economists in general is that there are a number of disagreements among many economists, and not all of them can be right at the same time. In the case of Nobel Prize-winning economist Paul Krugman, these disagreements come from Krugman himself, as he holds contradictory opinions on a large number of topics.
For instance, we learn that when deficits are high, interest rates are low. However, we also learn that when governments run up a deficit, interest rates rise. So deficits cause interest rates not only to go up, but also to go down! In 1985, Krugman argued that the higher national debt and spending were bad for people early in their careers, as they would have to pay for it later in life. Nearly twenty-five years later, he argues that the national debt is not a problem, as it never needs to be paid off. According to him, we merely have to stabilize the debt instead of repaying it.
In the recent past, Krugman has been selling the idea that it is the debt-to-GDP ratio that matters and not the debt itself, but this claim flies in the face of his open letter to Alan Greenspan in which he asserted, "...you obviously realize that the ratio of debt to G.D.P. is a highly misleading number."
Deficits and spending are not the only topics on which Krugman has opposed himself -- he has claimed that the Social Security program is unsustainable, and also that it is sustainable; he has criticized those who have suggested that the Social Security funds be used for investing in private funds, while he has also advocated the idea that the Social Security funds be used to invest in private assets. He once opposed government-run health care before supporting government-run health care, and he also opposed the bailout of Fannie Mae before congratulating the government for the bailout of Fannie Mae.
His arguments on the issues of labor unions and minimum wage, too, run both ways. Labor unions and higher wages cause unemployment, while labor unions create a stable middle class, and lower wages have a contractionary effect on the economy. Krugman has also argued that governments do not cause recessions and are not responsible for business cycles, as it is the Fed that is responsible for business cycles, but he also blames the Bush administration for the current recession.
Likewise, Krugman proffers the argument that nothing the government has ever done has had an impact on the economy, and he claims that government actions are like using a water pistol to shoot an elephant -- but he also claims that the "big government" has saved us. He also certified himself silly when he claimed that workers' fears of losing jobs to workers in China and India due to globalization aren't irrational. Earlier, he had declared that those who blamed the global economy for the loss of jobs were silly.
To be fair to Krugman, his inconsistent statements are not deliberate, but subconscious. It would be wrong to attribute malice to his arguments when they can easily be explained by his ignorance of the subject. That would, however, not excuse the Nobel Prize Committee, which awarded its prize to a quack. Perhaps Krugman himself can explain why he disagrees with himself all the time. Maybe he can come up with not just one explanation, but two, each contradicting the other.
Below is a collection of actual quotes from Paul Krugman with links to sources. The quotes are arranged by topic and are in pairs (with an additional quote in one case), with the two quotes in a pair making arguments for contradictory positions.
Minimum wage and unemployment
Would cutting the minimum wage raise employment? - New York Times, Dec 16, 2009
...the belief that lower wages would raise overall employment rests on a fallacy of composition. In reality, reducing wages would at best do nothing for employment; more likely it would actually be contractionary.
Training touted to close widening wage gap - Milwaukee Journal Sentinel, page 8A - Feb 6, 1996
Stanford University economist Paul Krugman, however, said raising the minimum wage and lowering barriers to union organization would carry a trade-off --- increased unemployment.
Bailouts
Workouts, Not Bailouts - New York Times, Aug 17, 2007
Many on Wall Street are clamoring for a bailout -- for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust -- it would be saving bad actors from the consequences of their misdeeds... Say no to bailouts - but let's help borrowers work things out.
Is saving our Fannie enough? - Seattle Times, Sep 9, 2008
The just-announced federal takeover of Fannie Mae and Freddie Mac, the giant mortgage lenders, was certainly the right thing to do - and it was done fairly well, too... So Fannie and Freddie had to be rescued...
Deficits and interest rates
Deficits and interest rates - New York Times, Aug 14, 2009
It turns out that there's a strong correlation between budget deficits and interest rates - namely, when deficits are high, interest rates are low ... On reflection, it's obvious why...
A fiscal train wreck - New York Times, Mar 11, 2003
But we're looking at a fiscal crisis that will drive interest rates sky-high. A leading economist recently summed up one reason why: ''When the government reduces saving by running a budget deficit, the interest rate rises.''
National debt
Quote Without Comment - Lakeland Register, Oct 18, 1985
It's a very good deal for those close to retirement who will never see the taxes that will have to be levied to pay it (the national debt), but it's a very bad deal for people early in their careers. A 30-year old, if she understood it, should be pretty upset, because when she hits peak earnings at age 50, she will be paying for spending now through higher taxes then." -- Paul Krugman, an economist at the Massachusetts Institute of Technology, commenting on the national debt climbing to the $2 trillion mark.
In 2003, Krugman held the same view that debts would affect future generations when he wrote in his article titled Passing it Along in New York Times on Jul 18, 2003:
And tarnished credibility, along with a much-increased debt, is a problem that Mr. Bush will pass along to other Congresses, other presidents and other generations.
The burden of debt - New York Times, Aug 28, 2009
How, then, did America pay down its debt? Actually, it didn't... But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally... Which brings me to a question a number of people have raised: maybe we can pay the interest, but what about repaying the principal? ...But why would we have to do that? Again, the lesson of the 1950s - or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels - is that you need to stabilize debt, not pay it off; economic growth will do the rest.
Debt to GDP ratio
On the Second Day, Atlas Waffled - New York Times, Feb 14, 2003
Dear Alan Greenspan:
...Moreover, since you advocate accrual accounting, you obviously realize that the ratio of debt to G.D.P. is a highly misleading number.
A couple of notes on the 40s and 50s - New York Times, Aug 30, 2009
I think they're missing the point - if even Italy can handle debt/GDP ratios of 100 percent, we should be able to do it too.
Impact of governments on recessions
TWO CHEERS FOR THE WELFARE STATE SURE, IT'S GOT PROBLEMS. BUT DESPITE WHAT THEY THINK THEY WANT, THE VAST MAJORITY OF AMERICANS WOULD BE SORRY TO SEE IT GO. - Fortune, May 1, 1995
The fact is, all these promises are silly: Administrations don't cause recession and recoveries--if anyone is in charge of the business cycle, it's the nonpartisan technocrats at the Federal Reserve.
What didn't happen - New York Times, Jan 17, 2010
Mr. Obama could have done the same - with, I'd argue, considerably more justice. He could have pointed out, repeatedly, that the continuing troubles of America's economy are the result of a financial crisis that developed under the Bush administration, and was at least in part the result of the Bush administration's refusal to regulate the banks.
Sustainability of social security
TWO CHEERS FOR THE WELFARE STATE... - Fortune, May 1, 1995
So by all means, let's have a vigorous national debate about reforming Social Security; it can't be sustained in its present form.
About the Social Security trust fund - New York Times, Mar 28, 2008
But the privatizers won't take yes for an answer when it comes to the sustainability of Social Security... Social Security, with its own dedicated tax, has been run responsibly; the rest of the government has not. So why are we talking about a Social Security crisis?
Investment of social security funds
Fabricating a Crisis - New York Times, Aug 21, 2001
The outlines of a plan that would sustain Social Security without destroying it are clear: Allow the system to invest some of its surplus in private assets, and close the system's modest long-run financial shortfall by making minor adjustments to benefits and rescinding part of the recent tax cut.
Gambling with your Retirement - New York Times, Feb 4, 2005
A few weeks ago I tried to explain the logic of Bush-style Social Security privatization... you should borrow a lot of money, buy stocks and hope for capital gains... So people are expected to take a loan from the government and use it to buy stocks, and if that turns out to have been a mistake -- well, too bad...Do you believe that we should replace America's most successful government program with a system in which workers engage in speculation that no financial adviser would recommend? Do you believe that we should do this even though it will do nothing to improve the program's finances?
Privatization of social security
Notes on Social Security from Personal website of Paul Krugman
None of this says that privatizing Social Security is necessarily a bad idea.
Inventing a crisis - New York Times, Dec 7, 2004
Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse.
Labor unions
Macroeconomics, 2nd ed., by Paul Krugman and Robin Wells, Worth Publishers, 2009 (page 210)
The actions of labor unions can have effects similar to those of minimum wages, leading to structural unemployment.
State of the Unions - New York Times, Dec 24, 2007
Once upon a time, back when America had a strong middle class, it also had a strong union movement. These two facts were connected.
Globalization
Maverick Economist debunks theories - Eugene Register-Guard, Apr 18, 1996
Lecture: Paul Krugman rankles many when he refuses to blame this nation's woes on the global economy.
Yes, thousands of Americans have lost jobs in some industrial sectors, Krugman says. But global competition isn't to blame... "A lot of what people say about these issues is just dead wrong and silly," Krugman says.
The Trade Tightrope - New York Times, Feb 27, 2004
The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.
Healthcare
TWO CHEERS FOR THE WELFARE STATE... - Fortune, May 1, 1995
That means that, while I believe in free trade and have no sympathy with the sort of liberalism that wants to centralize economic decision-making in Washington (cases in point: Jimmy Carter's energy planners and Bill Clinton's health planners)...
The Swiss Menace - New York Times, Aug 16, 2009
True "socialized medicine" would undoubtedly cost less, and a straightforward extension of Medicare-type coverage to all Americans would probably be cheaper than a Swiss-style system. That's why I and others believe that a true public option competing with private insurers is extremely important: otherwise, rising costs could all too easily undermine the whole effort.
Role of the government in the economy
Benefit of Dole Tax Plan is Hotly Debated - New York Times, Aug 24, 1996
''Nothing Government has done -- for good or evil -- seems to have mattered,'' concluded Paul Krugman, an economist at Stanford University. Given the size of the American economy and the difficulty of altering its course, ''it's like using a water pistol to shoot an elephant.''
Saved by Big Government - Guardian, Aug 10, 2009
"What saved us? The answer, basically, is big government." |
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