Krugman Destroyed In Debate

[livinincali]

[quote=SK in CV]
You’re closer to correct, but that’s not what I was responding to. He said spending to get out of debt. Keynes suggested just the opposite. There’s a big difference between getting out of debt and getting out of a recession. Keynesian ecomomics would lead to cutting spending, increasing taxes and deleveraging in times of economic growth.[/quote]

This is certainly true and another one of the primary excuses that is used to explain why the stimulus isn’t working as intended. If we admit that our government can’t follow this part of the Keynes economic theory why do we prescribe Keynes solutions to recessions.

Stimulus is politically popular and it does give the illusion of working over the short term, but when the government is deficit spending 1.5 trillion a year to get 420 billion (14 trillion economy * 3% growth) in growth you’re going to have a problem. Stimulus would only be worth while if the stimulus spending is less than the growth in GDP. There’s only one small window from 1997-2001 in the past 30 years where GDP grew faster than Government debt and that was during the internet boom.

[The-Shoveler]

I loved the internet boom years !!
I was flying all over the world making presentations and hooking up equipment, It felt like I was part of something really really cool. Heck even my 401K was worth more than my house back then..

Yes those were the days, (where is Al Gore when you need him….:) just kidding,,

[SK in CV]

[quote=livinincali][quote=SK in CV]
You’re closer to correct, but that’s not what I was responding to. He said spending to get out of debt. Keynes suggested just the opposite. There’s a big difference between getting out of debt and getting out of a recession. Keynesian ecomomics would lead to cutting spending, increasing taxes and deleveraging in times of economic growth.[/quote]

This is certainly true and another one of the primary excuses that is used to explain why the stimulus isn’t working as intended. If we admit that our government can’t follow this part of the Keynes economic theory why do we prescribe Keynes solutions to recessions.

Stimulus is politically popular and it does give the illusion of working over the short term, but when the government is deficit spending 1.5 trillion a year to get 420 billion (14 trillion economy * 3% growth) in growth you’re going to have a problem. Stimulus would only be worth while if the stimulus spending is less than the growth in GDP. There’s only one small window from 1997-2001 in the past 30 years where GDP grew faster than Government debt and that was during the internet boom.[/quote]

I don’t think the first part of your comment makes much sense. You’re essentially arguing that if we didn’t follow a particular economic model when the economy was decent, we shouldn’t try it now. Even though the model we did follow, didn’t work.

Beyond that, you’re mixing up a couple things. The purpose of stimulus would be to increase GDP, not decrease spending or debt. Ideally, that stimulus will increase GDP greater than the amount of the stimulus. The comparison to debt or annual deficits is false. The two are not directly related.

[Arraya]

There is very little difference between so-called Keynesian and Austrialian economics. The both rest on the same fundamental assumptions. All economists are politicians wrapped in math.

Economists enamored of pure markets begin with the theory, and hang models on assumptions that cannot themselves be challenged. The characteristic grammatical usage is an unusual subjunctive — the verb form ‘must be.’ For example, if wages for manual workers are declining, it must be that their economic value is declining. If a corporate raider walks away from a deal with half a billion dollars, it must be that he added that much value to the economy. If Japan can produce better autos than Detroit, there must be some inherent locational logic, else the market would not dictate that result. If commercial advertising leads consumers to buy shoddy or harmful products, they must be ‘maximizing their utility’ — because we know by assumption that consumers always maximize their utility. How do we know that? Because to do anything else would be irrational. And how do we know that individuals always behave rationally? Because that is the premise from which we begin. The truly interesting institutional questions — the disjunctures between what free-market assumptions would predict and the actual outcomes — are dismissed by the tautological and deductive form of reasoning. The fact that the real world is already far from a perfect market is ignored for the sake of theoretic convenience. The dissenter cannot challenge the theory; he can only describe the real world.”
— Robert Kuttner, EVERYTHING FOR SALE

The neoclassical school is the dominant (and probably the numerically largest) school in contemporary economics. For neoclassical economists, microeconomic theory (i.e., welfare economics) underlies every theoretical subfield of specialization and every theoretical, practical, and policy-oriented conclusion at which they arrive. All of their cost-benefit analyses, their demonstrations of the universal gains from foreign trade, their notions of market efficiency that are encountered in every branch of applied economics, as well as their notion of rational prices, have absolutely no meaning whatsoever other than that manifested in their faith that a free-enterprise, competitive market system will tend toward a Pareto optimal situation. Without a Pareto optimal situation in effect, these phrases and notions cannot be defended. In fact, in the absence of an optimal situation, these phrases have no meaning whatsoever. They are given meaning only when the neoclassical economists first posit the existence of a Pareto optimum; then, by definition, all exchangers are said to gain, resources are said to be ‘efficiently allocated,’ prices are said to be ‘rational’ and therefore conducive to making accurate assessments—on utilitarian grounds—of the social costs and social benefits of various government projects. Utilitarian neoclassical welfare economics pervades and dominates nearly all neoclassical analyses on all theoretical and practical matters.” (Emphasis in original) — HISTORY OF ECONOMIC THOUGHT: A CRITICAL PERSPECTIVE, Third Edition, E. K. Hunt & Mark Lautzenheiser, 2011

[SK in CV]

[quote=Arraya]There is very little difference between so-called Keynesian and Austrialian economics. The both rest on the same fundamental assumptions. All economists are politicians wrapped in math.

[/quote]

Australian? Are you dissing the wallaby curve?

[livinincali]

[quote=SK in CV][quote=livinincali][quote=SK in CV]
You’re closer to correct, but that’s not what I was responding to. He said spending to get out of debt. Keynes suggested just the opposite. There’s a big difference between getting out of debt and getting out of a recession. Keynesian ecomomics would lead to cutting spending, increasing taxes and deleveraging in times of economic growth.[/quote]

This is certainly true and another one of the primary excuses that is used to explain why the stimulus isn’t working as intended. If we admit that our government can’t follow this part of the Keynes economic theory why do we prescribe Keynes solutions to recessions.

Stimulus is politically popular and it does give the illusion of working over the short term, but when the government is deficit spending 1.5 trillion a year to get 420 billion (14 trillion economy * 3% growth) in growth you’re going to have a problem. Stimulus would only be worth while if the stimulus spending is less than the growth in GDP. There’s only one small window from 1997-2001 in the past 30 years where GDP grew faster than Government debt and that was during the internet boom.[/quote]

I don’t think the first part of your comment makes much sense. You’re essentially arguing that if we didn’t follow a particular economic model when the economy was decent, we shouldn’t try it now. Even though the model we did follow, didn’t work.

Beyond that, you’re mixing up a couple things. The purpose of stimulus would be to increase GDP, not decrease spending or debt. Ideally, that stimulus will increase GDP greater than the amount of the stimulus. The comparison to debt or annual deficits is false. The two are not directly related.[/quote]

All government deficit spending is stimulus. It has to be by definition because government borrowing and spending creates a demand that wouldn’t otherwise be there. Are you arguing that only some government deficit spending is stimulus?

As for the first point we’ve been trying the Keynesian stimulus spending solution for decades and every time debt grows faster than GDP. It successfully kicked the can down the road but makes the future problem bigger and bigger. I suggest we try the solution that was used in the 1920-1921 depression. Cut spending, let the bad debt fail, prosecute those criminally responsible, and rebuild the system. Yes, there will be significantly bad short term consequences for all the actors in the economy (and we’ll realize that many entitlement promises can’t be kept) but it’s far better to do it under you own terms than letting market forces dictate.

http://en.wikipedia.org/wiki/Depression_of_1920%E2%80%9321

The economy had one of it’s best growth periods ever after the 1920-1921 depression.

[SK in CV]

[quote=livinincali]
All government deficit spending is stimulus. It has to be by definition because government borrowing and spending creates a demand that wouldn’t otherwise be there. Are you arguing that only some government deficit spending is stimulus?

As for the first point we’ve been trying the Keynesian stimulus spending solution for decades and every time debt grows faster than GDP. It successfully kicked the can down the road but makes the future problem bigger and bigger. I suggest we try the solution that was used in the 1920-1921 depression. Cut spending, let the bad debt fail, prosecute those criminally responsible, and rebuild the system. Yes, there will be significantly bad short term consequences for all the actors in the economy (and we’ll realize that many entitlement promises can’t be kept) but it’s far better to do it under you own terms than letting market forces dictate.

http://en.wikipedia.org/wiki/Depression_of_1920%E2%80%9321

The economy had one of it’s best growth periods ever after the 1920-1921 depression.[/quote]

If all deficit spending is stimulative, then all government spending must be stimulative. If you have a $100 deficit, you can’t identify which $100 suddenly is stimulative. But the response is no, all deficit spending is NOT stimulative. Only increased spending is stimulative. And only required under Keynsian theory if private spending has dropped.

Arguing that we’ve tried it before and it hasn’t worked is simply not true. Stimulative spending does work. What has not happened is cutting spending and raising taxs in good times. (See tax cuts, increased spending from 2002 to 2007.) You can suggest cutting spending all you want. It can’t be stimulative. It won’t work.

[briansd1]

Arraya, your philosophy sociology outlook is too ivory tower stuff coming out of academia.

Remember, thinkers are out of touch elitists. Build your portfolio and stash it in the Cayman Islands first; then we’ll talk about hard work and the real world.

[Allan from Fallbrook]

[quote=CA renter]

Though I like Krugman very much, I disagree with quite a few of his beliefs. A lack of spending isn’t what ails us, and accumulating more debt isn’t going to get us out of debt. We need to address the root of our problems which lie in our tax and trade policies, IMHO. [/quote]

CAR: Krugman gets into trouble when he: A) Refuses to tolerate any viewpoint but his own (see his arguments with Ken Rogoff and Veronique de Rugy), and B) Pushes a political agenda in the face of contrary data or information (AGAINST deficit spending during the Bush II Administration and FOR deficit spending during the Obama Administration.)

The repeated flogging of the Nobel Prize is interesting as well, especially since he received it for International Trade and not any of the topics he’s been railing on about recently.

Interesting link about Krugman contradicting Krugman. Economics is not a science, no matter how much its adherents try to push that notion.

http://marginalrevolution.com/marginalrevolution/2012/07/paul-krugman-on-contractionary-devaluation.html

[SK in CV]

[quote=Allan from Fallbrook]
Pushes a political agenda in the face of contrary data or information (AGAINST deficit spending during the Bush II Administration and FOR deficit spending during the Obama Administration.)

[/quote]

I’m just gonna pick on this one little item, because for the most part, I agree with you about Krugman and his ideologies.

But on this one, there is no inconsistency. It’s pretty straight forward keynsian economics. Stimulate/spend during a downturn in consumer spending (even if it causes a deficit, and for the most part, irrespective of the budget). Too many believe that is the heart and soul of keynsian economics. Almost as if tax and spend is an economic theory.

But during most of the Bush years, the economy was pretty healthy. So cutting spending and increasing taxes, and paying down debt would be the keynsian thing to do. We don’t have the same economy today as we had in 2005, so it’s logical that his recommendations wouldn’t be the same.

[Allan from Fallbrook]

[quote=SK in CV][quote=Allan from Fallbrook]
Pushes a political agenda in the face of contrary data or information (AGAINST deficit spending during the Bush II Administration and FOR deficit spending during the Obama Administration.)

[/quote]

I’m just gonna pick on this one little item, because for the most part, I agree with you about Krugman and his ideologies.

But on this one, there is no inconsistency. It’s pretty straight forward keynsian economics. Stimulate/spend during a downturn in consumer spending (even if it causes a deficit, and for the most part, irrespective of the budget). Too many believe that is the heart and soul of keynsian economics. Almost as if tax and spend is an economic theory.

But during most of the Bush years, the economy was pretty healthy. So cutting spending and increasing taxes, and paying down debt would be the keynsian thing to do. We don’t have the same economy today as we had in 2005, so it’s logical that his recommendations wouldn’t be the same.[/quote]

SK: Point taken and agreed. As Keynes himself said, “When the facts change, I change my mind.”

That said, we’re now in terra incognita, especially as the Eurozone goes. And, comparing the Eurozone to the US is certainly not an apples to oranges comparison.

[livinincali]

[quote=SK in CV]
If all deficit spending is stimulative, then all government spending must be stimulative. If you have a $100 deficit, you can’t identify which $100 suddenly is stimulative. But the response is no, all deficit spending is NOT stimulative. Only increased spending is stimulative. And only required under Keynsian theory if private spending has dropped.

Arguing that we’ve tried it before and it hasn’t worked is simply not true. Stimulative spending does work. What has not happened is cutting spending and raising taxs in good times. (See tax cuts, increased spending from 2002 to 2007.) You can suggest cutting spending all you want. It can’t be stimulative. It won’t work.[/quote]

Now your starting to see the problem we’ve developed over the past 30 years. Once you start stimulative spending you can never stop that spending. If stimulative spending worked you’d get to a point where you could stop doing it, but we never get there, we just keep increasing that spending.

It’s obvious to everybody that if we cut government spending that GDP will shrink. No one is going to argue that fact. The point is that when you cut spending, stop bailouts and let the debt liquidate you get to a stable economy that can grow again. It’s from a lower level but historically we’ve been quick to recover once that debt overhang is eliminated. Exponential growth forever can never work, sometimes you’ve got to reset the starting point.

Civilizations rise and fall, companies rise and fall, it’s a natural lifecycle when you’re dealing with exponents. Ideally you let this economic cycle play out before it gets so incredibly big, but we think we can avoid this economic cycle forever. Well at least until the next election.

[SK in CV]

[quote=livinincali]
The point is that when you cut spending, stop bailouts and let the debt liquidate you get to a stable economy that can grow again. [/quote]

Good luck with that.

[Allan from Fallbrook]

[quote=SK in CV][quote=livinincali]
The point is that when you cut spending, stop bailouts and let the debt liquidate you get to a stable economy that can grow again. [/quote]

Good luck with that.[/quote]

SK: Except there is a valid point in there, especially regarding certain countries within the Eurozone.

Greece, Portugal and Spain are different from Germany, France and, to a certain extent, Italy.

Continuing to pile debt onto Greece is nonsensical. This is a not a vibrant, growth-oriented economy with any hope of repaying said debt. Greece is the terminal endpoint of a failed model: The Euro social contract implodes when faced with this sort of calculus and we’re well beyond Keynesian “pump priming” now.

At the rate the Eurozone is going, we’ll have a dominant Germany surrounded by what will amount to servile, vassal states. And we all know how well THAT has worked out in the past.

As I said, this is terra incognita. The one comparison between the US and the Eurozone that does hold, however, is this: Our respective political classes have utterly failed us.

[Hobie]

[quote=Allan from Fallbrook]Our respective political classes have utterly failed us.[/quote]

Conclusion: Smaller govt, less power, just like our Constitution professes 😉 Live it, love it.

[Author]

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