Congress to Obama: "The ATM is Closed"

[Pangloss]

ABC News ran a piece on Friday saying that Congress has pretty much thrown in the towel on further bailouts, stimulus, and any further exceptions to PAYGO. No new spending will be considered unless money is cut from other programs to pay for it. PAYGO or no-go.

 

Two weeks ago the President said he needed $50 billion in aid to states or up to 300,000 teachers would be laid off. That proposal is dead. Congress also stopped short of extending unemployment benefits this week, saying that they didn't have a way to pay for it.

 

Sadly, Democrats are pushing back against their moderate partners and Republicans, pushing for more spending and more aid programs.

 

The story comes from Jonathan Karl and can be found in video form here:

http://abcnews.go.com/WNT/video/congress-money-11017927

[Genecks]

Teachers aren't paid that much. At least, they don't need to be paid that much (K-12 educators). For post-secondary educators, I could see that. Anyway, I wouldn't mind being a K-12 teacher and making maybe $15,000 a year. I'd be undercutting the competition, but it's a nice job, I think (as a biology teacher).

[Cap'n Refsmmat]

After taxes, you'd probably be below the poverty line with that kind of income.

[Pangloss]

Uh, public primary teachers in Florida start at more than twice that amount -- $34,606. The average for a teacher with a bachelor's degree is $43,745. With a masters it climbs to $51,064, and with a PhD or "specialist" (a kind of ABD subdoctorate) it hits about $57k. (Source: Florida Department of Education, note: PDF)

 

I believe the lowest of those numbers is above the national average. For everyone. But I have no idea how that matches up with other states.

[Genecks]

In Illinois, there is a regulated minimum salary that occurs for k-12 teachers. They have to at least be paid that. I've began to agree with the idea of cutting wages as of late. Some work is better than no work (I'm suggesting economic reform in the form of ad-hoc adjustments to salaries nation-wide).

 

Oh, for sure I'd have little saved if possible (maybe a thousand or two).

 

In reference to my first "they don't need to be paid that much" comment:click here.

 

To be serious, I think some of these teachers should have been laid off and honorably rehired with a contract that offers a lower salary. It's a crude business tactic. One I don't agree with if the economy is ok.

Edited June 27, 2010 by Genecks

[CharonY]

15 k would be ridiculous. Average of over 30k sounds more reasonable. It is telling however that postdoc researchers make less money, although they work more hours. But then academia payrolls are ridiculous anyway.

[Pangloss]

World leaders at the G-20 Summit told President Obama over the weekend that they're done with stimulus. The press, which has been asking for months when the spending spree will end, without batting an eye immediately pounced, questioning whether the spending cuts would be "too deep" and cause the recession to be extended or worsened. ABC News really tore it up, but this Washington Post piece says more or less the same thing in written form.

 

http://www.washingtonpost.com/wp-dyn/content/article/2010/06/27/AR2010062701754.html

[Mr Skeptic]

The press twisting stuff to make it sound more newsworthy? Stop the presses!

[iNow]

Krugman has been rather concerned about this fiscal austerity based on flawed logic for months now. He has been using data and bond rates to show that markets truly are doing fine and show no signs that they are concerned with deficits, and how this push toward tightened policy seems based on old ideas which have several times been proven wrong.

 

In short, he has pretty consistently argued how these approaches around the globe, and also here in the US, are going to do little more than revert us back into a downturn... and could be worse than last year... becoming a third depression.

 

Here's a column from this morning doing exactly that... This is not the only leg in his argument, which has been building for months now.

 

 

http://www.nytimes.com/2010/06/28/opinion/28krugman.html

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.

 

<...>

 

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. <

continue reading

>

 

 

I'm sure people will try to attack Krugman personally, but I'd rather see arguments based on logic and merit showing him wrong. Thus far, all I've seen have fallen rather flat, and it's sad, but he looks to be correct.

[Pangloss]

I'm sure people will try to attack Krugman personally, but I'd rather see arguments based on logic and merit showing him wrong. Thus far, all I've seen have fallen rather flat, and it's sad, but he looks to be correct.

 

That's your opinion, and disagreeing with it does not constitute a personal attack on Krugman. Nor does noting his ideological bias. There are two valid schools of economic theory. In my opinion neither one of them is automatically correct or incorrect -- they're simply different. But you're certainly welcome to feel otherwise.

 

 

Krugman has been rather concerned about this fiscal austerity based on flawed logic for months now. He has been using data and bond rates to show that markets truly are doing fine and show no signs that they are concerned with deficits, and how this push toward tightened policy seems based on old ideas which have several times been proven wrong.

 

So basically Krugman is saying that a tax-and-spend policy should be taken up permanently, not because of any economic emergency (as the president says), but because it's good general economic policy.

 

Since those "old ideas" have in fact never been proven anything (nor has his economic side's ideas), he is therefore demonstrably incorrect in this case.

[iNow]

That's your opinion, and disagreeing with it does not constitute a personal attack on Krugman.

Who said it did? My comment was to head off baseless responses, not to suggest any had been made already. How about you pump the brakes a bit there, speed racer?

 

 

Nor does noting his ideological bias.

I agree, but my point remains. My personal preference would be for challenges to be empirically supported, not personally directed.

 

 

On that note, I'll just comment how you've not supported your assertions with evidence or numbers or even logic, and instead have just blindly put them forth. You're welcome to your opinion, though.

[Pangloss]

The position you posted from Krugman isn't scientific, it's political. He's cherry-picking historic facts, nothing more. Cherry-pick a different set of facts (as I'm sure his ideological opponents in the economic realm will do) and one can easily support a different theory.

 

I was really (for the purposes of this thread) more interested in the political aspects (not that I object to your post). It doesn't really matter if Krugman is right, because he can't have what he wants. Not only is the will not there in this country, it's not there in any of the other developed nations either.

 

Once again the community of nations is telling our political leadership that it's wrong.

---

Merged post follows:

Consecutive posts merged

Krugman has been rather concerned about this fiscal austerity based on flawed logic for months now. He has been using data and bond rates to show that markets truly are doing fine and show no signs that they are concerned with deficits, and how this push toward tightened policy seems based on old ideas which have several times been proven wrong.

 

I think you're misreading Krugman, btw. He's actually supporting what the President is saying, suggesting that this is the wrong time to end emergency spending, not pleading for an ideological, permanent shift back to tax-and-spend policy.

[iNow]

I think you're misreading Krugman, btw. He's actually supporting what the President is saying, suggesting that this is the wrong time to end emergency spending, not pleading for an ideological, permanent shift back to tax-and-spend policy.

Where did I say or suggest he was pleading for a "permanent ideological shift back to tax and spend policy?" Jebus Christ, it's so infuriating reading your responses sometimes... seeing you totally spin what someone said.... even regarding the most neutral and innocuous posts.

 

I also like how you say he hasn't based his position on data, and how he's cherry-picking, showing just how profoundly you chose to ignore my explicit point about the link I shared above being just one article of many supporting his concerns. Ah... good times. You're nothing if not consistent, Pangloss.

[Cap'n Refsmmat]

Where did I say or suggest he was pleading for a "permanent ideological shift back to tax and spend policy?" Jebus Christ, it's so infuriating reading your responses sometimes... seeing you totally spin what someone said.... even regarding the most neutral and innocuous posts.

If you truly wanted to keep discussion civil and non-spun, you'd have replied "No, I actually agree with you there," rather than going into all-out Attack Pangloss mode. "Fight fire with fire" only works for Bugs Bunny.

 

Now, instead of arguing about each other's arguments, can we perhaps bring up some relevant evidence about global economics, or return to discussing the implications of Congress' refusal to keep throwing money at things?

[ecoli]

Uh, public primary teachers in Florida start at more than twice that amount -- $34,606. The average for a teacher with a bachelor's degree is $43,745. With a masters it climbs to $51,064, and with a PhD or "specialist" (a kind of ABD subdoctorate) it hits about $57k. (Source: Florida Department of Education, note: PDF)

 

My dad makes double that, as a high school biology teacher with a masters degree and roughly 20+ years of experience. He works in a public school, in a relatively affluent neighborhood. Granted he lives in a neighborhood with really high standard of living, so he could live about the same with much less somewhere else.

[iNow]

It's not just the US where austerity and contraction are problems. This is a global trend, and it's like people are ignoring history.

 

 

 

http://krugman.blogs.nytimes.com/2010/06/14/the-bad-logic-of-fiscal-austerity/

 

So, one more time: here’s an attempt to put together some key arguments about why the rush to fiscal austerity is deeply misguided.

 

Let me start with the budget arithmetic, borrowing an approach from Brad DeLong. Consider the long-run budget implications for the United States of spending $1 trillion on stimulus at a time when the economy is suffering from severe unemployment.

 

That sounds like a lot of money. But the US Treasury can currently issue long-term inflation-protected securities at an interest rate of 1.75%. So the long-term cost of servicing an extra trillion dollars of borrowing is $17.5 billion, or around 0.13 percent of GDP.

 

And bear in mind that additional stimulus would lead to at least a somewhat stronger economy, and hence higher revenues. Almost surely, the true budget cost of $1 trillion in stimulus would be less than one-tenth of one percent of GDP – not much cost to pay for generating jobs when they’re badly needed and avoiding disastrous cuts in government services.

 

But we can’t afford it, say the advocates of austerity. Why? Because we must impose pain to appease the markets.

 

There are three problems with this claim.

 

First, it assumes that markets are irrational – that they will be spooked by stimulus spending and/or encouraged by austerity even though the long-run budget implications of such spending and/or austerity are trivial.

 

Second, we’re talking about punishing the real economy to satisfy demands that markets are not, in fact, making. It’s truly amazing to see so many people urging immediate infliction of pain when the US government remains able to borrow at remarkably low interest rates, simply because Very Serious People believe, in their wisdom, that the markets might change their mind any day now.

 

Third, all this presumes that if the markets were to lose faith in the US government, they would be reassured by short-term fiscal austerity. The available facts suggest otherwise: markets continue to treat Ireland, which has accepted savage austerity with little resistance, as being somewhat riskier than Spain, which has accepted austerity slowly and reluctantly.

 

In short: the demand for immediate austerity is based on the assertion that markets will demand such austerity in the future, even though they shouldn’t, and show no sign of making any such demand now; and that if markets do lose faith in us, self-flagellation would restore that faith, even though that hasn’t actually worked anywhere else.

 

And this, ladies and gentlemen, is what passes for respectable policy analysis.

 

 

http://krugman.blogs.nytimes.com/2010/06/18/fiscal-fantasies-2/

It’s really amazing to see how quickly the notion that contractionary fiscal policy is actually expansionary is spreading. As I noted yesterday, the Panglossian view has now become official doctrine at the ECB.

 

So what does this view rest on? Partly on vague ideas about credibility and confidence; but largely on the supposed lessons of experience, of countries that saw economic expansion after major austerity programs.

 

Yet if you look at these cases, every one turns out to involve key elements that make it useless as a precedent for our current situation.

<...>

So every one of these stories says that you can have fiscal contraction without depressing the economy IF the depressing effects are offset by huge moves into trade surplus and/or sharp declines in interest rates. Since the world as a whole can’t move into surplus, and since major economies already have very low interest rates, none of this is relevant to our current situation.

 

Yet these cases are being cited as reasons not to worry as austerity becomes the rule. <

continue reading

>

 

 

http://krugman.blogs.nytimes.com/2010/06/15/magical-foreigners-austerity-edition/

So now the cause is fiscal austerity — and we keep hearing about supposed examples of countries that experienced a boom after tightening fiscal policy, supposedly demonstrating that austerity is good, not bad, for employment. First was Canada in the 1990s, which turns out to be a

quite different story

. Now we’re hearing about Ireland in the 1980s.

 

So, time for a little research. And whaddya know: this story is also

not at all the way it’s being told

(pdf). Yes, Ireland had fiscal austerity — but it also benefited from a devaluation and an inflationary boom in the UK.

 

Oh, and Irish interest rates fell sharply, which was possible because they were very high to begin with; that’s not much of a precedent for the United States today, which starts with very low rates.

 

So yes, you can boost your economy with fiscal austerity, as long as you also devalue your currency and sharply reduce interest rates; also, incantations will destroy a flock of sheep, if administered with a sufficient portion of arsenic. <

continue reading

>

 

 

 

http://krugman.blogs.nytimes.com/2010/06/13/does-fiscal-austerity-reassure-markets/

Well, I guess that’s right — if by “markets impressed” you mean a CDS spread of 226 basis points, compared with 206 points for Spain; not to mention a 10-year bond rate of 5.11 percent, compared with 4.46 percent for Spain.

 

So, I’m glad to hear that Ireland’s stoic acceptance of austerity is reassuring markets; it must be true, because that’s what everyone says. Because if I didn’t know that, I might look at the data and conclude that markets actually have less confidence in Ireland than they do in Spain, and that austerity in the face of a deeply depressed economy doesn’t actually reassure markets at all.

 

But hey, what are you going to believe: what everyone knows, or your own lying eyes? <

continue reading

>

 

 

http://krugman.blogs.nytimes.com/2010/06/12/strange-arguments-for-higher-rates/

My take on the current economic situation is quite simple, and I would have thought corresponds to standard economics. Right now, we clearly don’t have enough demand to make full use of the economy’s productive capacity. This means that the real interest rate is too high. And so the “natural” thing is for the real rate to fall. Yes, that would mean a negative real rate. So?

 

The trouble is that getting that negative real rate isn’t easy, because the nominal rate can’t go below zero, and there’s no easy way to create expected inflation. If you ask what would happen if prices were completely flexible, the answer, as I figured out long ago, is that prices would fall so far now that people would expect them to rise in the future, creating expected inflation. Bur prices aren’t that flexible, which is why we turn to quantitative easing, fiscal policy, and more.

 

Surely, though, we want to get rates as close to their appropriate level as possible — which means a zero nominal rate. There’s nothing “unnatural” about it. On the contrary, the “natural rate of interest”, as Wicksell defined it, is clearly negative right now.

 

So why does Rajan feel that there must be something wrong with low rates (and he’s not alone)? I think his language, with its odd moral tone, is the giveaway: it’s the sense that economic policy is supposed to involve being tough on people, not giving money away cheap.

 

I actually understand the seductiveness of that posture; I can sort of understand how economists succumb to it. But right now, with the world desperately in need of clear thinking, is no time to give in to the subtle allure of inflicting economic pain.

 

 

http://krugman.blogs.nytimes.com/2010/06/11/misplaced-optimism/

When short-term interest rates are up against the zero lower bound, a positive term spread tells you nothing; as I explained a year and half ago, it’s something that has to happen given the fact that short rates can go up, but not down.

 

Failure to understand this point led to excess optimism in late 2008. I’m a bit surprised to see Macroeconomic Advisers falling into the same fallacy now.

 

 

http://krugman.blogs.nytimes.com/2010/06/10/anti-straw-men-and-austerity/

Brad suggests a possible “confidence” argument for fiscal austerity, and also suggests that this must be what lies in the minds of the OECD, Ragu Rajan, Jeff Sachs, etc..

 

But wait a second: both the OECD and Rajan are calling not just for fiscal austerity but for raising interest rates, a move that makes no sense unless you fear inflationary pressures when the economy is at 10 percent unemployment. (The OECD is quite specific: it wants the Fed funds rate to rise by 350 basis points by end-2011, even though its own forecast says that unemployment then will still be over 8 percent and inflation under 1 percent.) It’s very hard to see what their argument is — but one thing is for sure, it really is murky and muddled.

 

And Jeff Sachs isn’t arguing that without fiscal austerity bad things might happen — he’s arguing that they already have happened, despite the total lack of the spike in interest rates that would be the necessary signature of the story he’s telling.

 

So sorry, Brad, I know you’d like to think well of these economists. So would I. But there’s no there there.

 

 

http://krugman.blogs.nytimes.com/2010/06/09/the-global-transmission-of-european-austerity/

Some thoughts on the fiscal austerity mania now sweeping Europe: is anyone thinking seriously about how this affects the rest of the world, the US included?

 

We do have a framework for thinking about this issue: the Mundell-Fleming model. And according to that model (does anyone still learn this stuff?), fiscal contraction in one country under floating exchange rates is in fact contractionary for the world as a whole. The reason is that fiscal contraction leads to lower interest rates, which leads to currency depreciation, which improves the trade balance of the contracting country — partly offsetting the fiscal contraction, but also imposing a contraction on the rest of the world. (Rudi Dornbusch’s 1976 Brookings Paper went through all this.)

 

Now, the situation is complicated by the fact that monetary policy is up against the zero lower bound. Nonetheless, something much like this transmission mechanism seems to be happening right now, with the weakness of the euro turning eurozone fiscal contraction into a global problem.

 

 

http://krugman.blogs.nytimes.com/2010/06/07/madmen-in-authority/

Rereading my post on

the folly of the G20

, it seems to me that I didn’t fully convey just how crazy the demand for fiscal austerity now now now really is.

 

The key thing you need to realize is that eliminating stimulus spending, while it would inflict severe economic harm, would do almost nothing to reduce future debt problems. Here’s the IMF’s estimate of sources of the growth in debt over the next few years:

 

 

 

And even this figure conveys a misleading impression of the importance of stimulus spending. First, since cutting stimulus would weaken the economy, it would reduce revenues — that is, a substantial part of the debt growth the IMF attributes to stimulus would have happened even without stimulus, through lower revenue. Second, for the US at least the core reason for long-run budget concern is rising health care costs — in fact, health cost control is the sine qua non of long-run solvency — which has nothing whatever to do with how much we spend on job creation now.

 

So how much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?

 

The answer is, to reassure the markets — because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.

 

And the basis for this belief that this is what markets demand is … well, actually there’s no sign that markets are demanding any such thing. There’s Greece — but the Greek situation is very different from that of the US or the UK. And at the moment everyone except the overvalued euro-periphery nations is able to borrow at very low interest rates.

 

So wise policy, as defined by the G20 and like-minded others, consists of destroying economic recovery in order to satisfy hypothetical irrational demands from the markets — demands that economies suffer pointless pain to show their determination, demands that markets aren’t actually making, but which serious people, in their wisdom, believe that the markets will make one of these days.

 

Awesome.

 

 

You know... or we could all just accept on faith Pangloss' assertion that these arguments are unsupported like his.

 

 

Er... wait. Let me be more constructive per Cap'n's request. Is there anyone able to show where his arguments are wrong using data and empiricism, or are people going to assume an attack on Krugman as a person is sufficient?

 

 

 

 

 

http://krugman.blogs.nytimes.com/2010/06/06/lost-decade-here-we-come/

It’s basically incredible that this is happening with unemployment in the euro area still rising, and only slight labor market progress in the US.

 

But don’t we need to worry about government debt? Yes — but slashing spending while the economy is still deeply depressed is both an extremely costly and quite ineffective way to reduce future debt. Costly, because it depresses the economy further; ineffective, because by depressing the economy, fiscal contraction now reduces tax receipts. A rough estimate right now is that cutting spending by 1 percent of GDP raises the unemployment rate by .75 percent compared with what it would otherwise be, yet reduces future debt by less than 0.5 percent of GDP.

 

The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.

 

But what about Greece and all that? Look, right now sovereign debt problems are taking place in countries with a very specific problem: they’re part of the euro zone, AND they’re badly overvalued thanks to huge capital inflows in the good years; as a result they’re facing years of grinding deflation. Countries not in that situation are not facing any pressure from the markets for immediate cuts; as of this morning, 10-year bonds were yielding 3.51 in Britain, 3.21 in the US, 1.27 in Japan.

 

Yet the conventional wisdom now is that these countries must nonetheless cut — not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn’t) sometime in the future.

 

Utter folly posing as wisdom. Incredible.

 

 

Lost decade, here we come...

[Pangloss]

What "attack on Krugman as a person" are you referring to?

[ecoli]

@iNow - that last post covers a lot of economic policy. I would appreciate a more focused discussion on specific points. Perhaps focus on one quote and a bit more commentary would be helpful.

[iNow]

We're already at the zero bound with interest rates.

Bond rates are lower than ever.

If bond rates were higher, I'd agree that markets are concerned over long term deficit, but that's simply not the case.

Right now, numbers (unemployment specifically, but also the low rates) do NOT support a need for immediate austerity (long term, yes, but not yet).

Contractionary policy right now will cause us to nose dive into a worse place than we were last year... as history has shown time and time and time and time again.

Economists all over claim to have all these new insights, but when examined critically they are based on economic fallacies demonstrated as such decades ago.

 

I'm open to quality arguments as to why we should contract policy right now despite low interest rates, being at the zero bound, and having high unemployment. The arguments which I've seen thus far are based on flawed reasoning and wish thinking... misrepresentations of the current state.

 

Can you guys do better, or will comments about all opinions being equal rule the day?

[Pangloss]

Where did I say or suggest he was pleading for a "permanent ideological shift back to tax and spend policy?"

 

Here:

 

Krugman has been rather concerned about this fiscal austerity based on flawed logic for months now. He has been using data and bond rates to show that markets truly are doing fine and show no signs that they are concerned with deficits' date=' and how this push toward tightened policy seems based on old ideas which have several times been proven wrong.

[/quote']

 

I think he does favor that permanent shift, but he is couching it in terms of the current crisis. That's politics, and an interesting example of how Krugman subverts his economic knowledge for ideological reasons, which is an assertion I've supported on these forums before.

[ecoli]

We're already at the zero bound with interest rates.

Bond rates are lower than ever.

If bond rates were higher, I'd agree that markets are concerned over long term deficit, but that's simply not the case.

Right now, numbers (unemployment specifically, but also the low rates) do NOT support a need for immediate austerity (long term, yes, but not yet).

Contractionary policy right now will cause us to nose dive into a worse place than we were last year... as history has shown time and time and time and time again.

Economists all over claim to have all these new insights, but when examined critically they are based on economic fallacies demonstrated as such decades ago.

 

Agreed with the last sentence, but I think one of the major fallacies has been in trying to predict the 'mind' of the market. For example, how do bond rates being lower than ever mean that markets are not concerned over long term deficits?

 

In one of those Krugman quotes he attacks the assumption that markets are irrational... This surprises me a bit, especially considering what's been going on over the past couple years.

 

 

I'm open to quality arguments as to why we should contract policy right now despite low interest rates, being at the zero bound, and having high unemployment.

 

What about the (very old) moral hazard argument? It seems to me that inflationary policies cause people to take more risks.. which can be good doing a recession, but can turn out very badly when risk is underestimated (housing bubble, for example).

 

I know the new regulation is supposed to fix these problems, but its not coming online right away (even though deficit spending is) and doesn't guarantee that new "financial innovations" won't be found.

[Pangloss]

The thing I keep wondering is why Krugman and his side can't acknowledge that the global stimulus and bailout effort has fallen far short of its own goals. It's the greatest stimulus/bailout effort in the history of mankind, a total Manhattan Project in scope -- amounts of money that boggle the mind and would leave even John Maynard Keynes gasping for air. But has it produced the managed, predictable economy that its advocates predicted? Nope, it's an ongoing struggle, for which they can offer little but ideological blame, as if to say that if only we'd spent MORE trillions, everything would be okay. That's their answer for everything -- if the amount you spent wasn't enough, then you clearly didn't spend enough, because the theory MUST be sound -- after all, it wins Nobel Prizes! (Never mind the fact that the Market side wins Nobel Prizes too.)

 

Krugman points out a litany of economic factors, but the problem with his "evidence" is that the causes/origins of economic factors are typically unknown. Economics is just not hard science -- correlation does not prove causation. Not for EITHER side of the Great Economic Debate.

 

But if you want to see what the other side is saying, with no doubt equally grey evidential offerings, you're welcome to do that. Here's a typical example, from William Anderson of the Wall Street Pit, an economic blog:

 

Krugman ignores the recoveries after the 1921 recession and the 1982 recession, both of which occurred in the absence of inflation and and the presence of higher interest rates. Furthermore, while the U.S. Government in both instances ran deficits, they were deficits brought on by the fall in tax revenues due to the recession, not as matters of “deficit-based stimulus” policies.

 

Current spending by government does not create wealth, and it is the creation of wealth that will bring us out of the depression. Borrowing from future generations (or repudiating the debt through inflation) is nothing more than making a claim on future wealth. Furthermore, Krugman’s recommendations do nothing to address the current set of malinvestments which plague the economy, not to mention the huge added burden of government-imposed costs which make production of wealth more difficult.

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Merged post follows:

Consecutive posts merged

 

That last bit I posted above about "current spending by government does not create wealth" indicates what is probably the main argument that's driving most world leaders at the moment -- the idea that government spending doesn't spur private enterprise, which is the main factor driving the economy. They feel that it moves us too close to an artificial economic engine, which isn't sustainable because it's driven by debt.

 

I'm not saying Krugman feels that the economy should be completely artificial and non-corporate/non-private, in fact I think that both neo-Keynesians and Markets-types are really just arguing two sides of the same coin. Krugman doesn't believe in a socialist economy any more than the Market guys believe in laissez-faire. They just pull the tugrope in those respective directions.

Edited June 28, 2010 by Pangloss
Consecutive posts merged.

[ecoli]

Here:

 

 

 

I think he does favor that permanent shift, but he is couching it in terms of the current crisis. That's politics, and an interesting example of how Krugman subverts his economic knowledge for ideological reasons, which is an assertion I've supported on these forums before.

 

 

I've been trying to find the source, but I read somewhere that Krugman's defense of deficit spending changes in response to what political party the president belongs to.. much moreso than other high profile economists. Seems to suggest that politics plays some role here, more than policy.

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The thing I keep wondering is why Krugman and his side can't acknowledge that the global stimulus and bailout effort has fallen far short of its own goals. It's the greatest stimulus/bailout effort in the history of mankind, a total Manhattan Project in scope -- amounts of money that boggle the mind and would leave even John Maynard Keynes gasping for air.

 

I think Krugman would say that he supported a much bigger stimulus from the beginning. Which is true, enough

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I'm not saying Krugman feels that the economy should be completely artificial and non-corporate/non-private, in fact I think that both neo-Keynesians and Markets-types are really just arguing two sides of the same coin. Krugman doesn't believe in a socialist economy any more than the Market guys believe in laissez-faire. They just pull the tugrope in those respective directions.

 

which is fair enough, given the politics of the thing, but it seems as if we end up with a compromise that neither side is happy with. What if the Keynesians, following Krugman were right and we needed a much bigger stimulus? What if the Austrians were right and we needed no stimulus. It seems like the outcome would be the same, given what we have.

[Pangloss]

I've been trying to find the source, but I read somewhere that Krugman's defense of deficit spending changes in response to what political party the president belongs to.. much moreso than other high profile economists. Seems to suggest that politics plays some role here, more than policy.

 

Given his opposition to the Bush administration this wouldn't be too surprising, but he's also a very smart guy and if that's true it's probably deeply buried amidst carefully-tuned positions.

 

It does seem odd to me that so many Democrats/liberals who were so highly critical of the Bush/Republican spending spree, now that the shoe is on the other foot, want to see the spending spree continue unabated.

 

But I'm sure that's not true of all Dems/liberals.

[ecoli]

Given his opposition to the Bush administration this wouldn't be too surprising, but he's also a very smart guy and if that's true it's probably deeply buried amidst carefully-tuned positions.

 

It does seem odd to me that so many Democrats/liberals who were so highly critical of the Bush/Republican spending spree, now that the shoe is on the other foot, want to see the spending spree continue unabated.

 

But I'm sure that's not true of all Dems/liberals.

 

And to be fair, many libs who were very vocally against war spending still are. But that does seem to have taken a back burner to other financial issues. However that could be an observation bias due to media reporting, etc (and the fact that I rarely watch/read the news anymore)