Krugman vs. Greenspan

[DWCAP]

As far as Krugmans post, the mans politics is clouding up his economics so badly that he just sounds like a hack. (The Iraq war comment was a nice little jab, kudos to him. And the ‘German Hawk’ and ‘Ugly American’ titles speak well to the self styling liberal base to which Krugman writes. And if he has had so many conversations like that, why cant he quote it????? Or give an example? It is easy to make the other side sound stupid when you are the one putting words in their mouths.)

First off, the idea that Berlin is secretly trying to lower the value of the Euro to export more to the USA by doing exactly the opposit of what took out the Euro in the first place is delusional. The Euro is struggling because of national debts, Pure and simple. The fall of the Euro is traced directly to the implosion of Greece and the fears of similar in Spain, Portagal, Italy, Hungry and prob most of the smaller eastern nations on the euro. The fall of the Euro has nothing to do with a lack of European decifit spending, IT IS CAUSED BY PREVIOUS DEFICIT SPENDING. Why is that so hard to understand? The only way out is time and with it the gradual reduction of debt.

And the idea that because Germany CAN borrow at rock bottom rates means it should is just increadable. If this financial crisis has had ANY central theme, it is that debt doesnt matter till it does, and it is too late to do anything about it (cept beg for a bailout) once it does matter. Time and time again debt has taken out both countries and companies, and each and every one of them could borrow, until they couldnt. I dont care if it is housing, autos, national debt or corporate finance, just becuase you CAN borrow doesnt mean you SHOULD borrow.

[quote] almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity. [/quote]

On a side note, as far as I know economies almost never run at full capacity or near it, atleast for long. Now if he had said normal, then that would be a more defencable statement.

But my biggest problem with the Krugman argument is this:

We tend to think of recessions as the tradition inventory cycle type. Too much inventory builds up, causing reduced production, causing layoffs, which lowers demand and hence production, and the cycle continues to some natural low. His argument as I see it is that the government must step in at the beginning, before the cycle takes hold, and add to demand. This breaks the cycle and recessions either dont happen, or are very shallow and quick.

But this isnt a normal recession. It was debt and debt servicing that brought down the US housing market, the big banks, Greece, Iceland and perhaps the smaller EU nations and everyone else. There was plenty of demand at every step, rather the problem was excessive levels of debt, the cost of new consumption, and the inability of consumers/buyers to service that debt. Not demand.

And to his ‘answer’. It will take years more, ontop of the years already spent, to fix this DEBT crisis. Lets assume for a second that his solution works. Whole economies will have restructured to provide for large government demand. All the new jobs will be in government goods and service producing fields, or the industries they support, as that is where the demand is. Then, things finally get better, the recession ends and we begin to adress the deficit. Taxes go up, spending falls and demand colapses as the main driver of growth, governement spending, stops. Well then we get increasing unemployment, demand destruction, and a recession with alot more national debt to service from our reduced national revinues. JOB WELL DONE!

OR,

We just wind down these sectors over time, a far more expensive proposition than we currently discuss. Well, then we get slow growth, reducing employment growth in key areas, and far higher borrowing costs, which act just like a tax and reduce demand, leading to reduced demand which leads to rising unemployment which leads……

you can follow the rest.

The problem we have is that there is NO good solution to this problem. The sooner liberal bloggers can get that past their conscience and realize that, the better. We can either take our pain now, or kick the can into the future increasing the pain, with the added hope that some miracle saves our asses in the nick of time. I am not that faithful.

[Eugene]

Jp: those are all good arguments, but they are long term arguments, they don’t explain why we should be financially austere NOW NOW NOW as opposed to when unemployment comes down a bit from 10%.
xbox: this is not an ideological question, it’s fundamental macro economics: what happens if we cut govt spending and what happens if we don’t. It seems to me that Krugman’s position is much better defended with numbers.

[Eugene]

Jp: those are all good arguments, but they are long term arguments, they don’t explain why we should be financially austere NOW NOW NOW as opposed to when unemployment comes down a bit from 10%.
xbox: this is not an ideological question, it’s fundamental macro economics: what happens if we cut govt spending and what happens if we don’t. It seems to me that Krugman’s position is much better defended with numbers.

[Eugene]

Jp: those are all good arguments, but they are long term arguments, they don’t explain why we should be financially austere NOW NOW NOW as opposed to when unemployment comes down a bit from 10%.
xbox: this is not an ideological question, it’s fundamental macro economics: what happens if we cut govt spending and what happens if we don’t. It seems to me that Krugman’s position is much better defended with numbers.

[Eugene]

Jp: those are all good arguments, but they are long term arguments, they don’t explain why we should be financially austere NOW NOW NOW as opposed to when unemployment comes down a bit from 10%.
xbox: this is not an ideological question, it’s fundamental macro economics: what happens if we cut govt spending and what happens if we don’t. It seems to me that Krugman’s position is much better defended with numbers.

[Eugene]

Jp: those are all good arguments, but they are long term arguments, they don’t explain why we should be financially austere NOW NOW NOW as opposed to when unemployment comes down a bit from 10%.
xbox: this is not an ideological question, it’s fundamental macro economics: what happens if we cut govt spending and what happens if we don’t. It seems to me that Krugman’s position is much better defended with numbers.

[DWCAP]

Oh, also, as to the ‘aid to the jobless’ part. Numerous studies have shown that after a few weeks, unemployment compensation actually INCREASES unemployment rather than helps reduce it. If people can they will extend painful decisions like going back to school, moving, or taking jobs with lower pay. As such, they dont move on and become more and more unemployable as time passes and they delay the pain.
Those senators voted to stop giving more than 2 years of unemployment. 2 years. At some point we need to admit that they need to make some kinda change.

[DWCAP]

Oh, also, as to the ‘aid to the jobless’ part. Numerous studies have shown that after a few weeks, unemployment compensation actually INCREASES unemployment rather than helps reduce it. If people can they will extend painful decisions like going back to school, moving, or taking jobs with lower pay. As such, they dont move on and become more and more unemployable as time passes and they delay the pain.
Those senators voted to stop giving more than 2 years of unemployment. 2 years. At some point we need to admit that they need to make some kinda change.

[DWCAP]

Oh, also, as to the ‘aid to the jobless’ part. Numerous studies have shown that after a few weeks, unemployment compensation actually INCREASES unemployment rather than helps reduce it. If people can they will extend painful decisions like going back to school, moving, or taking jobs with lower pay. As such, they dont move on and become more and more unemployable as time passes and they delay the pain.
Those senators voted to stop giving more than 2 years of unemployment. 2 years. At some point we need to admit that they need to make some kinda change.

[DWCAP]

Oh, also, as to the ‘aid to the jobless’ part. Numerous studies have shown that after a few weeks, unemployment compensation actually INCREASES unemployment rather than helps reduce it. If people can they will extend painful decisions like going back to school, moving, or taking jobs with lower pay. As such, they dont move on and become more and more unemployable as time passes and they delay the pain.
Those senators voted to stop giving more than 2 years of unemployment. 2 years. At some point we need to admit that they need to make some kinda change.

[DWCAP]

Oh, also, as to the ‘aid to the jobless’ part. Numerous studies have shown that after a few weeks, unemployment compensation actually INCREASES unemployment rather than helps reduce it. If people can they will extend painful decisions like going back to school, moving, or taking jobs with lower pay. As such, they dont move on and become more and more unemployable as time passes and they delay the pain.
Those senators voted to stop giving more than 2 years of unemployment. 2 years. At some point we need to admit that they need to make some kinda change.

[CA renter]

[quote=jpinpb]I read the highlights of it on Mish’s site.

I have to agree w/one thing Mish says. I really believe changing the corporate tax policies would be a good place to start, particularly those that encourage jobs overseas. We have lost too many jobs overseas. That was before the tech/stock bubble. That bubble just got replaced w/the r.e. bubble. People subsidized their income w/HELOCs.

I also tend to agree w/the baby boom dynamics. I think people are having less children. My grandparents had 5 to 8 children (on mom and dad’s side respectively). I used to think WWII is what pulled us out of the depression and maybe it helped, but I think it was b/c of manufacturing and the men who left their jobs to fight the war. Their absence allowed others to work. Regardless, we have wars going on and our economy isn’t doing too well. So that alone can’t be what will do it.

I really think it goes back to jobs. And w/the way COL is nowadays, I don’t mean just any job. Has to be good-paying jobs. Sadly, I don’t know of a jobs program that makes sense long term. The census jobs, for example, are temporary and I don’t consider them well-paying.

I used to think getting an education was key. But now I question that, also. Witness many educated people graduating and now having difficulty finding a job. Maybe that’s all a scam, too. I’m big on education. But also, I understand that historically, school made it possible for children to be out of the work force while men worked.[/quote]

In total agreement with everything you’ve stated, jpinpb.

From your link to Mish’s site, his quote:

The reality is stimulus money always runs out and priming the pump is nonsense. Japan has proven that in spades. What brought the US out of deflation was WWII.

———-

I contend that it is *deflation itself* ends the deflationary cycle (not wars — althouth the bombing of our competitors’ factories and infrastructure didn’t hurt our cause). At some point, the money that is still in existence will want to buy the assets, labor, etc. that deflation has allowed to reset to very tempting levels.

IMHO, Mish is right about our debt problems, but wrong about what he wants to target — govt programs and workers. Calculate Risk is right in that we need to focus on JOBS.

If we had spent trillions of dollars on jobs programs (infrastructure, medical technology, energy technology, etc.) instead of spending trillions trying to prop up asset prices, I think we’d be far closer to a **sustainable** recovery.

If we had done this, asset prices might now be at levels where investors and end-users would be moving in with more powerful money (much higher purchasing power) while trying to mitigate some of the damage to the job market during the deflation. Additionally, we would have had a chance to revamp our crumbling infrastructure and possibly make new discoveries WRT new energy and healthcare innovations that could benefit us for decades or centuries to come. We could have seen long-term benefits if we had invested in technology R&D and infrastructure improvements. As it stands, we’ve simply tossed massive amounts of money into the black hole that is our financial industry — nothing positive will have been gained for the long term, with only the massive growth in wealth disparity that resulted from our misguided attempts at asset price reflation.

I do not for a moment think that things would go to zero if we had let deflation run its course; at some point, even without govt interference, a floor is formed where prices will attract buyers and investors. IMHO, this is how we would be able to overcome both the problem of too much debt, and the unemployment problems.

A healthy economy relies on a delicate dance between private sector and public sector spending and restraint. Sometimes, the private sector will be a bigger part of the economic pie; then, the public sector should step in (without affecting prices!) in an effort to maintain the job base while the private sector rebalances and reorganizes into more productive endeavors.

[CA renter]

[quote=jpinpb]I read the highlights of it on Mish’s site.

I have to agree w/one thing Mish says. I really believe changing the corporate tax policies would be a good place to start, particularly those that encourage jobs overseas. We have lost too many jobs overseas. That was before the tech/stock bubble. That bubble just got replaced w/the r.e. bubble. People subsidized their income w/HELOCs.

I also tend to agree w/the baby boom dynamics. I think people are having less children. My grandparents had 5 to 8 children (on mom and dad’s side respectively). I used to think WWII is what pulled us out of the depression and maybe it helped, but I think it was b/c of manufacturing and the men who left their jobs to fight the war. Their absence allowed others to work. Regardless, we have wars going on and our economy isn’t doing too well. So that alone can’t be what will do it.

I really think it goes back to jobs. And w/the way COL is nowadays, I don’t mean just any job. Has to be good-paying jobs. Sadly, I don’t know of a jobs program that makes sense long term. The census jobs, for example, are temporary and I don’t consider them well-paying.

I used to think getting an education was key. But now I question that, also. Witness many educated people graduating and now having difficulty finding a job. Maybe that’s all a scam, too. I’m big on education. But also, I understand that historically, school made it possible for children to be out of the work force while men worked.[/quote]

In total agreement with everything you’ve stated, jpinpb.

From your link to Mish’s site, his quote:

The reality is stimulus money always runs out and priming the pump is nonsense. Japan has proven that in spades. What brought the US out of deflation was WWII.

———-

I contend that it is *deflation itself* ends the deflationary cycle (not wars — althouth the bombing of our competitors’ factories and infrastructure didn’t hurt our cause). At some point, the money that is still in existence will want to buy the assets, labor, etc. that deflation has allowed to reset to very tempting levels.

IMHO, Mish is right about our debt problems, but wrong about what he wants to target — govt programs and workers. Calculate Risk is right in that we need to focus on JOBS.

If we had spent trillions of dollars on jobs programs (infrastructure, medical technology, energy technology, etc.) instead of spending trillions trying to prop up asset prices, I think we’d be far closer to a **sustainable** recovery.

If we had done this, asset prices might now be at levels where investors and end-users would be moving in with more powerful money (much higher purchasing power) while trying to mitigate some of the damage to the job market during the deflation. Additionally, we would have had a chance to revamp our crumbling infrastructure and possibly make new discoveries WRT new energy and healthcare innovations that could benefit us for decades or centuries to come. We could have seen long-term benefits if we had invested in technology R&D and infrastructure improvements. As it stands, we’ve simply tossed massive amounts of money into the black hole that is our financial industry — nothing positive will have been gained for the long term, with only the massive growth in wealth disparity that resulted from our misguided attempts at asset price reflation.

I do not for a moment think that things would go to zero if we had let deflation run its course; at some point, even without govt interference, a floor is formed where prices will attract buyers and investors. IMHO, this is how we would be able to overcome both the problem of too much debt, and the unemployment problems.

A healthy economy relies on a delicate dance between private sector and public sector spending and restraint. Sometimes, the private sector will be a bigger part of the economic pie; then, the public sector should step in (without affecting prices!) in an effort to maintain the job base while the private sector rebalances and reorganizes into more productive endeavors.

[CA renter]

[quote=jpinpb]I read the highlights of it on Mish’s site.

I have to agree w/one thing Mish says. I really believe changing the corporate tax policies would be a good place to start, particularly those that encourage jobs overseas. We have lost too many jobs overseas. That was before the tech/stock bubble. That bubble just got replaced w/the r.e. bubble. People subsidized their income w/HELOCs.

I also tend to agree w/the baby boom dynamics. I think people are having less children. My grandparents had 5 to 8 children (on mom and dad’s side respectively). I used to think WWII is what pulled us out of the depression and maybe it helped, but I think it was b/c of manufacturing and the men who left their jobs to fight the war. Their absence allowed others to work. Regardless, we have wars going on and our economy isn’t doing too well. So that alone can’t be what will do it.

I really think it goes back to jobs. And w/the way COL is nowadays, I don’t mean just any job. Has to be good-paying jobs. Sadly, I don’t know of a jobs program that makes sense long term. The census jobs, for example, are temporary and I don’t consider them well-paying.

I used to think getting an education was key. But now I question that, also. Witness many educated people graduating and now having difficulty finding a job. Maybe that’s all a scam, too. I’m big on education. But also, I understand that historically, school made it possible for children to be out of the work force while men worked.[/quote]

In total agreement with everything you’ve stated, jpinpb.

From your link to Mish’s site, his quote:

The reality is stimulus money always runs out and priming the pump is nonsense. Japan has proven that in spades. What brought the US out of deflation was WWII.

———-

I contend that it is *deflation itself* ends the deflationary cycle (not wars — althouth the bombing of our competitors’ factories and infrastructure didn’t hurt our cause). At some point, the money that is still in existence will want to buy the assets, labor, etc. that deflation has allowed to reset to very tempting levels.

IMHO, Mish is right about our debt problems, but wrong about what he wants to target — govt programs and workers. Calculate Risk is right in that we need to focus on JOBS.

If we had spent trillions of dollars on jobs programs (infrastructure, medical technology, energy technology, etc.) instead of spending trillions trying to prop up asset prices, I think we’d be far closer to a **sustainable** recovery.

If we had done this, asset prices might now be at levels where investors and end-users would be moving in with more powerful money (much higher purchasing power) while trying to mitigate some of the damage to the job market during the deflation. Additionally, we would have had a chance to revamp our crumbling infrastructure and possibly make new discoveries WRT new energy and healthcare innovations that could benefit us for decades or centuries to come. We could have seen long-term benefits if we had invested in technology R&D and infrastructure improvements. As it stands, we’ve simply tossed massive amounts of money into the black hole that is our financial industry — nothing positive will have been gained for the long term, with only the massive growth in wealth disparity that resulted from our misguided attempts at asset price reflation.

I do not for a moment think that things would go to zero if we had let deflation run its course; at some point, even without govt interference, a floor is formed where prices will attract buyers and investors. IMHO, this is how we would be able to overcome both the problem of too much debt, and the unemployment problems.

A healthy economy relies on a delicate dance between private sector and public sector spending and restraint. Sometimes, the private sector will be a bigger part of the economic pie; then, the public sector should step in (without affecting prices!) in an effort to maintain the job base while the private sector rebalances and reorganizes into more productive endeavors.

[CA renter]

[quote=jpinpb]I read the highlights of it on Mish’s site.

I have to agree w/one thing Mish says. I really believe changing the corporate tax policies would be a good place to start, particularly those that encourage jobs overseas. We have lost too many jobs overseas. That was before the tech/stock bubble. That bubble just got replaced w/the r.e. bubble. People subsidized their income w/HELOCs.

I also tend to agree w/the baby boom dynamics. I think people are having less children. My grandparents had 5 to 8 children (on mom and dad’s side respectively). I used to think WWII is what pulled us out of the depression and maybe it helped, but I think it was b/c of manufacturing and the men who left their jobs to fight the war. Their absence allowed others to work. Regardless, we have wars going on and our economy isn’t doing too well. So that alone can’t be what will do it.

I really think it goes back to jobs. And w/the way COL is nowadays, I don’t mean just any job. Has to be good-paying jobs. Sadly, I don’t know of a jobs program that makes sense long term. The census jobs, for example, are temporary and I don’t consider them well-paying.

I used to think getting an education was key. But now I question that, also. Witness many educated people graduating and now having difficulty finding a job. Maybe that’s all a scam, too. I’m big on education. But also, I understand that historically, school made it possible for children to be out of the work force while men worked.[/quote]

In total agreement with everything you’ve stated, jpinpb.

From your link to Mish’s site, his quote:

The reality is stimulus money always runs out and priming the pump is nonsense. Japan has proven that in spades. What brought the US out of deflation was WWII.

———-

I contend that it is *deflation itself* ends the deflationary cycle (not wars — althouth the bombing of our competitors’ factories and infrastructure didn’t hurt our cause). At some point, the money that is still in existence will want to buy the assets, labor, etc. that deflation has allowed to reset to very tempting levels.

IMHO, Mish is right about our debt problems, but wrong about what he wants to target — govt programs and workers. Calculate Risk is right in that we need to focus on JOBS.

If we had spent trillions of dollars on jobs programs (infrastructure, medical technology, energy technology, etc.) instead of spending trillions trying to prop up asset prices, I think we’d be far closer to a **sustainable** recovery.

If we had done this, asset prices might now be at levels where investors and end-users would be moving in with more powerful money (much higher purchasing power) while trying to mitigate some of the damage to the job market during the deflation. Additionally, we would have had a chance to revamp our crumbling infrastructure and possibly make new discoveries WRT new energy and healthcare innovations that could benefit us for decades or centuries to come. We could have seen long-term benefits if we had invested in technology R&D and infrastructure improvements. As it stands, we’ve simply tossed massive amounts of money into the black hole that is our financial industry — nothing positive will have been gained for the long term, with only the massive growth in wealth disparity that resulted from our misguided attempts at asset price reflation.

I do not for a moment think that things would go to zero if we had let deflation run its course; at some point, even without govt interference, a floor is formed where prices will attract buyers and investors. IMHO, this is how we would be able to overcome both the problem of too much debt, and the unemployment problems.

A healthy economy relies on a delicate dance between private sector and public sector spending and restraint. Sometimes, the private sector will be a bigger part of the economic pie; then, the public sector should step in (without affecting prices!) in an effort to maintain the job base while the private sector rebalances and reorganizes into more productive endeavors.

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