Paul Krugman: That ’30s Show

[Viking Prince]

Paul Krugman: That ’30s Show

Krugman thinks that the stimulus is not nearly enough. The problem is that the stimulus was mainly government spending and that is not nearly as effective as lowering taxes to keep money directly in the hands of the public.

He is also completely missing the point regarding the paying for the deficit with Treasuries. This is sanitizing the effect on the money supply and blunts the effect also. Without the sanitizing, there will be a bigger push on inflation. If inflation is expected, the foreign (read China) held Treasuries may get redeemed and push the money supply even higher or require more Treasuries to be purchased domesticly (not to mention a need to boost interest rates which would act against the stimulus). Due to the debt changes, this is a tricky problem searching for an easy solution.

[BNS]

This guy is a nut, who thinks his Nobel prize and Keynesian ideology gives him a free pass on basic economic concepts and historical accuracy. Simply how does he expect an economy to be revived solely on demand (and just any demand) when there is not an adequate structure of production to meet the demand. I just love how he wants us to return to an era where government purposely destroyed resources to keep prices up, created big business cartels to bully the little guys, plundered wealth on unnecessary projects and short term "jobs" for his allies, and set various suffocating new regulations and taxation all at a time when our economy could ill support it, business owners literally went on capital strike and of course many people continued to go hungry. His biggest complaint: that federal government is not big enough to ram this through . (Funny though how half of those things have actually already come to pass.)Then again he has been rambling about the same thing since the stimulus was passed, better to just continue to ignore him.

[Generaal Van Heutsz]

This guy is a nut, who thinks his Nobel prize and Keynesian ideology gives him a free pass on basic economic concepts and historical accuracy.

Well his advice during the recession after the dotcom bubble (2001/2) to create a housing bubble to get the economy going did work, didn't it?

http://mises.org/story/3539

[Viking Prince]

Krugman wants more stimulus, but the political discussion breaks down into lowering the deficit or not.

The Uk discussion is decidedly heading towards a lowering of the spending if the Economist leader opinion piece is a guide:

The relaunch of Gordon Brown
The vision thing

The prime minister’s Big Idea for Britain is a day late and a dollar short
Jul 2nd 2009


Even the dynamic in the USA is swinging towards lower spending -- the opposite of Krugman's position.

Poll: 45% oppose stimulus spending - Washington Times

The short answer for all concerned is that the developed economies will support almost any spending scheme when the first news of recession is whispered, but people with money and jobs are always more concerned about keeping both. Once the fear of job loses becomes clearer that they are not one of the 10%, the drive to cut cut spending takes over.

[BNS]

I was really surprised when countries like Germany and other European countries said no to the big spending band wagon lead by Obama and Brown, good to know there where some other countries with sound economic insight.

Just getting the bill passed through congress the first time was hard enough, ever since the failure of Keynesian economics in the 70's the trend in America has been against outright big spending and taxes and now with this big disappointment I don't think a second bill has much off a chance even with a democrat majority in congress.

Anyhow the damage is done instead of making the necessary cuts government continues to be expanded. I really wonder how long this trend will be allowed to continue and how long states will be allowed to get bailouts.

[Generaal Van Heutsz]

I really wonder how long this trend will be allowed to continue and how long states will be allowed to get bailouts.

Until your creditors let, as long as they think you are still good for the money but I don't think this will continue for very long. The chinese, russians, indians and some oil producing countries were already talking about a new reserve currency, which can only mean one thing: they are losing confidence...

Look at this graph http://research.stlouisfed.org/fred2/series/AMBNS what do you think?

[Viking Prince]

The political tussle is more important than the economic discussion. Both the Republlicans and the Democrats have political reasons for their positions, but I fail to see the economic ideas being supported by either.

Ticker: Dems disappointed by Obama's plan

Spoiler Alert, click show to read: 

A leading congressional Democrat and Republican both expressed disappointment Sunday with the pace of the government's economic stimulus program, but offered differing views on whether it was a good idea.

House Majority Leader Steny Hoyer said allocating the $787 billion in the stimulus package pushed by President Barack Obama to create jobs was taking too long.

"We're disappointed," Hoyer, D-Maryland, told "FOX News Sunday." "We're looking at ways to get the money out more quickly."

Hoyer's Republican counterpart, Rep. John Boehner, said on the same program that the stimulus bill passed by Congress in February was flawed.
"You can't spend $800 billion of taxpayer money and not create jobs, when you say that's what the bill was for," Boehner, of Ohio, complained. Boehner said the bill only funds more government, rather than creating private sector jobs.

Democrats, led by Vice President Joe Biden, contend the stimulus money will begin launching more construction projects and other job-creating programs now that necessary mechanisms have been established and contracts signed.

"This was set up to spend out over 18 months," Biden said in an interview with ABC's "This Week" program. "There are going to be major programs that are going to take effect in September — $7.5 billion for broadband, new money for high-speed rail, the implementation of … the new electric grid. And so this is just starting."

Neither Biden nor Hoyer would comment on whether an additional economic stimulus package is necessary to help pull the U.S. economy out of recession. The latest unemployment figures issued last week showed a 9.5 percent jobless rate, the highest in more than two decades.

Boehner, however, warned against more government spending to heal the economic problems.

"I don't believe it will create jobs," he said, calling instead for reduced taxes to let small business and consumers spend their money as they choose.

Boehner called the scope and speed of Obama's domestic agenda — which so far includes the stimulus package, a health care overhaul now working its way through Congress and an energy bill to combat global warming passed by the House — "nothing short of breathtaking."

The end result, he said, would be "bigger government, higher taxes, less freedom for the American people."

[Purified_Slander]

More stimulus is the least thing this country needs.

[JP226]

Just getting the bill passed through congress the first time was hard enough, ever since the failure of Keynesian economics in the 70's the trend in America has been against outright big spending and taxes and now with this big disappointment I don't think a second bill has much off a chance even with a democrat majority in congress.

There is a good chance such a bill could get through. Moody's and global insight are already forecasting economic models based on the assumption that a second stimulus will get through. THe forecasts from other firms without a second stimulus are showing that any run up here and now is going to transform into a downturn. There isn't alot of faith that the private sector can take up the slack. Which I don't think is unexpected given, number 1, economic contraction and number 2, that contraction exacerbated by government involvement in the market place to the extent that it is.

[Erik]

There is a good chance such a bill could get through. Moody's and global insight are already forecasting economic models based on the assumption that a second stimulus will get through. THe forecasts from other firms without a second stimulus are showing that any run up here and now is going to transform into a downturn. There isn't alot of faith that the private sector can take up the slack. Which I don't think is unexpected given, number 1, economic contraction and number 2, that contraction exacerbated by government involvement in the market place to the extent that it is.

wrong.

[CAG_007]

There is a good chance such a bill could get through. Moody's and global insight are already forecasting economic models based on the assumption that a second stimulus will get through. THe forecasts from other firms without a second stimulus are showing that any run up here and now is going to transform into a downturn. There isn't alot of faith that the private sector can take up the slack. Which I don't think is unexpected given, number 1, economic contraction and number 2, that contraction exacerbated by government involvement in the market place to the extent that it is.

We're already on the second stimulus. Don't forgot Bush's reflexive and wrong-headed stimulus.

I honestly don't know what planet Dr. Krugman is coming from anymore. His suggestions seem ever more bizarre and out of touch with reality, much less the basic principles of elementary economics.

[Generaal Van Heutsz]

I honestly don't know what planet Dr. Krugman is coming from anymore.

main stream economics

His suggestions seem ever more bizarre and out of touch with reality, much less the basic principles of elementary economics.

were the ever sane? Remember this is the guy that advised to create a housing bubble to get the US economy going again...

[CAG_007]

Remember this is the guy that advised to create a housing bubble to get the US economy going again...

And also reamed Allen Greenspan for creating a housing bubble in the first place.

Then again, he has the Ph.D, and I'm just working on my masters, so maybe I should shut up now.

[Generaal Van Heutsz]

And also reamed Allen Greenspan for creating a housing bubble in the first place.

Then again, he has the Ph.D, and I'm just working on my masters, so maybe I should shut up now.

Hey you can have an academic title and still be a moron but then again I have little respect for economists. How can you take someone serious who if you would follow his advice as an individual (borrow and spend) would quickly make you go bankrupt expect that if as a nation we would all behave like this that this is the path to riches.*


Did you read the article I gave earlier in this thread it has collected several Krugman quotes from 2001-2 in which he advices to create a housing bubble, quite damning really.

[Lord Consul]

Krugman is one of the most overrated economists ever. He only got the Nobel because he writes for the NYT. Were he Bulgarian and obscure, his ideas would not raise and eyebrow.

He keeps mentioning Japan as an example of what not to do (provide insufficient stimuli to the economy after a major crisis), yet Japan's crisis bears little resemblance with the current one.

[Generaal Van Heutsz]

Krugman is one of the most overrated economists ever. He only got the Nobel because he writes for the NYT. Were he Bulgarian and obscure, his ideas would not raise and eyebrow.

He keeps mentioning Japan as an example of what not to do (provide insufficient stimuli to the economy after a major crisis), yet Japan's crisis bears little resemblance with the current one.

The Japanese government tried to stimulate their economy so badly, it should be an example of keynesian failure, yet with the likes of Krugman when something the government does fails, the answer is to always smack more money at it.

[Generaal Van Heutsz]

Today I came across this Krugman "gem" of an article (dated April 14, 2009), via this excellent article

Time for bottles in coal mines

President Obama hails the fact that stimulus projects are coming in “ahead of schedule and under budget.” Yay — but boo.

Ahead of schedule is good. Under budget — well, ordinarily that’s a good thing. But the point of the stimulus is to increase spending! So if we don’t spend as much as expected, that’s less stimulus.

Paging Keynes, who pointed out the problem with projects that are of some use besides their role as stimulus. Such projects

because they are not wholly wasteful, tend to be judged on strict “business” principles.

He then went on to propose an alternative:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

Seriously: if the projects really are coming in cheaper than expected, that doesn’t mean we should bank the savings; it means that we need more projects.

I don't think the article needs anymore comment than as any sane person can see Krugman's fallacies. I just wonder why the Nobel prize commity doesn't take away his prize, this man is mad, absolutely mad.

[Viking Prince]

Today I came across this Krugman "gem" of an article (dated April 14, 2009), via this excellent article



I don't think the article needs anymore comment than as any sane person can see Krugman's fallacies. I just wonder why the Nobel prize commity doesn't take away his prize, this man is mad, absolutely mad.

I am a sane person and I fail to see the fallacies. Please explain.

[Generaal Van Heutsz]

I am a sane person and I fail to see the fallacies. Please explain.

Really, you don't!?

Well you see Krugman want to see spending, now and fast it doesn't really matter what's it being spend on, so he quotes, this infamous passage from Keynes "grand" work "The General Theory of Employment, Interest and Money". Krugman points out that the government spending to stimulate people to dig holes and fill them back up again would be better than doing nothing. The fallacy of course being that these guys digging and filling up holes could have done something useful with their time instead.

Many economists seem to think that the economy is some zero sum game( azero sum game is a game where someones gain is some elses loss, ie. when someone has a bigger piece of the pie less is left for other people), below you can see a video with Art Laffer of Laffer curve and supply side economics fame saying this (around 4:20, but the rest of the video is very interesting too, it's from 2006 and of course Laffer call Schiff way off base but of course Laffer turned out to be way off base instead of Schiff). They believe that as long as the money keeps going nothing really is lost for the economy. But this of course isn't correct, the economy is not a zero sum game. Suppose I had a buck and used it to buy a burger, than before the transaction there would be one buck and one burger and right after the transaction still but then I eat the burger and now there is one burger less in the economy but still the same amount of money! The hole diggers and fillers would of course still consume with the money they would receive but they themselves create nothing useful. (This is of course beside the point that only the market can determine if something is useful, not the government).

[Viking Prince]

Really, you don't!?

Well you see Krugman want to see spending, now and fast it doesn't really matter what's it being spend on, so he quotes, this infamous passage from Keynes "grand" work "The General Theory of Employment, Interest and Money". Krugman points out that the government spending to stimulate people to dig holes and fill them back up again would be better than doing nothing. The fallacy of course being that these guys digging and filling up holes could have done something useful with their time instead.

If you read the entire Krugman article -- you will discover that his point is just that. However, doing nothing is worse than the silly story. So you are in agreement with the man.

Many economists seem to think that the economy is some zero sum game( azero sum game is a game where someones gain is some elses loss, ie. when someone has a bigger piece of the pie less is left for other people), below you can see a video with Art Laffer of Laffer curve and supply side economics fame saying this (around 4:20, but the rest of the video is very interesting too, it's from 2006 and of course Laffer call Schiff way off base but of course Laffer turned out to be way off base instead of Schiff). They believe that as long as the money keeps going nothing really is lost for the economy. But this of course isn't correct, the economy is not a zero sum game. Suppose I had a buck and used it to buy a burger, than before the transaction there would be one buck and one burger and right after the transaction still but then I eat the burger and now there is one burger less in the economy but still the same amount of money! The hole diggers and fillers would of course still consume with the money they would receive but they themselves create nothing useful. (This is of course beside the point that only the market can determine if something is useful, not the government).

I do not know of a single economist that believes transactions are ever a zero sum game. The entire purpose of a transaction is that two parties agree because each party believes there is a marginal gain in utility in doing the deal.

As far as Laffer and Schiff -- you are wrong and misstating the argument, but this is really off topic for this thread. If you want a one on one in the fight club, post the challange thread and you will get a taker.