Rod Dreher

Rod Dreher


Krugman: Here’s the next Great Depression

posted by Rod Dreher

What I know about economics is next to nothing; no economics Cult of the Amateur here! But I cannot wrap my mind around the argument Paul Krugman has been making, namely that we are dead wrong to cut spending in the face of intense and deep recession, and that we should instead be spending more. In today’s Times, Krugman acknowledges that this argument has been losing, and he says we’re headed into a long, dark valley:

But future historians will tell us that this [the weak apparent recovery -- RD] 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.

Over the weekend, I heard a long interview with Harvard financial historian Niall Ferguson, who has emerged as a principal antagonist of Krugman’s on this question. Ferguson laid out his argument that we simply have no choice but to slash spending in a desperate effort to balance our books; the alternative is default, with terrible consequences that are hard to predict. The French Revolution, he points out, was sparked principally by massive levels of government debt and the material misery that caused for the French people. Here’s a synopsis from 2009 of the long Krugman-Ferguson battle.
Again, I’m in no way an expert, but I find Ferguson’s argument irresistable. If we weren’t already in such a fathomless hole of debt, I’d be more open to Krugman’s Keynesianism. But given where we are, and where we are headed absent a swift and sure turnaround, it strikes me as sheer madness to borrow even more, as Krugman advises.
Well, we’re screwed either way, most likely, but tell me, what do you think? By the way, the Royal Bank of Scotland is telling its clients to prepare for the U.S. Treasury to undertake a “monster” ramping up of its printing presses. Excerpt:

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on “monster” quantitative easing (QE)”.
“We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable,” he said in a note to investors.

And by the way x 2, take a look at this excellent, if extremely depressing but informative piece from The Economist about debt – how we got into this hole, and how we might get out of it.



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rj

posted June 28, 2010 at 5:01 pm


No offense Rod, but it’s easy to see why you take Ferguson’s pain plan. Correct me if I’m wrong, but in two years of reading this blog, you see this recession as retribution (or penance, or payback, or whatever) for the free-spending, free-borrowing life of luxury we experienced during the previous decade.
On an issue like this (debt and deficits), is such a worldview amenable to technoractic solutions and Keynesian pump-priming, or is punishment and repentance more important than recovery and growth?
In other words, do we need a solution or do we need to be taught a lesson?



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kevin s.

posted June 28, 2010 at 5:24 pm


Krugman isn’t an amateur economist, but he certainly plays the part in print. I doubt he really believes much of what he writes on the NYT op-ed page.
Take his example of Ireland. Krugman notes that Ireland is seen as a poor risk in spite of stringent austerity measures. He fails to note, however, that Ireland has the highest deficit (as a function of GDP) in the EU.
This would be fine if he didn’t cite Ireland as an example of why federal debt doesn’t matter.
Ireland imposed strict austerity measures precisely because they have so much debt. Krugman’s argument is akin to observing a positive correlation between crime rates and the presence of police officers, and concluding that police officers are to blame.



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Jon

posted June 28, 2010 at 5:34 pm


Re: But I cannot wrap my mind around the argument Paul Krugman has been making, namely that we are dead wrong to cut spending in the face of intense and deep recession
Well, it’s rather esay to grasp, and it’s more of less the same argument as claiming a doctor should not bleed a patient who has aleeady suffered a significant hemorrhage but instead should give a transfusion.



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Rod Dreher

posted June 28, 2010 at 5:46 pm


Jon, that analogy doesn’t work because in the real world, sick people don’t have to pay back their blood transfusions in blood, with interest, according to a time schedule. It might work if you were to say that when the patient got well, he would have to donate blood every week for a manageable amount of time, till the transfusion debt was paid. But as it stands now, it’s extremely difficult to conceive of how the transfusion could ever be paid back. To do so would bleed us to death.



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Steven Donegal

posted June 28, 2010 at 5:58 pm


Rod~
The debt will never be paid back. It just gets refinanced. So long as you can service the interest, all is well. The counter to that is Ferguson’s argument that at some point we either won’t be able to refi or the cost to refi will go so high that you can’t afford it. Maybe true in the long run, but today the real danger is deflation, not inflation. In fact, the author of the Economist article you cite says the only way out of the current box is fiscal austerity coupled with massive quantitative easing (i.e. turn on the printing presses). Krugman doesn’t believe monetary policy can fix the problem and that fiscal stimulus is required. He may well be wrong, but if we go with fiscal austerity without the printing press, we are well and truly screwed for a good long time. Fortunately, Bernanke seems to favor the printing press.



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Steven Donegal

posted June 28, 2010 at 6:00 pm


The real trick though is to know when to turn the press off. Good luck with timing that one.



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Christopher

posted June 28, 2010 at 6:05 pm


No No No No No No! Rod the French revolution did not occur because the French people were in misery caused by government debt. The profligacy of Louis XVI and his queen were a drop in the bucket in terms of fiscal expenditure under the pre 1789 ancient regime. The French people were in misery because the nobility and clergy who had most of the wealth were exempt from most forms of taxation. Hence, the crown had to squeeze money out of those people least able to pay. The French economy in 1789 could have easily handled the debts of Luis XVI had the taxation system worked better. This same society and economy was able to create and finance the war machine of Napoleon a decade later which culminated in the creation of the French Empire. They did this in spite of the economic mismanagement of the revolutionaries such as Robespierre and the Directory. The change in French finances occured because France eliminated the feudal tax system



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Peter

posted June 28, 2010 at 6:10 pm


sick people don’t have to pay back their blood transfusions in blood, with interest, according to a time schedule. It might work if you were to say that when the patient got well, he would have to donate blood every week for a manageable amount of time, till the transfusion debt was paid. But as it stands now, it’s extremely difficult to conceive of how the transfusion could ever be paid back. To do so would bleed us to death.
When the patient is dying, you don’t spend time worrying about whether the blood donors are going to get repaid. You worry about that after the patient has been saved. Your handwringing over the blood donors is where you don’t really understand the problem because you’d watch the patient bleed out while you shamed him for not saving is own blood for just this kind of problem.



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Rod Dreher

posted June 28, 2010 at 6:22 pm


Your handwringing over the blood donors is where you don’t really understand the problem because you’d watch the patient bleed out while you shamed him for not saving is own blood for just this kind of problem.
That’s a stupid and unjust ad hominem remark, and I expect you to withdraw it. I could just as fairly accuse you of not caring about tomorrow, only today. But I don’t know you. Anyway, I don’t look forward to what I believe is going to come. I have a family to provide for too, and I don’t want my children to suffer from unemployment and so forth. I have a “Gods of the Copybook Headings” understanding of all this, which is to say, a crude one that doesn’t grasp how we can keep borrowing and borrowing and borrowing, with no prospect of repayment, without the whole damn thing coming crashing down on our heads. Like Greece is finding out.



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Christopher

posted June 28, 2010 at 6:27 pm


When the patient is dying, you don’t spend time worrying about whether the blood donors are going to get repaid. You worry about that after the patient has been saved. Your handwringing over the blood donors is where you don’t really understand the problem because you’d watch the patient bleed out while you shamed him for not saving is own blood for just this kind of problem.
Touche Peter!
You don’t wait to use the electric paddles attached to the crash cart in the ER on a patient whose heart has stopped out of concern for the electricity bill. what we need to do is kick start the economy and get more economic growth. Once economic growth resumes then you can cut back on spending and worry about debt later. As a very long time reader of this blog, I think Rod feels a period of severe economic pain i.e. economic apocalypse is somehow justified on moral grounds as a form of social penance or as a way to purge society of materialistic greed and over-consumption. I feel that demography, the passing of the baby boomers into retirement and death will accomplish that far more effectively.



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Peter

posted June 28, 2010 at 6:31 pm


But Rod, we aren’t Greece and the situation is completely different. While I withdraw the ad hominem, your “sky is falling” pessimism is preventing you from seeing the reality you can’t starve a nation into economic prosperity. Focusing on the “borrowing and borrowing and borrowing” in the midst of a need to revitalize the economy–which isn’t, at this moment, related to the “borrowing and borrowing and borrowing”–is short sited. That’s what Krugman is trying to say, but you are so naturally inclined to believe Ferguson.



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Abelard Lindsey

posted June 28, 2010 at 7:11 pm


Krugman believes in curing a recession with a speculative bubble, which is analogous to curing a hangover with another drink:
http://www.pkarchive.org/column/5201.html
http://www.pkarchive.org/economy/ML082201.html
http://www.pkarchive.org/economy/ML071801.html



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Jon

posted June 28, 2010 at 7:30 pm


Re: Jon, that analogy doesn’t work because in the real world, sick people don’t have to pay back their blood transfusions in blood, with interest, according to a time schedule.
OK. How about watering your garden when it is parched? At least where I live water is not free and must be paid for.
And more significantly “cutting back” means hurting real live people, maybe even to the death, for nothing more than a mathemtical abstraction. Governments that behave that way have forefeited all right to legitimacy. By contrast who will be hurt if we continue to help the unemployed and others in need? A bunch of rich people will have to pay for it. So freaking what? I am supposed to care if Paris Hilton has one less diamond dog collar and Richard Mellon Scaife can hire fewer lobbyists?
It’s not like the wealth isn’t out there– it’s just been hoarded where it isn’t doing any good. Bleeding the patient or letting the garden wilt to stubble is asinine beyond belief. At the very least we need to unclog the arteries and unkink the hose and restore circulation and flow to the economy.
America is a rich country– only the government is broke, and that only by the choice of the fools and scoundrels and cravens who run the place.
Yes, I have been in a Jacobinical mood of late– and the day this country embraces its own ruin and lets people starve so as protect the fortunes of our own aristos I may just start appreciating old Robbespierre a bit more.



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Mike D

posted June 28, 2010 at 7:53 pm


Christopher: “You don’t wait to use the electric paddles attached to the crash cart in the ER on a patient whose heart has stopped out of concern for the electricity bill.”
It’s not out of concern for the utility bill–it’s because the reason the patient’s heart stopped in the first place is from being electrocuted from too much electric paddle usage.
I’m an amateur too, but I’ve been following housing very closely and it was too much spending fueled by too much debt and cheap, easy credit that created the housing bubble that brought down the economy. Can we spend our way out of a recession that was caused by too much spending? (Not rhetorical–honest question).



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mdavid

posted June 28, 2010 at 7:58 pm


The wealthy countries will never pay back our debts – everyone knows this. I’ve never even heard anyone remotely educated claim otherwise. Basically, it’s impossible to pay back 400% of income in a democracy – expect collapse first. Remember, we have the three “D’s” to get through: Deflation, Debt, and Demographic collapse all happening at the same time. It won’t be pretty.
The choices:
a) inflate away our debt slowly
b) default
c) devalue the currency suddenly, using currency controls
Everyone would love to go with a), myself included. However, we can’t anymore (we lost that option as far back as the Clinton era); now all our debt is short term because everyone saw the writing on the wall years ago and got out of our long term debt. Therefore, when inflation increases, our interest rates will rise to match it, making it a wash.
Everyone understands inflation, but nobody seems to get deflation, which must happen first. We now have a 50T bubble of debt – money that was “loaned into existence” and now must be deflated. There is just no way on earth we can backfill that large a hole merely by printing money (Krugman is an idiot here) since that would disrupt the entire economy…everyone would ditch the dollar and it would destroy our currency. We would look like Greece. People forget you can’t stop a debt deflation by adding more debt. The only way out is austerity, and a lot of it, to the point the citizens will revolt and crush the economy anyway. So it really don’t matter what anyone does anymore; the die is cast. Regardless if we keep spending or start cutting, it all ends the same.
But for the individual, there is still time to protect yourself against your government, and even do well in these times. Deflation is a sure thing at first, so hold only dollar cash (world’s reserve currency) or cash equivalents (that includes precious metals) either at the FED (Treasury Direct) or at home. Banks are absolutely not safe. As the economy goes into a tailspin and prices collapse, then unload the dollar and buy commodities/housing cheap, making sure you get out of the dollar before it collapses/is revalued. There is more money to be made in the next five years than in the last fifty – for those who made a pile in 2008 playing this game, it should become a fortune when we see the big one.
The price of gold tells the entire tale: $300 to $1200 in a decade. People who think gold is in a bubble miss the point – it’s not gold that is changing price, it’s the currency that is moving around. Gold may drop during massive deflation, but it would soar soon after as people flee the dollar.
Kevin, Krugman isn’t an amateur economist, but he certainly plays the part in print.
Amen to that. But Ferguson isn’t much better, sadly. Both have been wrong in the past, although I confess Ferguson at least not an idiot. Krugman became a DNC hack many years ago.



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Cannoneo

posted June 28, 2010 at 8:07 pm


Krugman’s argument makes sense to me. In a recession, a big chunk of private sector spending disappears. The government steps in and makes up for a portion of it, enough to keep activity up so things don’t drop off a cliff, until recovery gains steam. The extra debt we accrue from this spending disappears on the rebound. Just think of it as borrowing from the next boom — providing a stabilizing function on both the dip and the rise.
By the way, why haven’t markets predicted inflation or interest rate spikes?
And why is a bit of inflation so much more to be feared than 10% unemployment?



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kevin s.

posted June 28, 2010 at 8:09 pm


“OK. How about watering your garden when it is parched? At least where I live water is not free and must be paid for.”
This is dumb. Water isn’t free, but its expense is negligible. What Krugman is proposing is extremely expensive, and he has not demonstrated how it will solve the problem.
“And more significantly “cutting back” means hurting real live people, maybe even to the death, for nothing more than a mathemtical abstraction.”
No. Deficits are not mathematical abstractions, nor are markets, nor economies. Each has an impact on life or death situations. Youa re confusing, I think, the aggregate for the abstract.
“Governments that behave that way have forefeited all right to legitimacy. By contrast who will be hurt if we continue to help the unemployed and others in need?”
The unemployed and others in need, as well as the employed and those who do not need. You are pretending, as Krugman disingenuously does, that government spending does not incur a cost. It does, and that cost is tangible.
“A bunch of rich people will have to pay for it. So freaking what?”
A bunch of rich people sign paychecks, donate to charities, build stuff, keep people employed. Have you graduated from high school?
“I am supposed to care if Paris Hilton has one less diamond dog collar and Richard Mellon Scaife can hire fewer lobbyists?”
Perhaps not, then, to the high school question.
“It’s not like the wealth isn’t out there– it’s just been hoarded where it isn’t doing any good.”
At record levels, at the moment. Have you considered why that might be?
“Bleeding the patient or letting the garden wilt to stubble is asinine beyond belief. At the very least we need to unclog the arteries and unkink the hose and restore circulation and flow to the economy.”
I refer you to my question above.
“America is a rich country– only the government is broke, and that only by the choice of the fools and scoundrels and cravens who run the place.”
Well, that’s true. I am disinclined to give these scoundrels and cravens more power, how about you?
“Yes, I have been in a Jacobinical mood of late–”
That’s too bad.
“and the day this country embraces its own ruin and lets people starve so as protect the fortunes of our own aristos I may just start appreciating old Robbespierre a bit more.”
A government that is allowed to spend without accountability (and deficits are one form of that accountability) will spend endlessly to protect its own fortunes.
Read more: http://blog.beliefnet.com/roddreher/2010/06/krugman-heres-the-next-great-depression_comments.html#ixzz0sCBAq837



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the stupid Chris

posted June 28, 2010 at 8:10 pm


Rod,
There’s only one way out of the global economic crisis: JOBS.
Cutting government spending means cutting jobs, which feeds the deflationary spiral. Deflation increases your debt-to-wealth ratio not by increasing debt, but by decreasing valuations and income.
Though cutting government spending when economies are strong brings down debt, in our current condition debt is going to rise as a percentage of GNP either as a result of deflation or as a result of borrowing. Either way our debt goes up relative to our wealth.
So we can saddle ourselves with the same debt and a weaker economy, or larger debt and a stronger economy. The major difference between the two is that a stronger economy will eventually be able to run surpluses (think back to the Clinton era) while a weaker economy will not.
As a businessman I would prefer a stronger economy to a weaker one, and if I had to choose between a large government debt in a growing economy or the current economic debt in a shrinking economy I’d always choose the former. And I’d choose more taxes to pay off that debt (it really doesn’t take much, it only takes taxing the ultra-wealthy at the same percentage that the vast middle class pays) rather than plunging the middle class into poverty.
In normal times Niall Ferguson would be right, but these are not normal times and so I find myself siding with Krugman.



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Lord Karth

posted June 28, 2010 at 8:12 pm


The Royal Bank of Scotland has a talent for understatement.
I’ve probably said this before on other threads, but this bears retelling: We’re due for one whiz-bang of an inflationary run over the course of the next five or six years.
The central government has given some $ 2 TRILLION or so to the banks, the better to maintain their balance sheets, over the course of the last 18 months. The interest rates on those transactions are not high—virtually zero. Right now, the Treasury is borrowing it at still-very-low-but-NOT-zero rates, so the Big Five banks are making a serious, guaranteed profit. The big impending problem is that this can’t continue. The banks are going to start lending this money out, injecting it into the economy.
The sheer volume of this lending is going to trigger a MAJOR inflation—something on the close order of price-levels doubling over the next five years. Call it 15-20 % inflation per year, barring some unforeseen “accidental happystance”, like an oil shock or something similar. The main reason this hasn’t happened already is this: thanks to tightened credit standards, there are virtually no credit-worthy potential borrowers to lend to, save for a very few of the largest corporations.
This, incidentally, is why the stock market is doing tolerably while Main Street is getting slammed. In addition to the challenges posed by new lending standards, individual households and smaller firms are in a position of having to get out from under historically high debt loads. They are not going to be borrowing overmuch money any time soon. Main Street is getting squeezed from two directions.
But that’s not going to keep. Bankers are going to start wanting to see all their new resources actually out there getting more of a return than 0.3 percent per year. When that point gets here—-well, does the expression “Katy bar the door” mean anything here ?
Your servant,
Lord Karth
P.S. I eagerly await our Pyrrho-friend’s brave attempt to rebut what I said. Like the Lost Boy Rufio said in the movie, “Show me your fastball, dustbrain !” (No offense intended, my friend. Let’s see that A-game !
Who knows ? Our good Pyrrho may be proved right.)



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steve

posted June 28, 2010 at 8:20 pm


Almost all of our long term debt comes from medical care entitlements. Most of this comes from the increased costs of care, plus the demographics as a secondary feature. Reduce medical care costs, and you have removed most of the debt down to very manageable levels.
Reducing costs would also, one hopes, reduce costs for private insurance which should put money back into the more productive parts of the economy. An economic plan which advocates for short term stimulus and long term cuts in Medicare/Medicaid spending should be a strong option.
Steve



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steve

posted June 28, 2010 at 8:24 pm


“I’ve probably said this before on other threads, but this bears retelling: We’re due for one whiz-bang of an inflationary run over the course of the next five or six years.”
Yup, that is exactly what 10 year treasuries are predicting. Markets know best.
Steve



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mdavid

posted June 28, 2010 at 8:27 pm


Jon, And more significantly “cutting back” means hurting real live people…Governments that behave that way have forefeited all right to legitimacy
Enlightening when we cut the the chase, is it not? Revolution!
It’s not like the wealth isn’t out there– it’s just been hoarded where it isn’t doing any good.
Ahh…now we are getting somewhere. Get the hoarders! It really isn’t their property anyway – it was made off the sweat of the little people, no? But there is certainly no reason to go from house to house: a healthy wealth tax should take care of things.
The casual reader should take note: PROTECT YOURSELF. This era will not end well for anyone, least of all those who have been responsible during the prior progressive orgy of debt and have some savings or property. Think Russia 1917. Hold cash and cash equivalents, kept under your own control. Be prepared.



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Jon

posted June 28, 2010 at 8:31 pm


Re: The sheer volume of this lending is going to trigger a MAJOR inflation—something on the close order of price-levels doubling over the next five years.
As long as the banks continue to sit on that money (which is what they are doing) it might as well be orbiting somewhere out in the Oort Cloud for all the effect it has onb the larger economy.
Re: And I’d choose more taxes to pay off that debt (it really doesn’t take much, it only takes taxing the ultra-wealthy at the same percentage that the vast middle class pays) rather than plunging the middle class into poverty.
Chris, despite my rant above, I think we will all of us end up paying higher taxes (at least those of us who well into the middle class.) And so what? We have pretty easy lives, relative to the past, and to most of the rest of the world. My father and my uncles fought in WWII, two of my great-great grandfathers died in the Civil War (1st Michigan Cavalry). If the sacrifice asked of our generation is a little bit of money– well, can’t we pay that? This selfish whine of “my taxes are too high” needs to stop. I live frugally already, but even I can think of things I could cut back on for the good of this country. Pretty much everyone posting on this blog could I am sure. Time to man (and woman) up folks: No, you can’t have it all. So forget the private schools, the pricey vacations, the SUV, the gaudy McMansion, the clothes with the designer label. A little bit from everyone will go along way when the time comes.
mdavid: because the dollar is world’s currency, we can indeed inflate gradually if we choose– though we do need to get our fiscal house in order first. And I think there’s a good chance that the US will remain the world’s best large economy so that even if we are inflating, others will be doing so faster, so we will remain the currency of choice
kevins: for comity’s sake I will confine myself to this: You are part of the problem, not the solution.



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mdavid

posted June 28, 2010 at 8:46 pm


Jon, mdavid: because the dollar is world’s currency, we can indeed inflate gradually if we choose– though we do need to get our fiscal house in order first.
Two problems with this: first, if we “get our fiscal house in order” it will take enough austerity to make the government forfeit all right to legitimacy, as you put it above. Second, once interest rates pick up due to inflation, our interest payments will rise to match this inflation. It’s a wash, won’t work. That only works with long term debt, and we lost that option a while ago.
Karth, We’re due for one whiz-bang of an inflationary run over the course of the next five or six years. The central government has given some $ 2 TRILLION or so to the banks, the better to maintain their balance sheets, over the course of the last 18 months. The interest rates on those transactions are not high—virtually zero…The banks are going to start lending this money out, injecting it into the economy.
This remains to be seen. You have forgotten one critical point: WHO IS GOING TO BORROW THE MONEY? We are in the middle of a debt deflation – who are the banks going to loan the money to? Right now, no worthy creditors exist.
It’s sort of funny how on the one hand, you talk about the high rates that will come…and yet on the other, confess we are at zero right now. It doesn’t wash. Why don’t the markets see what you do?
The truth is that we have 50T of debt bubble that must be repaid. Our measly little 3T in printing doesn’t even make a dent, because it can’t get out into the open. Japan has been playing this game for two decades, and their interest rates are zero and their debt is larger and larger.
No, we still have some deflationary time left before the dollar collapses. We have to go through a massive deflation before we can spark the inflation you talk about. Yes, it will happen eventually. But deflation first.



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steve

posted June 28, 2010 at 8:49 pm


And then, the heterodox guys have good ideas also. Good Friedman quote.
http://www.themoneyillusion.com/?p=5834
Steve



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kevin s.

posted June 28, 2010 at 8:55 pm


“kevins: for comity’s sake I will confine myself to this: You are part of the problem, not the solution.”
Simply inserting the word comity into your response does not achieve the concept.
Your economic calculus boils down to: People are rich. Therefore, if they are forced to give up money, it will make everything better. That’s how banana republics operate. History discredits your theory, such as it is.
And yet, Paul Krugman espouses it on the pages of the New York Times, because certain people will pay to gobble it up. I don’t care about comity. Those people are idiots.



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Lex

posted June 28, 2010 at 8:58 pm


An economist with a Noble prize advising a president with a Noble prize on deficit spending. We should believe them – right???
Hmm – must be time to double down on that bad bet on a tremendously wasteful stimulus package. If only….. we had spent twice and much – maybe more, we would be OK. Krugman is given way too may credit here – mostly afforded by liberal press. He’s a hack.
Time to stop believing in Paul Krugman and unicorns.
The emperor has no clothes.
We’re broke.



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the stupid Chris

posted June 28, 2010 at 9:01 pm


Markets know best.
Markets know nothing, they are moved according to the prejudices and passions of those who trade in them.



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addicted

posted June 28, 2010 at 9:32 pm


Actually, the argument is very simple, once you let go of the microeconomics thinking (A nation’s economy is not like the individual’s).
1) Money has no inherent value. It is a representation of labour or goods.
2) When 10% of people are unemployed, as opposed to the natural rate which is closer to 5%, then that is a real loss of 3-4% of your labour force. That is a REAL loss of money, as opposed to the artificial balancing of numbers.
3) We are currently in a time where interest on borrowing money for the US government is at an all time low. There is no shortage of supply of money. There is a shortage of money. There is a shortage of productive endeavors for that money.
4) Borrow that money at dirt cheap, and use it productively (infrastructure building is the best long term use) and you will more than make up the interest in returns. (Anyone seriously thinks they can’t find investments which would return money at a rate greater than 3.something %, which is the cost of 30 yr bonds right now?).
5) Most importantly, however, the austerity measures will do NOTHING to help the long-term deficit. They are so miniscule compared to the 2 elephants in the room (healthcare, and defense), that you can triple your stimulus spending, and not even realize it 10 years from now.
6) Krugman’s problem with the austerity measures are they depress the short term recovery, and do nothing for long-term deficit. The markets (both stock, and bond) seem to agree with him.
7) Also, the statistics on how much poorer college graduates who have a job on graduating (as an example) as opposed to those who don’t are very clear. The former make significantly less than the latter several decades in the future. By forcing that on college graduates (again, this is just an example, but applies throughout the economy) you are making the future generations poorer.
Our kids will look back and wonder why we didn’t take money that was essentially being handed out for free in the bond markets, and invest in the future. Instead, we will leave the kids with a polluted, warming globe, with crumbling infrastructure, and significantly greater unemployed/underemployed parents, and reduced job prospects. All the while doing nothing about the real causes of our deficits because we were too scared by tweets about Death Panels.



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stari_momak

posted June 28, 2010 at 9:40 pm


Krugman is a trade economist by…uh, trade. You’d think he’d recognize that this isn’t 1929, and that most of the ‘stimulus’ is going to stimulate factories in China (maybe it will work its way back to us in attenuated form, but only as a very faint echo).
Look, our population is increasingly culturally and genetically third world — as evidenced by our president (and he is both). There is no reason to think that population can sustain a first world, Western economy (economy being, of course, just an extension of the culture and genetic resources of a polity).
My advice to white folks, move north, west, and rural. Buy a gun.



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rj

posted June 28, 2010 at 9:48 pm


A big obstacle for people like Rod have in understanding why it’s OK for us to be unable to ever pay our entire national debt is to understanding both sides of the debt transaction.
For every bond the Treasury issues, there is someone who was willing to buy it. U.S. government bonds are an important part of the financial system and serve as a benchmark for most of the rest of the bond world.
Yes, this line of argument more or less demands someone to chime in with the long-time paranoiac favorite fantasy about the Chinese or the Saudis rendering a large chunk of their investments worthless to… impose sharia? buy cheap American jeans?
But it’s true. You or I can’t roll over debt with the efficiency a large borrower like the U.S. can, which is where a lot of the confusion comes from.
Think of it instead as having large monthly student loan payments. Should you pour every surplus cent of your earnings into getting that debt paid sooner, or would it make more sense to make the required payments but plow your excess into investments that yield more than the debt? Clearly, if the returns of the investment are higher than the interest, the debt can wait because the money is better used elsewhere.
Krugman’s argument is that instead of cutting down on our loan payments (deficit, essentially), we should focus on investing in (spending on) things we think will decrease debt as a percentage of earnings (GDP).
There are a lot of people out there who think they are one of the few who see the madness and irrationality of the system and predict its crash, after centuries and centuries, during their Very Important Lifetime. Sometimes, 50 million Elvis fans *can’t* be wrong.



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Peter

posted June 28, 2010 at 9:59 pm


It’s always reassuring when Stari is on the other side. You know something is sane and right about your own argument.



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Siarlys Jenkins

posted June 28, 2010 at 10:28 pm


Yes, we are going to be screwed either way. To that extent, Krugman is blowing in the wind. We can’t afford his prescription, just like I can’t afford a serious illness since I’m not currently covered by medical insurance.
“If we weren’t already in such a fathomless hole of debt, I’d be more open to Krugman’s Keynesianism.”
That is precisely the problem. Contrary to what someone posted several comments upward, it is entirely possible to pay off a substantial national debt. Between 1998 and 2000, the USA generated a budget surplus and began paying down its national debt, which then stood at $5 trillion. As I recall, the Clinton administration projected to get it all paid off by around 2015. That wouldn’t have happened exactly as projected, but we certainly could have paid down two or three billion by 2007, which would have left us in a very good position to do exactly what Krugman prescribes, which would indeed be the best thing to do.
However, Clinton was succeeded by one George W. Bush, a clueless child of privilege who never ran a business into bankruptcy without one of his daddy’s friends stepping in to buy it for tens of millions of dollars. (No doubt, said friends knew they could make the business pay after a few years, but still, they passed up buying it at fire sale prices, as they would have done if a total stranger were holding the bag.) Bush looked at the budget surplus and said “Let’s give it back to the people,” totally ignoring that “the people” were in hock for $5 trillion. Its like spending the mortgage money on a round the world cruise. Cheney played the spendthrift wife, “Reagan proved that deficits don’t matter.”
So, no, it would be a real problem to run up another one or two trillion dollars in deficit spending when we are in hock, not for five trillion, but for ten, then eleven, by now twelve trillion dollars. It does have to stop somewhere. We didn’t save for a rainy day, we didn’t pay down our debts when the sun was shining, and now we have little choice.
But Krugman’s analysis makes perfect sense. Hoover turned a bad bear day on Wall Street into the most enduring Depression ever by tightening credit and balancing the budget. My mother, a life long Republican, reminds me over and over “People don’t understand how close we came to another Depression.” (Yes, she lived through the last one). We avoided another Depression by doing what Krugman prescribes. Bush said, at the last minute “We are all Keynesians now,” simply because he couldn’t think of anything else to do, and he had the sense to know he had to respond. We could get further out of the lingering recession faster by doing precisely what Krugman still calls for. But we’re tapped out. We probably won’t do very well at either paying our debts OR lowering unemployment, but we’re stuck in a quagmire.
archie whom?
Archie Bunker, I suppose.



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Titus Livius

posted June 28, 2010 at 10:54 pm


The subjects to which I would ask each of my readers to devote his earnest attention are these – the life and morals of the community; the men and the qualities by which through domestic policy and foreign war dominion was won and extended. Then as the standard of morality gradually lowers, let him follow the decay of the national character, observing how at first it slowly sinks, then slips downward more and more rapidly, and finally begins to plunge into headlong ruin, until he reaches these days, in which we can endure neither our vices nor their remedies.



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mdavid

posted June 28, 2010 at 11:05 pm


Siarlys Jenkins, Contrary to what someone posted several comments upward, it is entirely possible to pay off a substantial national debt. Between 1998 and 2000, the USA generated a budget surplus and began paying down its national debt, which then stood at $5 trillion. As I recall, the Clinton administration projected to get it all paid off by around 2015.
My word. Clinton (and a Republican Congress who wouldn’t let him spend) barely balanced the budget during the largest debt-driven bubble in human history. Remember, the government is only a fraction of the debt that the economy creates via loans. And the ONLY reason the budget was able to be “balanced” at all (if you don’t include SS, medicare, personal and business debt) is the massive false bubble (funding Clinton’s tax revenues, natch) created by the housing, the stock market, etc. A good analogy would be a person winning the bubble lotto, and yet still barely being able to cover expenses that year.
The ideological ranting is way too funny – every president since we got off the gold standard has played the debt game, and the public cheered. When I read posts like those above, I begin to realize how economically illiterate and ideologically driven the public is. There is zero hope for getting out of this economic mess without serious social chaos – and the public will play the blame game on everyone but themselves all the way down.



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rj

posted June 28, 2010 at 11:15 pm


Yes, Titus, I know where that comes from.
But debt is not a moral issue. It doesn’t show the decadence of society or decay of character. It shows that we decided that the interest we were going to pay was less than the benefit of the money we got from their sale. Sometimes, it was for defense. Sometimes, it was for naming things after Robert Byrd. Sometimes, it was to put food in the mouths of the needy and provide medicine to the sick.
You can argue about any one of these decisions, but the debt that results is an artifact of a cost/benefit decision, not a flaw of character.
An individual who overspends can get himself into a spiral of exploding payments and interests going up into the stratosphere. America, on the other hand, doesn’t use check cashing stores and loan sharks. We have uneventfully rolled over debt from two world wars, a depression and several Mappelthorpe exhibits. Today’s numbers look big because our economy is much larger than it used to be. Fairly regularly, since the Revolutionary War, people have claimed that our debt would crust the country. What makes you think you’re smarter than those doomsayers?
… And acting flabbergasted at the concept of a billion or a trillion *of anything* is not an argument.



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rj

posted June 28, 2010 at 11:17 pm


*crush the country. Crusting the country would be fine as long as it’s a graham cracker crust. mmmmm.



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kevin s.

posted June 28, 2010 at 11:18 pm


“Contrary to what someone posted several comments upward, it is entirely possible to pay off a substantial national debt. Between 1998 and 2000, the USA generated a budget surplus and began paying down its national debt, which then stood at $5 trillion. As I recall, the Clinton administration projected to get it all paid off by around 2015.”
But he didn’t get to that projection by anticipating massive new spending. Krugman is arguing that we need massive new spending, in addition to the massive new spending of the last several years, and that it won’t matter that this results in a larger deficit. Would you agree that this claim is ludicrous?



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godisaheretic

posted June 28, 2010 at 11:41 pm


“spend” and then pull back WHEN the recovery gets going strong.
WHEN?
they really mean IF.
there is no guarantee any amount of so-called stimulus will work.
based on the recent past, stimulus will NOT work.
but also, austerity will NOT work.
the in-depth analyses I have read have concluded that there will be no “recovery” to economic growth.
stimulus has only postponed the inevitable “depression”.
who is right?
we should know within a year or two.
hey, hope for the best but prepare for the worst.



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Cecelia

posted June 29, 2010 at 12:02 am


Rod I often find it puzzling the people you consider credible. Ferguson is a rather controversial figure, a historian not an economist, a fellow who is an apologist for empire and colonialism. I can’t help but think if you read some of his books especially The Pity of the War you would be less enraptured with him.
Krugman’s view on this – which is shared by other economists but is clearly a minority point of view requires more space than a blog post will allow to fully articulate. It would however be wrong to say that he has no concern about deficits – his point is that we must eventually economize but not now. To engage in the drastic cuts occurring across the EU right now is to prolong the pain, make the economic problems deepen and cause great distress to the middle and working classes – and of course the poor. Meanwhile those who have will continue to have and keep on getting more.
He also notes that EU policy – led by the Germans – is of course the opposite of the US policy and is oriented towards enhancing the market in the US for German goods. The Germans get it both ways – they can engage in fiscal austerity but prime their economy by causing the euro to collapse vis a vis the dollar – hence making German goods cheap in the US. In other words – they get the US to pay for their recovery.
It is also worth while to consider that the cuts being called for make little difference to the deficit and given that – why would anyone encourage such cuts? Good question to ask.
One must be cautious about the propaganda going on now and passing itself of as solid economic sense. The same people sprouting the austerity now rhetoric are the same people who gave us this mess, they are the same people who favored the economic policies which have led to the shrinkage of the middle class, the “global” economy and loss of solid working class jobs in the US, and of course – the really serious disparity in the distribution of wealth and the decline in real wages. They are the same people who promoted easy credit instead of decent salaries.
I think too people do not understand that money is not something real – it is symbolic and Governments can print money up to the point where the markets get worried – austerity measures are made not to reduce deficits – since as I noted most of the cuts being made will have little effect on the EU’s actual deficits – the austerity measures are made to please the markets – the same folks who started this mess. Krugman’s point is that the markets 1) do not look like they are needing such measures now and 2) seem to be unimpressed when such measures are taken. So why do it?
Ferguson is wrong – and he is the wrong guy to try to learn something about economics from.



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thomas tucker

posted June 29, 2010 at 12:26 am


You know what i think?
I think people smarter than me can’t figure out what is going to happen or which path to take.
That is what is really frightening.
word captcha: relay Gold. Hm- trying to tell me something?



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the stupid Chris

posted June 29, 2010 at 1:06 am


Karth: We’re due for one whiz-bang of an inflationary run over the course of the next five or six years.
You’ve been predicting this since this crisis that started in 2007 went public in 2008. During that same time I’ve seen wages fall, rents fall, real estate valuations fall, prices for goods and services fall, and capital for small business dry up even as interest rates remain historically low. So I’m seeing deflation and you’re predicting inflation. I’d be happy to entertain your scenario if there were a hint of evidence for it, but what you offer in theory contradicts the reality I’m witnessing. Where I come from reality trumps theory every time.
Stari: My advice to white folks, move north, west, and rural. Buy a gun.
Tell me, when hasn’t this been your advice? You’re boring, pal, and banal.



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the stupid Chris

posted June 29, 2010 at 1:13 am


Kevin: Krugman is arguing that we need massive new spending, in addition to the massive new spending of the last several years, and that it won’t matter that this results in a larger deficit. Would you agree that this claim is ludicrous?
Clearly not. Look, when the house is on fire one doesn’t worry about water damage. You put out the fire, then you clean up the mess. We wouldn’t want to flood a house under normal conditions, but to prevent a fire from burning the place to the ground you would not hesitate. That’s where we’re at now. Those who worry about spending are worried about flooding the house, those who advise spending are worried about the house burning to the ground.
Let’s put out the fire, then clean up the mess. But let’s be clear: Many of the people who advise against putting out the fire because of the water damage are those who helped start the fire. I don’t trust them, and neither should you.



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kevin s.

posted June 29, 2010 at 1:14 am


“Ferguson is a rather controversial figure, a historian not an economist,”
Why is a financial historian who teaches at Harvard Business school not credible on the subject of depressions? Because he is “controversial”?
Krugman is also controversial, especially as it pertains to the stuff he writes for the Times, which may or may not be his real view. You concede that he shares a minority viewpoint, and you are very right about that, so why does Krugman have more credibility?
“It is also worth while to consider that the cuts being called for make little difference to the deficit and given that – why would anyone encourage such cuts? Good question to ask.”
The new spending proposed will make quite a bit of difference to the deficit. Nobody is purely calling for austerity measures in a vacuum, so this is a straw man argument. It is a means to an end of reshaping how government spends money.
“One must be cautious about the propaganda going on now and passing itself of as solid economic sense. The same people sprouting the austerity now rhetoric are the same people who gave us this mess,”
That’s not quite true. The conservative movement that has come into prominence has been challenging that Republican status quo for years. That said, I don’t know what you expect the government to do about what you call “working class” jobs. Those jobs have been disappearing for entirely non-political reasons.
“They are the same people who promoted easy credit instead of decent salaries.”
False dichotomy.
“I think too people do not understand that money is not something real – it is symbolic and Governments can print money up to the point where the markets get worried”
The markets always worry when you print money, because it creates the impression that it is not real. Is this going to be the Democratic talking point through November? I have heard a lot of this lately. Good luck with that.
“Ferguson is wrong – and he is the wrong guy to try to learn something about economics from.”
You didn’t really argue this point. You just asserted it at the beginning and end here.



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Cecelia

posted June 29, 2010 at 2:53 am


Kevin truly your post makes not an ounce of sense to me – when you say jobs have been disappearing for years and that is not a political issue? You do know that our government gives tax breaks to companies that relocate jobs overseas?
I think Ferguson lacks credibility because he 1) not an economist and 2) his scholarship has been questioned for years. I do not question his credibility because he is controversial – he is controversial because of questions about his scholarship – things like facts, where he gets his alleged facts from etc.
What conservative movement is prominent now – the Tea Party which will not support any cuts to entitlements such as SS or medicare, which does not support any kind of health care reform and which has in fact made no proposals for cuts?
The same elected people who refuse to extend unemployment benefits are also proposing a continued elimination of the inheritance tax – so – deficit hawks re: middle and working class unemployed people – but eliminate sources of revenue to pay down the deficit when that source is wealthy people. I would say that suggest one ought to be careful about who you listen
Money isn’t real – Nixon took us off the gold standard and since then what backs US currency is oil and the US military
A false dichotomy – in the presence of real wages declining over the last 20 years – the only way the US economy could chug along was on cheap and easy credit – which the banks made available and which then resulted in unsustainable personal debt. And now those same financiers and their puppets in congress think we need austerity and that is a false dichotomy? Why would anyone trust the same fools who have promoted global trade at the expense of US jobs, who promoted indebtedness, who happily line up at the Fed window and take virtually interest free money, these are the people we should trust?



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Jimmy

posted June 29, 2010 at 4:07 am


Does Krugman think more spending would help Greece deal with it’s crisis? At this point, Krugman sounds a little ridiculous.



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Jon

posted June 29, 2010 at 6:19 am


Re: My word. Clinton (and a Republican Congress who wouldn’t let him spend) barely balanced the budget during the largest debt-driven bubble in human history.
Have you been cut off from news for several years? The housing bubble of the most recent decade dwarfs the tech bubble which was just an small epiphenomenon on top of solid growth. Moroever the tech expansion gave us something lasting: we would not be debating in this forum without it. The housing bubble, not so much. I mean, the houses are there, sure, but no one wants them.



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Jon

posted June 29, 2010 at 6:28 am


Kevin s,
If you read my entire post you would note that I state that ordinary folks will have to make some sacrifices when the time comes too. I am under no illusion that taxing the rich gets us out of the hole.



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Roger

posted June 29, 2010 at 6:29 am


Firstly while Ferguson is a very talented historian, he is not like Krugman an actual economist who has made major theoretical contributions to his field.
If I genuinely knew nothing about economics I’d go for the guy with the Nobel prize rather than the one who did some excellent work on the 19th century Rothschilds but has spent the last decade or so turning himself into a pop historian and apologist for imperialism.
(OK both are in their way warriors in the Culture War but Krugman remains by far the most serious of the two).
Secondly as I’ve said before look at GDP-Debt and GDP growth rates going back to before 1900.
We (the developed world not just the USA) were in vastly deeper holes in 1918 and 1945.
In 1918 classical economics held reign and the recovery was fitful and incomplete everywhere except the US (which just happened to be the country whose bankers held all the debt and lent out the Europeans debt repayments to its own industrialists and consumers to fuel its own ultimately disastrous spending spree).
In 1945 Keynes was king and we not only progressively reduced the debt but rebuilt our ruined cities and created vast welfare programmes while achieving sustained growth.
Thirdly I fail to understand why it is that for the last of their 20 years in power US conservatives put at the centre of their whole economic approach the mantra that ‘deficits don’t matter’ only to turn into obsessive deficit hawks the moment a Democrat has to take over the fiscal mess they created.
OK I actually do understand – power is vastly more important to them than principle – but there is still something profoundly creepy and Orwellian in their capacity to effortlessly consign the whole of their recent history to the memory hole every 8 years.
“We are at war with Eastasia. We’ve always been at war with Eastasia.”
(this is not to say all conservatives lack principles – to give one example for all his many faults Andrew Sullivan has always been a consistent deficit hawk and social libertarian and has been turned into a Emmanuel Goldstein figure for it – but such lone heretics apart ‘the Conservative Movement’has nothing whatsoever to learn from Ingsoc and Big Brother in this respect).



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Roger

posted June 29, 2010 at 7:07 am


The last post may have been somewhat partisan but if you strip away the names and reduce it to a series of logical syllogisms what do you get:
Party/Movement A claims to be motivated by a system of beliefs which we shall call B
The belief system B has as a fundamental component a rejection of economic doctrine C
When A are in opposition they attack their opponents party movement D for violating B and C
But when A are in power they violate C and thus B much more radically and systematically than D
Ergo if a rational observer truly supports ideas B and C and no other alternatives are available he must logically support party D.
Its been a terrifyingly long time since I did a course in Logic so my formulation of the above may well be flawed…
However given that this blogs raison d’etre is to eschew simplistic partisanship and look at the big underlying moral questions can anyone explain in similarly abstract terms why anyone who a) supports fiscal rectitude and b) holds that political commitment should be founded upon clear moral beliefs should support any party that are deficit hawks in opposition but invariably leave office with a significantly higher debt-GDP ratio than they entered it.
Of course the logical problem above also applies equally to liberals and Democrats – but with a crucial distinction that the liberal belief system they hold does not claim to be founded on ineluctable principles of moral and even divine law so they can adapt themselves to the contingencies of power and opposition without the necessity of executing a monstrous Orwellian memory purge every 4 or 8 years.



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Roger

posted June 29, 2010 at 8:42 am


FWIW my own tentative answer employs an insight of Carl Schmitt who 90 years ago asked what in existential terms it means ‘to be political’.
His answer was that homo politicus is fundamentally defined not in positive but in negative terms as one who has enemies – whether those enemies are states, parties, classes, religions or individuals.
Unfortunately having made this conceptual breakthrough he deduced from it that only firstly a strong authoritarian executive power and later when the Nazis arrived on the scene a totalitarian state could provide a stable basis for society.
(interestingly George Sorel who started as a Marxist and then became an anarcho-syndicalist followed much the same fascist political trajectory as the catholic conservative Schmitt as soon as he reached not dissimilar conclusions in his Reflexions sur Violence).
But even when this insight comes from such a tainted source it does handily explain the bizarre ideological tergiversations of our major parties in recent decades – ultimately mere ideas always takes second place to emnity and the need to gain power and crush and humiliate the enemy.
So Ferguson having chosen to align himself with the US conservative movement has like it become an obsessive deficit hawk and seemingly forgotten that he made his academic reputation celebrating the genius of bankers and ministers who developed new means of increasing and manipulating the national debt – all that now matters is the eternal struggle and in 2016 when the Democrats have wrestled down the debt to a manageable size and are rewarded with electoral defeat he and his admirers will presumably undergo another Orwellian memory purge and begin defending the concept that ‘deficits don’t matter’ yet again.
Krugman is of course a very able and combative homo politicus himself but at least can remain logically and intellectually consistent as his party (in the widest sense) does not devote itself to binary either/or political dichotomies as fanatically as the movement conservatives do.
I’d also offer the thought that the greatest weakness of liberals is that unlike conservatives they make very poor haters and can never fully believe that they are in fact engaged in a life or death struggle as opposed to an interesting academic debate.



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Andy

posted June 29, 2010 at 9:42 am


Keynesian economics is a scam. For clowns like Krugman and Bernanke it is never time to raise interest rates/raise taxes/balance budgets/allow malinvestment to be flushed out from the system and allow failed businesses to take their losses. Our economy is like a broken gambler in debt a lifetime’s worth of wages to his bookee – if he stops betting on recovery he must face decades of payment for his profligacy, so Keynes says why not roll the dice one more time – whats the worst that can happen? Depends on your viewpoint I guess, which is worse – a lifetime of servitude for your failures or death, the economic equivalents being a lifetime of austerity or currency default. Whether we let deflation “win” or try to continually flood our economy with money that will only find its way into commodity prices, there will be pain. Politicians and bankers prefer the pain of inflation because it makes it hard to assign blame – deflation is much easier to fault (see if only you had passed another stimulus this would have been avoided, if you had not raised interest rates we would be ok, etc, etc). Our economy still has tremendous overcapacity from decades of below market interest rates and deficit spending – deflation is the best cure. Please see Weimar Germany and Argentina 2000 for fun with inflation – they make Japans lost decades look downright beautiful.



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Liam

posted June 29, 2010 at 10:51 am


The debates on these topics are not about facts, but about beliefs and assumptions. Those kind of debates can only be effectively had in person, not online. They are an intellectually masturbatory waste.



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steve

posted June 29, 2010 at 11:17 am


“Keynesian economics is a scam. For clowns like Krugman and Bernanke it is never time to raise interest rates/raise taxes/balance budgets/allow malinvestment to be flushed out from the system and allow failed businesses to take their losses.”
Nope, it is what we have often done in past recessions. We have either increased spending or cut taxes, temporarily, to provide a stimulus. We then held spending steady as the economy responded and grew. I fyou look at US debt since WWII as a percentage of GDP, go and actually look at the data and dont just trust the pundits, you see that this worked in letting us drive down debt pretty much non-stop from all time highs after WWII. This all changed in 1980 when we decided to subscribe to a new economic theory. Nothing but increased debt expansion since then with a brief interlude in the 90s.
BW, I am pretty sure Krugman and the other liberal economists would love to see businesses take their losses. They are supposedly anti business after all.
Steve



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kevin s.

posted June 29, 2010 at 11:48 am


“If I genuinely knew nothing about economics I’d go for the guy with the Nobel prize”
Krugman won a Nobel Prize for his theoretical work, not his hacky op-eds. The majority of economists, many of whom prize winning, fervently disagree with Krugman. That Ferguson is articulating the opposition in no way discredits it.
“In 1945 Keynes was king and we not only progressively reduced the debt but rebuilt our ruined cities and created vast welfare programmes while achieving sustained growth.”
Well, Keynes was king in 1933 as well, and the economy didn’t grow for quite some time. Many, if not most, of the aggressive federal interventions were long gone by 1945. Of course, those that remained were financed on the backs of future generations, namely us. That worked then, but at a certain point, the whole ponzi scheme explodes.
“Thirdly I fail to understand why it is that for the last of their 20 years in power US conservatives put at the centre of their whole economic approach the mantra that ‘deficits don’t matter’ only to turn into obsessive deficit hawks the moment a Democrat has to take over the fiscal mess they created.”
First of all, this is a caricature. Second, the neo-conservative approach to deficits are that they take a back seat to national security, but that they trump domestic spending. Third, yeah political parties are political. Democrats only care about deficits when they are out of power, too.
“OK I actually do understand – power is vastly more important to them than principle – but there is still something profoundly creepy and Orwellian in their capacity to effortlessly consign the whole of their recent history to the memory hole every 8 years.”
You seem to have missed the point of that book entirely.
“(this is not to say all conservatives lack principles – to give one example for all his many faults Andrew Sullivan has always been a consistent deficit hawk and social libertarian and has been turned into a Emmanuel Goldstein figure for it”
Emmanuel Goldstein? Maybe you haven’t read the book. Either way, of course you find Andrew Sullivan to be a paragon of consistency. You agree with him on most issues. You wouldn’t have so much about 10-12 years ago, but he wasn’t as consistent then.



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Franklin Evans

posted June 29, 2010 at 12:23 pm


A rhetorical question for those who are mechanically inclined: What happens when you attempt to control a machine using positive feedback? For those who don’t understand the question, find a layperson’s guide to the physics of machines.
Fact: Worker compensation (adjusted for anomalies like collective bargaining, etc.) has stagnated or decreased over the last 3 or 4 decades.
Factual question: Person A buys shares of stock from an IPO (startup capitalization). Person B buys shares of stock from an existing company. In each case, where does their cash end up?
Fact: Economic growth is being measured — yes, in part, but presented as a primary indicator — by consumer spending. Question: If spending consists of a substantial amount of borrowed cash, is that truly growth?
If my family needs are met with a car that costs $10,000, and every car salesperson is required to sell me the most expensive car he or she can convince me to buy, who is to blame for my deciding to borrow for a $20,000 car? Have I made an immoral decision? If I refuse the more expensive car, and the salesperson suffers (financially, pressure from management, etc.), is that also an immoral decision on my part?
My weekly commute is 300 miles. I see many cars that are, on average, either twice the size of my car or at least thrice the cost, occupied by at most the driver and one passenger. When people doom-and-gloom about lifestyle and such, what I see and hear are children getting ready to throw a tantrum because mommie and daddie are getting them a five-speed bicycle instead of a gas-powered scooter. Cry me a river, and watch me afford exorbitant gas prices with minimal flinching with my 32 mpg average while you leave your gas-guzzlers in the driveway.
BTW: Lunch today is left-overs of homemade lo mein with swai (Asian catfish). Total cost for a tasty, complex, five-serving (three at dinner, two lunches) meal: about $17. A similar meal in that amount from our local take-out would have been over $30.



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Chall8987

posted June 29, 2010 at 12:56 pm


Keynesian economics have worked and continue to work for the global economy. Anyone who doubts this should simply look at Ireland. The NY Times has a great article about this.
http://www.nytimes.com/2010/06/29/business/global/29austerity.html?ref=world
Also, Greece is not an example of Keynesian failure because Keynes would have never advocated lavish spending that counters growth like the Greeks did for nearly a decade.
Most economists agree that deficits will fall in comparable to GDP is we are able to generate enough growth, and growth is the only way we can keep our economy going. Bush’s tax cuts clearly didn’t provide growth, so we’re left with the alternative.



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kevin s.

posted June 29, 2010 at 3:55 pm


“When people doom-and-gloom about lifestyle and such, what I see and hear are children getting ready to throw a tantrum because mommie and daddie are getting them a five-speed bicycle instead of a gas-powered scooter.”
I don’t have a nice new car, nor do I have a 300 mile commute (yikes!). What I do have, I earned, and I don’t consider the government my mommy and daddy, to determine what is best for me to have or not have.
That includes taking my tax money to give people who made irresponsible automobile purchases a cheaper brand new car. That’s the sort of BS Krugman full-throatedly supports.



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stefanie

posted June 29, 2010 at 4:27 pm


@rj: Uh, yes, debt *is* a moral issue, both on the personal *and* national levels.
As far as deflation goes, don’t make me laugh. Deflation indices deliberately LEAVE OUT items such as gas, food, college tuition, insurance payments, etc. Meanwhile, the costs of these items/products have made it increasingly difficult to live in the middle-class.



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Mike

posted June 29, 2010 at 4:40 pm

kevin s.

posted June 29, 2010 at 5:43 pm


“Kevin truly your post makes not an ounce of sense to me – when you say jobs have been disappearing for years and that is not a political issue?”
The type of blue collar jobs to which you are referring are disappearing for non-political reasons, and have been replaced by other jobs. It’s not as though Republicans wave a magic wand and made them go away.
“You do know that our government gives tax breaks to companies that relocate jobs overseas?”
Jobs go overseas, in part, because our egregious corporate tax rate rewards them for doing so. That’s not the same as providing a tax break to send jobs overseas, as you are obviously trying to imply with your talking point.
“What conservative movement is prominent now – the Tea Party which will not support any cuts to entitlements such as SS or medicare,”
This is not true, per polling data.
“The same elected people who refuse to extend unemployment benefits are also proposing a continued elimination of the inheritance tax – so – deficit hawks re: middle and working class unemployed people”
The refusal to extend unemployment benefits is an effort to reduce spending in other areas, not an opposition to spending on unemployment benefits.
“Money isn’t real – Nixon took us off the gold standard and since then what backs US currency is oil and the US military”
“And now those same financiers and their puppets in congress think we need austerity and that is a false dichotomy?”
Yes. You can have cheap credit and economic growth. Also, Frank and Dodd are most certainly puppets, and both oppose austerity measures.
“Why would anyone trust the same fools who have promoted global trade at the expense of US jobs, who promoted indebtedness, who happily line up at the Fed window and take virtually interest free money, these are the people we should trust?”
I don’t trust them. I want them making as few decisions about our economy as possible.



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Franklin Evans

posted June 29, 2010 at 9:09 pm


Kevin, I agree that corporate taxation is a motivating factor in off-shoring jobs, but with tax revenues from corporations being only 7% or so of the total (7.2% estimated for 2010), it cannot be pointed at like that. Rather, I would suggest the somewhat opposite: that they aren’t going after higher profits by paying fewer taxes, but by paying lower wages and less overall in the compensation part of overhead. America, like it or not, like unions or not, has established the concept of “living wage”, and American corporations that off-shore are thumbing their noses at it.



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Jon

posted June 30, 2010 at 7:33 am


Re: America, like it or not, like unions or not, has established the concept of “living wage”, and American corporations that off-shore are thumbing their noses at it.
And if I may refer to an old-fasioned maybe outmoded, concept, the people who make these decisions are being unpatriotic jerks, especially in these times. They shoudl be called on this– at the very least they ought be as unwelcome in polite society as one who spies for another nation.



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End The FED - Kill the NWO

posted July 13, 2010 at 10:42 pm


What is the secret of Oz and what does it have to do with our present situation? Find out now!
http://www.youtube.com/watch?v=l9W-SQrzNgE



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Cammi

posted July 15, 2010 at 8:45 am


Jon wrote: “And if I may refer to an old-fasioned maybe outmoded, concept, the people who make these decisions are being unpatriotic jerks, especially in these times. They shoud be called on this– at the very least they ought be as unwelcome in polite society as one who spies for another nation.”
You are absolutely write! For instance, Steve Jobs and Bill Gates both send a lot of work overseas. Levis Jeans are made in Mexico and such. We should alter our spending accordingly. Ultimately, these guys are in the wrong!



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