Krugman Destroyed In Debate

[SK in CV]

[quote=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.[/quote]

The problem I have with the statement isn’t that it can’t be the right thing to do. It’s that in a time of falling (or insufficient) public spending, cutting government spending will never lead to economic growth. Might piling on additional debt and increasing spending be the right thing to do in Greece? Probably not. With the current level of debt, the Greek economy is probably irreparable. But will cutting spending fix it and lead to economic stability? Not a chance.

[Allan from Fallbrook]

[quote=SK in CV][quote=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.[/quote]

The problem I have with the statement isn’t that it can’t be the right thing to do. It’s that in a time of falling (or insufficient) public spending, cutting government spending will never lead to economic growth. Might piling on additional debt and increasing spending be the right thing to do in Greece? Probably not. With the current level of debt, the Greek economy is probably irreparable. But will cutting spending fix it and lead to economic stability? Not a chance.[/quote]

SK: Hence my point that Greece is not Germany and, most importantly, will never be.

So, here then is the burning question: What IS the right answer? I think we both know it and I think the politicians in the Eurozone know it, too. But no one wants to bell that particular cat. The fact is, the Euro was a bad idea from the jump. Attempting to assert homogeneity in a grouping of countries that diverse was D.O.A. However, notionality and aspirational thinking carried the day and a “close your eyes and think happy thoughts” attitude took over.

As to Keynesianism versus the alternatives: We are in uncharted territory and repeatedly chanting the established orthodoxy (a la Krugman) is NOT the solution, either. Given the massive amounts of debt overhang present, I think Keynes himself would be tossing for a different solution than the one being flogged now by his acolytes.

I realize comparing businesses to countries can be odious, but this is more balance sheet driven, than profit and loss. Working back into a pro-growth environment will require spending down said debt, and adding more debt on top certainly cannot help.

[The-Shoveler]

When I look at this from someone who never took economics,
California is kind of like the worst of Greece and the worst of Spain and some of Japan put together.
Texas is like Germany (sort of).
With huge public debt (cities dropping left and right, state not much better). And 1/3 of all mortgage owners about 100K underwater on average (and yes most will not be walking away so forget it).
California desperately needs to monetize their Public and private debt, has a growing older population transitioning to fixed income and does not want inflation (Texas probably does not want to either)
what to do!! what to do!! .
I figure one day Ben will just lose it, sand up and say.
“Look we need to inflate out way out of this mess, were going to just print money until were blue in the face, get over it”

And from a over simplified point of view I am sure, “the Euro needs to die”, maybe just keep a free trade zone.

[Allan from Fallbrook]

[quote=The-Shoveler]When I look at this from someone who never took economics,
California is kind of like the worst of Greece and the worst of Spain and some of Japan put together.
Texas is like Germany (sort of).
With huge public debt (cities dropping left and right, state not much better). And 1/3 of all mortgage owners about 100K underwater on average (and yes most will not be walking away so forget it).
California desperately needs to monetize their Public and private debt, has a growing older population transitioning to fixed income and does not want inflation (Texas probably does not want to either)
what to do!! what to do!! .
I figure one day Ben will just lose it, sand up and say.
“Look we need to inflate out way out of this mess, were going to just print money until were blue in the face, get over it”

And from a over simplified point of view I am sure, “the Euro needs to die”, maybe just keep a free trade zone.[/quote]

I don’t think not taking Econ101 is a detriment here, actually. Put five economists in a room and you’ll get five different opinions. On top of that, economists rely on models to derive their analyses. Depending on the sophistication of the model, the inputs used (or left out) and the experience of the modeler, it is possible to get a wide variety of outputs.

While economists like Krugman attempt to establish primacy through their awards (in Krugman’s case, in a field completely different than this one) or their standing in the field, that fact remains: Economics is more art than science and does NOT rely strictly on empirical data. So, for someone like Krugman, or Samuelson, or Rogoff, to assert that their position is completely correct is laughable in the extreme. It is NOT, because it CANNOT be. There are too many missing variables and subjectivity, not objectivity, is the order of the day.

The Euro is fucked. Period. And “Helicopter Ben” has been printing greenbacks as furiously as possible, what with QE1, QE2, Operation Twist, etc. There are NO answers left, so the default is MORE currency and MORE debt. To say that this is a Keynesian solution is to ignore classical Keynesianism and simply fall back on incessant and repeated pump priming. And that’s where Einstein’s definition of insanity comes into play.

[briansd1]

[quote=livinincali]
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.
[/quote]

Actually, Krugman wrote about that too. And he’s been right.

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/03/was-there-an-icelandic-miracle/

Krugman was against Bush’s bailout of Wall Street; but Krugman was for forceful government and central bank intervention.

[briansd1]

[quote=Allan from Fallbrook]
Continuing to pile debt onto Greece is nonsensical. This is a not a vibrant, growth-oriented economy with any hope of repaying said debt.
[/quote]

Who is piling debt onto Greece? Greece’s debts were written down, and the correct approach now is to help Greece refinance maturing debt.

[quote=Allan from Fallbrook]
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.
[/quote]

You do realize that that you’re in agreement with Krugman, right?

Krugman is saying that Germany needs to take responsibility and do more to help Greece and allow the ECB to do more to help.

Krugman is saying that Germany should not just dictate austerity as a lord would dictate to a vassal.

[briansd1]

[quote=SK in CV]

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]

Exactly.

Now someone please tell us again how Krugman was destroyed by the Spanish economist who rambled on but said nothing about fixing the Euro?

@ Allan. The Euro might have been a bad idea for Greece… But it is what is is now. We need forward thinking solutions to prevent output from collapsing simply because of a currency bottleneck.

[scaredyclassic]

I find the more coffee I drink the more I need to drink. I cut myself off from all stimulative measures a week ago and switched to African bush tea. Am I Europe or America?

[SK in CV]

[quote=squat250]I find the more coffee I drink the more I need to drink. I cut myself off from all stimulative measures a week ago and switched to African bush tea. Am I Europe or America?[/quote]

Did you get caffeine withdrawal headaches?

[briansd1]

[quote=SK in CV]
Did you get caffeine withdrawal headaches?[/quote]

That’s why I don’t drink coffee in the morning or at night, and never at the same time everyday.

I want the antioxidants in coffee but I don’t what to depend on the stimulants.

Stimulant addiction (such as absolutely needing coffee in the morning or a beer after work) is a cause of obesity and bad health, which eventually lead to death.

The stimulants and medicines work best when you apply them sparingly at the appropriate times. But they do work wonders.

[scaredyclassic]

i don’t get caffeine withdrawal headaches when I stop drinking 10 cups of coffee per day. I just feel like there’s no point to living. then i feel better in a couple days.

maybe im zimbabwe. or …botswana?

hey does anybody out there love the LADIES No 1 DETECTIVE AGENCY series of books to the extreme level that i do? I’ve read every single one, including the latest, the limpopo academy of private detection, which was extremely awesome. i just love Mme Ramotswe and mr jlb matekoni. and fanwell..and everyone. i’ve learned a lot from those books…

[Allan from Fallbrook]

[quote=briansd1]
@ Allan. The Euro might have been a bad idea for Greece… But it is what is is now. We need forward thinking solutions to prevent output from collapsing simply because of a currency bottleneck.[/quote]

Brian: Referring to the Eurozone situation as a “currency bottleneck” is like referring to a tsunami as a light wave. The Eurozone problems are systemic in nature and come as a result of attempting to enforce a top down solution, while ignoring the manifold weaknesses inherent to a single currency imposed across a wide variety of economies, cultures and governments.

Look at France’s recent response to the situation: It was entirely in keeping with France’s attitude and approach and it’s entirely wrong-headed. Not singling out France, as this problem is being repeated across the Continent and it is only going to get worse.

So, Brian, what is the solution? Or, more correctly, what are the solutions? This is where Krugman breaks down and through no fault of his own. Much like the expression, “When you’re a hammer, everything looks like a nail”, Krugman lacks the answers, because we’ve not been here before. The Eurozone, collectively, lacks the political will, the economic and policy capabilities and the working age population to dig themselves out of this hole.

[Allan from Fallbrook]

[quote=briansd1]
Who is piling debt onto Greece? Greece’s debts were written down, and the correct approach now is to help Greece refinance maturing debt.

[/quote]

Brian: So Greece is fixed? Thank God! That’s a relief. You know, from reading all the financial news, I was under the impression that Greece was still all fucked up. But now I hear they’re fixed. Well, that’s a relief.

[briansd1]

[quote=Allan from Fallbrook]
Brian: So Greece is fixed? Thank God! That’s a relief. [/quote]

Greece is not fixed but the situation is better than without intervention.

If nothing had been done, Greece would have gone bankrupt and left the Euro. The civil unrest would have been a multitude worse.

Had the Europeans moved faster as Krugman had suggested, the situation would have been contained. The speculators would have taken big looses as they could not stand a chance against the ECB. The markets would have turned.

Krugman was right all along. Krugman realized long ago that there are only 2 posible ways forward:

1) Internal deflation for the countries affected, probably until they can take it no more and leave the Euro.

2) A Euro wide approach and Germany accepting inflation risks for the sake of the greater good. That means allowing the ECB to act more forcefully like our Federal Reserve has.

Allan, you’re doing the same thing as the Spanish guy who “destroyed” Krugman. You rail against the Euro as a bad idea. You rail against Germany for dictating auteristy. You talk about past mistakes but fail to see the solutions forward.

[Allan from Fallbrook]

[quote=briansd1][quote=Allan from Fallbrook]
Brian: So Greece is fixed? Thank God! That’s a relief. [/quote]

Greece is not fixed but the situation is better than without intervention.

If nothing had been done, Greece would have gone bankrupt and left the Euro. The civil unrest would have been a multitude worse.

Had the Europeans moved faster as Krugman had suggested, the situation would have been contained. The speculators would have taken big looses as they could not stand a chance against the ECB. The markets would have turned.

Krugman was right all along. Krugman realized long ago that there are only 2 posible ways forward:

1) Internal deflation for the countries affected, probably until they can take it no more and leave the Euro.

2) A Euro wide approach and Germany accepting inflation risks for the sake of the greater good. That means allowing the ECB to act more forcefully like our Federal Reserve has.

Allan, you’re doing the same thing as the Spanish guy who “destroyed” Krugman. You rail against the Euro as a bad idea. You rail against Germany for dictating auteristy. You talk about past mistakes but fail to see the solutions forward.[/quote]

Brian: The problem is this: NEITHER SOLUTION WORKS. Inherently missing from the Krugman “solution” is this overlooked but oh so salient fact: The Eurozone is built on a false premise and that premise has been exposed.

You’re right in saying Greece is not fixed. It sure isn’t. Nor is Spain. Nor is Italy, Portugal, etc. Moreover, the German economy is beginning to stagger and various other countries, including Finland, are disavowing the Euro and seeking to go it alone.

It’s easy to propose solutions, when the solution is nothing more than the output from a model, but things are a mite messier in the real world. Just like all those “shovel-ready” jobs not being so shovel-ready.

“Everybody has a plan. Then they get hit.” George Foreman.

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