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roc_

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Certainly, there needs to be a period of readjustment and hardship that provides the impetus to re-development of the underlying social and political factors that originally caused the productivity loss, as JS Mill put it:

“Panics (financial crises) do not destroy capital; they merely reveal the extent to which it has already been destroyed by its betrayal into hopelessly unproductive works.”

But, how far is this hardship to be allowed to go?! (the goldbugs would tell is it should go all the way)

- Total income equals total spending, so that if some people spend less, either someone else must spend more, or aggregate income must fall.

If people are spending less, this causes businesses to fail, which puts more people out of work, which further depresses spending, which propagates the cycle.

If you are taking a macroeconomic outlook, looking at the world as a whole, the overall level of debt makes no difference to aggregate net worth – one person’s liability is another person’s asset.
Paul Krugman said:
I believe that what we’re looking at is people who know their math, but don’t know what it means: they can grind through the equations of their models, but don’t have any feel for what the equations really imply. Confronted with informal discussion that’s grounded in models but not explicitly stated in terms of math, they’re totally baffled. And so they lash out.
A Dark Age of macroeconomics (wonkish) - NYTimes.com

One more time - NYTimes.com

Krugman’s blog is worth reading properly and regularly – particularly for those currently saturated in the Mises / Hayek inspired commentary – perhaps another perspective might be worth something, god forbid?
 

roc_

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Another thing that should be realised about Keyne’s thinking is that it has been vastly improved upon since he first set it out.

Originally, Keynes analysis included the following assumptions
(1) Methods of production remain unchanged
(2) Amount of industrial equipment does not vary.

He used four core variables
(1) quantity of money (deposits)
(2) consumption
(3) investment
(4) interest rates

And he used three main functional relations between variables
(1) liquidity preference
(2) consumption
(3) investment

Now, certainly, the maths has got much more sophisticated, so as to be able to relate economic quantities across past, present and expected future, as the original work was unable to do. ie. to be able to account for the rate of change that modern business entails.

No doubt, this means that a very high level of maths is required – which is beyond many people. But just because something is beyond someone’s understanding, should this mean that they revert to thinking nearly a hundred years old because it is the only thinking they can adequately grasp?

Remember that while von Hayek’s analysis was (and still is) a remarkable performance for his time, and is still read by economists today for the insights it yields, von Hayek was a non-mathematical economist. – It is this aspect that appeals so much to the layman and the non-mathematically inclined economists today, I believe.

And no doubt, particularly in an inflationary environment (which btw has not come about yet as Schiff and all the others have been shouting about – with all the QE so far commodities have only increased in nominal terms rather than in real terms), the Austrian way of emphasising the behaviour and decision of individuals and of defining exchange value of money with respect to individual commodities rather than with respect to price level of one kind or another indeed has its merits.

But there is a difference between ‘having its merits’ and being some kind of ‘final solution’ which seems to be what is being advocated by its adherents.
 
D

Dylan2010

roc_;3126930If you are taking a macroeconomic outlook said:
What conclusion are you trying to draw? Every asset has a claim on it, so far so good. Its the change in value of these assets where it gets interesting. A 30 year bond can go from par to 50% or total default. A pension asset can gain or lose value. Its not a zero sum game as such. Lets say the financial system is leveraged X20 , a prolonged recession might drop this by half (to get back to fair value). or looking at shares people in 2000 didnt want dividends, in a few years time they might demand 8% dividends to part with their savings.
I'm not convinced there is a policy response to this, they can delay it or drag it out like Japan did but if it was "wrong" for the financial system to get to X times leverage and it needs to get back to historic norms, then destroying more savings to "dig holes" aint going to work.

This is the problem with the aggregation way of thinking , the boom is considered normal and the attempt is to get back to this normality without yet another bubble. the only way out is real investment and productivity which creates real wealth , and this isnt possible for governments to do.
 

roc_

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... the only way out is real investment and productivity which creates real wealth , and this isnt possible for governments to do.
Agreed. It seems to me too that a large part of the problem we have had over the last number oof years (and continue to have) with productivity, and the related misallocation and destruction of capital, comes down to government. They must be stopped.

- The last thing in the world I would be advocating for would be to push swathes of money towards the likes of Eamon Ryan and Bertie Ahern to 'spend' in the manner they like to.

Rather than aligning myself with one camp or another (in terms of economic models), all I am saying is that to solve particular problems and to progress particular purposes, you need to use wisely and appropriately the tools and thinking and models that economic science puts at your disposal.

It seems to me that this whole aligning oneself with a particular camp is the same problem p.ie had in the past, when the only way it could talk about poilitics was in this partisan way - with people affiliated to one party or another, and unable to see beyond the rhetoric of their camp allegiance, or think things out for themselves. Sme thing with this Austrian, Keynesian thing, methinks.

As far as solving our current problems go, personally, I do currently hold the view that once we solve the underlying political and social problems and the wasteful and corrupt spending it engenders, we need to print enough money to foster inflation at around a steady 8%-9% per annum. This stimulus money should be put in ordinary peoples' wage packets and state payments, so that they may pay down their debts and spend money in the businesses that they deem are most worthwhile. We need to do this to stop sinking deep into depression and to prevent the wealth of the 'haves' from exponentially increasing its purchasing power at the expense of the 'have-nots'.

If inflation gets out of control, which seems to me unlikely given the knowledge and tools currently available to economists (assuming of course that underlying political and social factors are addressed), then I would have no problem with advocating Austrian type of measures to resolve these types of problems.

But the point is, to call for it now, in the context of what is actually happening economically, is asking for some bad ************************.
 
D

Dylan2010

roc, agreed more with the first half rather then the second. artifically changing the claim on resources via inflation is not an exercise in productivity. 9% inflation would be amplified in interest rates, and the goods and services that people use. some would gain, more would lose. South America should be a good enough reason not to follow "paper" based solutions to real world issues. The solutions for ireland have to revolve around reducing costs for business and people and that means smaller government and lower taxes and regulation
 

roc_

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roc, agreed more with the first half rather then the second. artifically changing the claim on resources via inflation is not an exercise in productivity. 9% inflation would be amplified in interest rates, and the goods and services that people use. some would gain, more would lose. South America should be a good enough reason not to follow "paper" based solutions to real world issues. The solutions for ireland have to revolve around reducing costs for business and people and that means smaller government and lower taxes and regulation
I may have been overstating the case in the second half - but, I am not advocating "paper" based solutions to real world issues.

The productivity or real world issues comprise the political and social issues, and these must be addressed by democratic will and common sense and courage and strength ---- the primary way money is a factor in this, is that when the credit and money tide rolled out, all of these political and social factors were left stark.

So, that is a primary danger of injecting lots of money back in again - the wave of money rolls back in to obscure again these social and political factors that sap productivity and exploit people.

But, to cure the surface ills of depression, money is all that is required. - Put money back in peoples' pockets, and they again spend to create employment. Here is a good paper on this - http://www.missouriwestern.edu/orgs/polanyi/tad web archive/tad25-3/tad25-3-fnl-pg26-31-pdf.pdf

I think we need to separate these two things.
 

Hazlitt

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David McWilliams said:
"I wanted the people who got the boom and bust. [Peter] Schiff got it," said McWilliams. "Krugman’s great, I’m a big fan, but he didn’t get it."
McWilliams on "Austrian" Schiff v "Keynesian" Krugman (via Bloomberg).

I post this because you're always banging on about how McWilliams wasn't listened to, well feargach - listen to him!

David McWilliams enjoyed a rich diet of ridicule and scorn for his efforts to point out the facts behind the bubble nature of the housing market. His logic was flawless, but people weren't in the mood to accept any logic.
 

feargach

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McWilliams on "Austrian" Schiff v "Keynesian" Krugman (via Bloomberg).

I post this because you're always banging on about how McWilliams wasn't listened to, well feargach - listen to him!
McWilliams isn't a major-leagues economist. He's a broadcaster who doesn't go along with the received wisdom, like Joe Lee. He was right on the housing bubble (and wrong on the timing of same, he had predicted a bust by 2002) but he's not a prophet or a genius.

How is that a provable example of anything, by the way?
 

Hazlitt

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The very obvious fact (to those with active brain cells) is that Krugman proposes the absolute bat-$hit economic medicine of printing even more money than already has been until somehow the economy "recovers"... stupidity is doing the same things over and over again and expecting different results. As the German finance minister said, America's kooky stimulus plan is "dismal", "clueless" and "doomed to failure".

And the fact that you are calling for the same bat-$hit "remedies" simply showcases you as the foolish Krugmanite apostle that you are.

Can you tell us how this "stimulus" will work without wreaking havoc on the currency and bankrupting America?
 

feargach

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The very obvious fact (to those with active brain cells) is that Krugman proposes the absolute bat-$hit economic medicine of printing even more money than already has been until somehow the economy "recovers"... stupidity is doing the same things over and over again and expecting different results. As the German finance minister said, America's kooky stimulus plan is "dismal", "clueless" and "doomed to failure".

And the fact that you are calling for the same bat-$hit "remedies" simply showcases you as the foolish Krugmanite apostle that you are.

Can you tell us how this "stimulus" will work without wreaking havoc on the currency and bankrupting America?
So your platinum standard of proof is the adjectives of a German politician? Uh huh. Do the grown-ups who have a higher requirement for proof have anything to say?
 
O

Oscurito

I stopped being interested in Paul Krugman some years ago. He predicted the Irish government's policy of austerity wouldn't work and persisted with this line long after it was clear that he was wrong. More recently, he's become increasingly enraged at the country because we didn't fit this theories.

If this article is anything to go by, he's no more logical than he was but at least the focus of his irritation has shifted elsewhere.

Zerohedge: We Are Getting Worried About Paul Krugman
 

toughbutfair

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I remember when he, other economists and lots of users of this site said that it was IMPOSSIBLE for an economy to grow while the government cuts expenditure.

They have all been proved wrong
 

toughbutfair

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I stopped being interested in Paul Krugman some years ago. He predicted the Irish government's policy of austerity wouldn't work and persisted with this line long after it was clear that he was wrong. More recently, he's become increasingly enraged at the country because we didn't fit this theories.

If this article is anything to go by, he's no more logical than he was but at least the focus of his irritation has shifted elsewhere.

Zerohedge: We Are Getting Worried About Paul Krugman
Exactly. They should all be as public in admitting that they were wrong as they were in proclaiming the impossibility of increasing GNP while reducing expenditure
 

Analyzer

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Krugman is in a league of his own in respect of utter BS.





How on all earth did he get a Nobel Prize for economics for a study into why Americans import ( in small numbers ) overrated, prestige Swedish motors ? ( apart from the endorsement it gave overrated Swedish motors ).
 

McTell

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So your platinum standard of proof is the adjectives of a German politician? Uh huh. Do the grown-ups who have a higher requirement for proof have anything to say?

The problem for all such economists and money printers is - it works if the money stays in the economy and circulates mucho.

If it is borrowed, and then sent abroad to pay bondholders, no circulation, no workee. Where do I apply for a nobel prize please?


The EU printing program from 2014 was 5 years too late and, by helping governments and large corporations, may shore up their balance sheets, but doesn't do very much for the rest of us.

€ to $$ in 2013 was about €1 = $1.35, now down to $1.05.

If this is what frau merkel wanted, she could have had it in 2009 and europe would have exported more in the last 8 years. Conclude; the desire to unite europe slowly doesn't always overlap with the ability to run an economy.
 

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