Economics

Paul Krugman, the Doctor, Concedes the Existence of Retrenchment

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Krugman helps himself to another stimulus package.

While making the case for more stimulus, New York Times columnist, Nobel Prize-winning economist and odds-on People's Choice Award favorite Paul Krugman makes an interesting reference to the possibility of ongoing economic shrinkage. Krugman criticizes business forecasters who favored an $800 billion stimulus in January but don't support a new package of spending now. In economist-speak, Krugman says, you need to weight the marginal benefit of stimulus — that it "adds employment and output" — against the marginal cost:

The marginal cost is the way stimulus adds to debt. This cost gradually rise as you add more debt, since the risk of an eventual crisis is increased. But does anyone really think that, say, another $500 billion in borrowing would be the straw that breaks the camel's back?

The point is that it's very hard to imagine what would lead you to say that $800 billion in stimulus, which leaves the economy deeply depressed, is just right. You could make a case that no stimulus at all—in fact, fiscal retrenchment—is appropriate. Or you could, like me, call for substantially more. But ratifying what we've done, and no more, makes very little sense,

(Boldface mine.) By adding "output," I presume Krugman is thinking of the growth in U.S. GDP during the 1930s, which he believes the government squandered by calling off its stimulus too soon. He may also have a theoretical model in which government spending can increase output, though that theory faces a pretty steep horse-sense hurdle.

You can also make the argument that government spending can create jobs, at least of the proverbial digging-and-filling-holes variety. But the idea that government spending can lead to a net increase in employment (unless you count conscripted and very low paid employment) seems like a stretch.

What's notable is that Krugman says there is a (presumably legitimate) case that "fiscal retrenchment" is appropriate. That's a welcome concession, but the point isn't that economic retrenchment is appropriate. It's that economic retrenchment is happening, and will continue to happen no matter what the government (which went into this crisis with a vastly larger debt than it had in the 1930s) does.

It's hard to find any index that doesn't suggest more deflation is coming. Residential real estate is still cliff-diving. Commercial real estate has just begun its decline and will face important structural changes whenever it rebounds (i.e., more of what we used to call "brick and mortar" retailers will have been replaced by the interwebs). America's new favorite economic indicator, the rail freight index, is pulling a Casey Jones. And the deleveraging of the American citizen is happening almost as fast as the releveraging of the American government. So where are the inflationary pressures? (U.S. worker productivity remains high, but even productivity growth has been hit and miss since the start of the recession; there could actually be more room for wages to fall.) America just isn't worth as much as we want it to be worth.

I guess Krugman could argue that this is happening because evil economic non-interventionists think it's appropriate. But to me it looks like it's happening because reality thinks it's appropriate.

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  1. Stimulus: it’s like a poster of the image of Keynes, except with more tentacles.

  2. It’s hard to find any index that doesn’t suggest more deflation is coming.

    Do you mean deflation, or lower prices? IANAE, but I have always understood inflation and deflation to be monetary phenomena. This Fed Reserve table shows that the supply of money is definitely not shrinking. The price charts for corn, for cattle and for oil are a mixed bad when it comes to price trends, but both cattle and oil have had run-ups in the past few months. If your point is that housing prices are going to continue to drop, and that housing makes up a large portion of spending in general (causing a decrease in the overall price for the economist’s “basket of stuff”), then okay, but I believe that’s different than deflation.

  3. The point is that it’s very hard to imagine what would lead you to say that $800 billion in stimulus, which leaves the economy deeply depressed, is just right. You could make a case that no stimulus at all – in fact, fiscal retrenchment – is appropriate. Or you could, like me, call for substantially more. But ratifying what we’ve done, and no more, makes very little sense,

    Krugman’s argument would hold better if the stimulus passed were actually already spent. I think that there’s still room for people to say:

    “Only 10-15% of the first stimulus has been spent. A second stimulus would also take another year at least to ramp up. The first stimulus money already approved may have a chance to improve the economy, but by the time a second stimulus takes effect, the economy should be back.”

    Unless Krugman wants to support stimulus of the form of payroll tax cuts, etc. that could be implemented quickly instead of all these projects that are slowed down by bureaucratic rules and bidding and environmental impact statements and organizing grant processes.

  4. that could be implemented quickly instead of all these projects that are slowed down by bureaucratic rules and bidding and environmental impact statements and organizing grant processes.

    Uh, you’re saying that the Government spending taxpayers’ money is less efficient at getting money into people’s hands than reducing taxes? What are you, a fascist? That would only apply to rich people.

  5. Is he drinking Guinness out of a champagne flute or are his economically-gifted hands twice the size of a normal man’s?

  6. Krugman’s talked himself into a corner, and the fact that the economy is still declining despite the government repeating all of the mistakes from the 1930s that Krugman admires, means he has to double down. If he acknowledges reality, he has to admit that he’s full of shit.

    -jcr

  7. incidentally, has Krugman ever been right about anything? I know about him advocating the housing bubble.

    -jcr

  8. But ratifying what we’ve done, and no more, makes very little sense,

    If you believe in magic and witchcraft, then now is the time to believe dammit!

  9. I cannot say how pleased I am to see Tim putting forth the deflationist case on Hit ‘n’ Run. Milton Friedman’s line that “inflation is always and everywhere a monetary phenomenon,” while accurate in a certain sense and certain contexts, has seriously muddled and confused libertarians’ thinking on this issue with respect to our economy, where most of the inflation of the past twenty years has been generated with inflation in credit rather than currency. It would take an insane, reckless course of explicit banknote printing and distribution to get inflation going in this country again, and in the near term this would have various deflationary consequences such as a complete implosion in the bond market anyway. It’s like trying to fill a thimble with a firehouse.

    Now, if they appoint Larry Summers as Fed chief when Ben Bernanke’s term is up? Better buy some more gold.

    I guess Krugman could argue that this is happening because evil economic non-interventionists think it’s appropriate. But to me it looks like it’s happening because reality thinks it’s appropriate.

    But, but, how what a horribly cruel perspective! How could any decent person even think such a thing! (Those “cartoon villains” in Atlas Shrugged are looking more and more realistic by the day.)

  10. I have always understood inflation and deflation to be monetary phenomena.

    I thought deflation really and actually was a psychological phenomenon.

    Except in the bigger picture and longer term, and then only if you’re on a strict gold standard. In which case, as people get smarter and smarter and find cheaper ways to make bread, it’s price drops. Until one afternoon you find yourself at the store, and find that you need only several atoms of gold to buy your loaf of bread.

    Of course, we aren’t on a strict gold standard.

    And of course you may say I’m insane to argue that people are, or possibly could be, getting smarter and smarter. You could cite the very existence of Paul Krugman. And then I’d have to concede.

    But if prices drop, because the bottom drops out of Santa’s Real Estate Sleigh, at the same time the government is running it’s printing presses — it’s not exactly clear to me what happens to the economy and how it all happily balances out. Just in time for Christmas.

    Beyond the fact that we’d all be getting screwed, I mean.

    So where’s RC Dean to tell us we’re screwed and rampant inflation is imminent?

  11. where most of the inflation of the past twenty years has been generated with inflation in credit rather than currency.

    Help those of us who are economically disadvantaged and tell me, what’s the practical difference? Either way the government is creating money out of thin air and spending it.

    It would take an insane, reckless course of explicit [action]

    Show me one thing Obama has done since he got in the White House, that doesn’t fit this description.

    banknote printing and distribution to get inflation going in this country again,

    Yes, he can.

  12. Obama’s actions are reckless from the perspective of the long-term health of the economy and the American republic, but in another sense they’re also cool and calculated payoffs to his major political patrons, a lot of whom are banks who probably have no desire to see a hyperinflationary hellstorm destroy the value of their debt portfolios.

    However, as you say, politicians can and do go crazy sometimes. There should be warning signs that hyperinflationary courses might be pursued, such as (as I cited above) appointment of Larry Summers as Fed Chair, or even outright nationalization of the Fed itself. Hyperinflation is fundamentally a political decision, and political decisions take time to play out. I don’t really see how a dollar collapse could be an overnight, “flick of the switch,” event, with no forewarning whatsoever.

    Help those of us who are economically disadvantaged and tell me, what’s the practical difference? Either way the government is creating money out of thin air and spending it.

    No, this is not how credit inflation works, and there is a critical difference between printing currency and “printing” IOUs. The Fed and the government cannot accomplish the latter “at will” because it depends on the existence of willing borrowers and lenders in order to create the expanded credit, and this is what is in short and ever-shrinking supply thanks to the retrenchment Tim Cavanaugh is talking about. It’s a bit difficult and time-consuming to explain in detail but Robert Prechter offers a free e-book on deflation which you can access with a free registration on his website, which lays out the arguments in detail. http://www.elliottwave.com/deflation-survival-guide.aspx

    All this said, a little of my net worth is always invested in physical gold as a form of hyperinflation insurance. Even Prechter, just about the most ardent deflationist out there, advises as much.

  13. The Fed and the government cannot accomplish the latter “at will” because it depends on the existence of willing borrowers and lenders in order to create the expanded credit

    That’s why God created Socialized Banking.

    Now, you get the Monopoly board set up. Let’s all be bankers!

  14. Thanks Graphite.

  15. Graphite – i think you make some valid points up there, but I also think you probably underestimate the level of abject stupid that fills the minds of our elected officials, and honestly the idea that the sharp spike in M1 won’t result in massive inflation seems pretty far-fetched to me.

    I know that Bernanke & Geithner both say that all this debt won’t be monetized, but c’mon. Has a damn thing either of those jokes said not been a complete fabrication? I mean these are the same people that are congratulating themselves after missing every single important prediction imaginable. I mean, Bernanke’s a guy who in 2005 thought everything was going well, then predicted only a minor downturn, then after having been totally shocked by the collapse, picks up the pieces by predicting that it’ll last through early 2009… then mid 2009… then late 2009… then aww fuck… who the hell knows 2010.

    I’m going to hedge my bets with the past 40 years of non-gold standard US monetary history and expect significant inflation over a 5-10 year span. The price “deflation” we’re seeing now is clearly a correction, which is great to an extent – but as noted above, only 15% of the stimulus money is yet in circulation. Wait until it’s all out there and these fucks blow up a new bubble in the “green technology” sector. Is there really any question?

  16. honestly the idea that the sharp spike in M1 won’t result in massive inflation seems pretty far-fetched to me.

    All else equal, sure. But we also have high levels of unused bank reserves, a lot of consumer deleveraging, forced liquidations of bad assets, etc. The risk of inflation is probably intermediate-term (as you note), where the Fed will have to rein in the money supply extremely quickly, and I think… hope the Fed will do that. But I don’t think we’ve set off down a path of inevitable double-digit inflation by any means.

    For one example, M1 has consistently risen in Japan since their bubble burst, but the currency has deflated for the last decade. Different set of circumstances, obviously, but it shows the importance of the money multiplier as regards inflation.

    FYI, here’s a collection of great quotes from Ben and Hank.

    incidentally, has Krugman ever been right about anything? I know about him advocating the housing bubble.

    His gloom-and-doom stuff can be right, it’s just that his prescriptions are way off. One example here.

  17. Sean,

    I actually disagree with the idea that politicians are “stupid.” Most of them are very successful predators, of a sort. Year in and year out, they fleece the voters, strip them of their liberties, take a dump in their hands, and manage to convince them it’s cotton candy. Evil stuff, to be sure, but isn’t it a kind of evil genius stuff?

    It’s the voters who reelect these guys who are stupid.

    All that said, our officials are clinging to some very arrogant and foolish beliefs about their own ability to manage this crisis with monetary and fiscal “fine tuning,” and I admit that it they may ultimately just go full retard and convert all the Federal timberlands into dollar bills. But the simple fact is that the situation is completely out of their control … their attempts to “print money” to stop deflation are akin to a pilot in a flat spin pulling up harder and harder on the joystick–they contribute to further deflation by increasing uncertainty in capital markets, causing lenders and borrowers to further pull in their horns, especially in the massive U.S. T-bond market. I believe the most likely outcome is that Obama’s deficit spending will be abandoned when it becomes clear that it cannot be financed in the bond market, and the alternative of outright, suicidal debt monetization would tip the world into monetary chaos.

    A true “bubble” in green technology sounds very unlikely to me, but if it happened it would be only a pale echo of the housing bubble and would not even begin to approach that bubble’s potential to support credit inflation.

  18. I believe the most likely outcome is that Obama’s deficit spending will be abandoned when it becomes clear that it cannot be financed in the bond market, and the alternative of outright, suicidal debt monetization would tip the world into monetary chaos.

    I have wondered if reality would grab hold of them at some point. I hope you’re right.

    I’ve converted to the belief that they aren’t going to crank up printing presses too badly. For the simple reason that this time around, the emperor would be seen to have no clothes and there would be no way to hide it.

    How they’re going to pay off all this debt I don’t know…..but the existence of the debt, is probably the only thing that will stop complete and abject ObamaCare, as well as the carbon tax (whatever guise you give it).

    It’s the voters who reelect these guys who are stupid.

    But remember, they’re rationally stupid. 🙂

  19. If Krugman isn’t going to be ignored, then he should be skewered at every opportunity.

    The hilarious things about “stimulus” are that 1) it never works, and 2) the recipients always do the same thing with it.

    When the Bush tax rebate stimulus was all said and done, the big complaint was “no one spent it on more stuff”, instead people paid down their debts. As if shoring up bank balance sheets is somehow a bad thing.

    Oh wait, we DID attempt to shore up bank balance sheets with the POTUS-election-cycle stimulus. And what has been done with THAT stimulus? Instead of dropping money into the pockets of individuals like the first stimulus, we instead dropped money into the pockets of Wall Streeters and state governments. The Wall Streeters used the money to shore up their balance sheets and the states used the money to pay down debts. (The definition of shovel-ready is designed, financed, and ready to start – naturally the states were going to do what they did with the money.)

    The downturn has been going on for 3 years and stimuli haven’t done jack shit. To keep suggesting trying the same thing and expecting different results is insane.

    Politicans are neither stupid nor evil genius – they are mentally ill. I suspect the voters are as well. Would you keep going to the same doctor if said doctor contiunally misdiagnoses your illness?

  20. Chart of M0, I think

    Much more disturbing that the M1 numbers linked above. Eventually, as we recover, velocity of money is going to rebound, and hello hyperinflation.

  21. try 2

    Link above didnt work.

  22. I don’t think that there’s anything in the world that could make Krugman and the lefties ever question their belief that government intervention in the economy can have a real impact on the business cycle.

    This is essentially a religious tenet for these guys. It would be like asking a die-hard Christian to question his belief in Jesus.

  23. This is essentially a religious tenet for these guys. It would be like asking a die-hard Christian to question his belief in Jesus.

    Yo, fuck Keynes and Jesus.

    (Sorry, X).

  24. The downturn has been going on for 3 years and stimuli haven’t done jack shit. To keep suggesting trying the same thing and expecting different results is insane.

    Another reasonable point that Krugman ignores. People could have favored the first stimulus, and then decided that it didn’t work, so they don’t favor another. This could be whether because Keynesian stimulus doesn’t work, or because the only type of stimulus favored by Obama and his party is a particularly bad and slow-acting one.

  25. Krugman and Summers. That sounds worse than Tango and Cash.
    Larry is a genius, just as Harvard.

  26. The government should be borrowing it like mad and spending as much on infrastructure as it can right now. Forget all your quirky macro-economic masturbation. It’s all bunk. The government should be doing this because EVERYTHING IS ON A MASSIVE SALE.

    First off, the sticker prices on bridges, roads, and capital goods have fallen, often as much as 25%. If you put out a call for bids to fix a road today, you will receive many more bids and much lower bids than you would have a couple years ago.

    On top of that, many of these projects will divert people from the unemployment line and convert them into tax payers…turning a $500/week expense into a $250/week profit. This is not true in times of full employment, where government projects are simply moving people from one project to another. Factor this $750/week profit per week into the mix, and costs for new projects probably aren’t even a third of what they were in 2006.

    Buy now = buying stupidly cheap.

  27. John Thacker | July 12, 2009, 12:27am | #

    Unless Krugman wants to support stimulus of the form of payroll tax cuts, etc. that could be implemented quickly instead of all these projects that are slowed down by bureaucratic rules and bidding and environmental impact statements and organizing grant processes.

    The problem with tax cuts is that people (rightfully) aren’t spending them. They are using them to pay off debt.

    Remember, a tax cut is a forced loan – you are borrowing from your future self. Unless one was in desperate need of a loan and couldn’t get one, why would a rational person respond in any other way than to bank the loan and use it pay off the future obligations it incurs?

    It’s funny. Anyone who believes that tax cuts can stimulate the economy is counting on people to be irrational, in defiance of the very core of free-market ideology.

    Government spending takes time. You can do it faster, but at the expense of doing it more stupidly. It’s a delicate balance that I think the administration is doing a decent job of.

  28. On top of that, many of these projects will divert people from the unemployment line and convert them into tax payers…

    Except that their income came from tax dollars. If I give you $100 and you give me $30, I’m not up $30, I’m down $70.

  29. The problem with tax cuts is that people (rightfully) aren’t spending them. They are using them to pay off debt.

    Which strengthens the banks.

    Remember, a tax cut is a forced loan – you are borrowing from your future self.

    Bullshit. This assumes that spending wont also be cut, which might be a logical assumption with the current group of fuckers in DC, but isnt a fundamental part of a tax cut.

    Anyone who believes that tax cuts can stimulate the economy is counting on people to be irrational, in defiance of the very core of free-market ideology.

    Bullshit again. Tax cuts put capital in the hands of the people. Cpaital stimulates the economy. Then again, I only care about long term, so “stimulates” to me means something different than it does to others. I dont care about the next 2 years. A tax cut that is used for paying back loans does two things – it makes the person more flexible due to lack of debt, making it easier for them to, for example, start a small business. Two: it gives the banks something to loan out again. Right now, banks would be keeping it to shore up their balance sheets, but that is a good thing too. Eventually, though, it goes back out as future loans.

  30. robc has the arguments that are right on the money.

    I’ll always chalenge the rationality of people, especially in a fundamental economic sense. But that said people aren’t, god I’m going to say it, completely fucking retarded. From a pain stand point right no people are feeling the pain. Something that does have benefits in changing behaviors. I’d wager that if people are allowed to keep more of their income now the overall reaction would be to reduce debt and even possibly save. Which is vastly different than the last 20 years behavior. While saving and debt reduction are not the end all be all of solutions, they are a shit load better than a climbing deficit.

    The long term comment he made has a direct link to one of the problems with behavior today, almost all behavior is short term. From the bankers to the public. No one thinks beyond the end of their pecker or expects someone else to think that far for them.

  31. robc | July 12, 2009, 10:53am | #

    Which strengthens the banks.

    robc, banks actually prefer it when you DON’T pay down your debts. Pro tip: That’s how they make money.

    Bullshit. This assumes that spending wont also be cut

    That’s a pretty safe assumption, don’t you think?

    Except that their income came from tax dollars. If I give you $100 and you give me $30, I’m not up $30, I’m down $70.

    No, we are borrowing the money. But in any case, you aren’t getting it.

    I “give” you $100 in return for your services, get $30 back AND don’t need to send you $50 in welfare because you now have a job. Oh, and you are running a 20% off sale, so I actually get $125 in services…for $20 bucks net. Even if I have to borrow the $20 at 4% from China, I am getting a steal.

    Get it?

    The problem isn’t deficit spending when the economy is bad – it is deficit spending when the economy is GOOD. That is exactly what the Republicans have done for three decades.

  32. I believe the most likely outcome is that Obama’s deficit spending will be abandoned when it becomes clear that it cannot be financed in the bond market

    At the moment the evidence suggests it can be financed in the bond market. And it gets easier as the economy gets worse.

    By the way, I’m not making any predictions about future inflation or deflation. Just noting that the massive loss of household net worth since Q3 2007 dwarfs anything the government has done to promote inflation (so far).

    Question: How does deflation interact with worker productivity? It seems like it should bring productivity down, because the value of what you produce is lower. But then wages go down too, which should bring productivity up (I think). Is there an equation for this?

  33. a tax cut is a forced loan – you are borrowing from your future self.

    What in the fuck is that even supposed to mean?

    Is this based on the bedrock assumption that it’s really the government’s money, and they decide how much of it you’re allowed to have?

  34. I “give” you $100 in return for your services, get $30 back AND don’t need to send you $50 in welfare because you now have a job.

    Wheee!

  35. No, we are borrowing the money.

    I borrow $100, give it to you, and get $30 back. I’m still in the hole $100 and have $30. I would have been better off keeping the $100.

    get $30 back AND don’t need to send you $50 in welfare because you now have a job

    If I can choose between a dangerous $30 construction job or $50 of welfare at home, guess what I choose? If you pay $50 and the poor and unemployed get less than $30, I see a bunch of govt inefficiency that can be cut and only hurt govt bureaucrats. These cuts will, of course, be slammed with “YOU’RE STARVING THE POOR!!!” by the likes of Swinging Chad.

    Oh, and you are running a 20% off sale

    Like those “I Love Lucy” episodes where Lucy buys a bunch of shit she doesn’t need because its on sale? Chad, when you come out behind Ricky Ricardo in economic knowledge, it’s time to hang it up.

    it is deficit spending when the economy is GOOD. That is exactly what the Republicans have done for three decades

    I thought the economy was never good when someone other than Dems were in power.

  36. I’d wager that if people are allowed to keep more of their income now the overall reaction would be to reduce debt and even possibly save. Which is vastly different than the last 20 years behavior. While saving and debt reduction are not the end all be all of solutions, they are a shit load better than a climbing deficit.

    My fundamental problem with our modern system is that we’ve made ourselves into an almost entirely service-based economy, and a service-based economy by nature requires that people spend large amounts of money in order to have growth and low unemployment.

    Everyone is beginning to retrench now, and in one sense that’s a good thing, but the problem is that it’s also contributing to the increasing unemployment.

    This is why you’re starting to hear nonsense from some of the liberal punditry now about a “jobless recovery”. We’ve really painted ourselves into a corner here.

  37. If I can choose between a dangerous $30 construction job or $50 of welfare at home, guess what I choose?

    I misread the numbers, but my overall point still stands. Dangerous job for $100 minus all non-labor expenses vs. safe at home for $50? $50 sounds good.

  38. Ben Bernanke and his buddies don’t understand or don’t care to understand and admit that monetary manipulations will not bring back demand. We are now experiencing a DEMAND DEFLATION in everything. The sub-prime real estate buyers are not coming back to market, and the credit worthy borrowers are not going to get into debt any time soon to support the speculative bubble blowing any longer. We don’t need to “unfreeze lending” if nobody wants to borrow (while assets are depreciating). Mr. Bernanke somehow believes that he can magically circumvent creating economic product, which is always based on labor and goods it produces, by just hitting a button on his computer to add a few zeros to FED’s account in a coup of counterfeiting. This illegal act does not provide employment to anyone except Mr. Bernanke and does not result in any economic product on the other end of this labor intensive operation. His academic theories, being tested on live human beings, will be proven wrong and disastrous soon enough. The prices will go where they naturally want to go. All FED can do is slow the process of decline, not arrest it – and that will only prolong this recession that has all the underpinnings of becoming another Great Depression.

    National Deflation Association wholeheartedly and vigorously endorses deflation and the benefits of lower prices that it brings to the common person.

    http://ndainfo.wordpress.com/deflation-explained/

  39. The difference between today’s versions of Keynes and Jesus is that adherents to mega-domo-interventionist-Keynes actively recoil from debate (What of the beggars in Spain? Tax and spend!).

  40. jsh | July 12, 2009, 12:06pm | #

    I misread the numbers, but my overall point still stands. Dangerous job for $100 minus all non-labor expenses vs. safe at home for $50? $50 sounds good.

    You don’t seem to understand either human psychology nor unemployment law.

    People in general do not like to be unemployed, nor does the law generally allow you to turn down jobs and stay on the dole.

    There are plenty of people who would jump at the chance for these $20/h construction jobs, despite the fact that they would be losing $4/h to taxes and losing the equivalent of about $10/h in unemployment benefits.

    Like those “I Love Lucy” episodes where Lucy buys a bunch of shit she doesn’t need because its on sale? Chad, when you come out behind Ricky Ricardo in economic knowledge, it’s time to hang it up.

    Yes, because fixing bridges before they fall on peoples’ heads is shit we don’t need. And, of course, the shit we do need is apparently all the McMansions, SUVs, and cheap Chinese crap that the private sector invested in over the last twenty years.

  41. Why is there a picture of Paul Giamatti attached to this post?

  42. it is deficit spending when the economy is GOOD. That is exactly what the Republicans have done for three decades

    I thought the economy was never good when someone other than Dems were in power.

    There is no statistically significant correlation between which party holds which office and the performance of the economy.

    To claim anything else is to be reading tea leaves.

  43. the shit we do need is apparently all the McMansions, SUVs, and cheap Chinese crap that the private sector invested in over the last twenty years.

    So says the people who made the money. Do you know better than them?

  44. If I can choose between a dangerous $30 construction job or $50 of welfare at home, guess what I choose?

    I misread the numbers, but my overall point still stands. Dangerous job for $100 minus all non-labor expenses vs. safe at home for $50? $50 sounds good.

    wimps, dangerous jobs are fun, not boring, and they put hair on your testicles

    Oh, and you are running a 20% off sale, so I actually get $125 in services…for $20 bucks net.

    It’s worth what you are willing to pay for it. The sale or discount does not increase or decrease the value especially in comparison to others since the deal is not specific to you.

  45. It’s worth what you are willing to pay for it. The sale or discount does not increase or decrease the value especially in comparison to others since the deal is not specific to you.

    Two years ago, we were buying such things at the full-value cost of $125, so clearly we value them at a lot more than $20, which is their net cost now.

    It’s really simple. If we do this now, we are using unused capital and bargain priced commodities. It would be stupid not to do it.

  46. robc | July 12, 2009, 1:42pm | #

    So says the people who made the money. Do you know better than them?

    Actually, yes I do. People are idiots and don’t even get their own private decisions right, let alone that few decisions are actually fully private anyway.

  47. Yes, because fixing bridges before they fall on peoples’ heads is shit we don’t need.

    As long as it’s the government saying that’s what needs to be done, I’ll be skeptical.

    Privatize the roads.

  48. Two years ago, we were buying such things at the full-value cost of $125, so clearly we value them at a lot more than $20, which is their net cost now.

    You are assuming, at the least, a rebound to a previous point above the current value that will be high enough and occur fast enough to cover all costs incurred for purchase and any future costs. Years ago we were buying such things at 1/10 the price they are now. Years ago is a pretty broad time frame. Past occurrence is not a prediction of future profit or loss.

  49. Two years ago, we were buying such things at the full-value cost of $125, so clearly we value them at a lot more than $20, which is their net cost now.

    Last year’s wasteful spending justifies this year’s wasteful spending. Thanks, Lucy.

    “But Ricky, it was on saaaale”.

  50. Actually, yes I do. People are idiots and don’t even get their own private decisions right, let alone that few decisions are actually fully private anyway.

    That is bullshit, and I hate humanity and can’t stand defending it. But you do not know how to spend anyone’s earnings better than they do, because it is theirs not yours.

    The arrogance of that statement is fucking amazing.

  51. People are idiots and don’t even get their own private decisions right, let alone that few decisions are actually fully private anyway.

    EXTERNALITIES!!!!!! Drink!!!!

    Chad, aren’t people also idiots when they vote, even if they vote against people you dislike and thus for people you like? If they need your protection from their own stupidity in the marketplace by you, in your wisdom, making their choices for them, don’t they need that same protection when they vote?

  52. “Gradual rise”, my ass!

  53. Chad your fascism is showing

  54. The long term comment he made has a direct link to one of the problems with behavior today, almost all behavior is short term. From the bankers to the public.

    Uh huh. I’ve been saying it for a long time. Over the last two decades of my career it is clear that the corporate world is looking closer and closer in front of them.

    Central axiom of economics: people respond to incentives. So why are people acting this way?

    I know that around here people generally believe there’s nothing wrong with corporations, versus the one-man empires of old. But this is precisely why I believe that position is wrong.

    Corporations are constituted to think no more than 1/2 step in front of them. They do otherwise, only when there is competition on the market that forces them to do otherwise.

    With the demise of the old time, one-man empires — which I did get to spend a little bit of time looking around in, and yes they did think long range while the corporations that replaced them clearly don’t — there are now few players in the market who are strong enough to force the corporations to think ahead.

    The only place I still see people thinking ahead are in small companies, and a handful of small to mid-size corporations. And even that forward vision is limited.

    The only people I know who “believe” that corporations actually think ahead, are business types who don’t understand technology. Bean counters always think everything is fine, as long as the checks keep coming in the mail.

    Combine the nature of The Corporate Mentality with the fact that you can’t predict what inane laws the government is going to pass next — which makes it difficult to impossible to project real economic returns on long term investments — and what you get is short sighted thinking.

    People can argue that corporations aren’t the root of the problem, but I nonetheless maintain that at this stage, for all practical purposes, they are the problem. Because they like not having to compete with people who think ahead, so they consistently lobby for laws that make it uneconomical to think ahead.

    There is no real, organized opposition to this lobbying. It’s the logic of large groups, biting us once again.

  55. And, of course, the shit we do need is apparently all the McMansions, SUVs, and cheap Chinese crap that the private sector invested in over the last twenty years.

    As opposed to the public sector, which was so skillfully investing in agriculture subsidies, bridges to nowhere, and dead Iraqis?

  56. As opposed to the public sector, which was so skillfully investing in agriculture subsidies, bridges to nowhere, and dead Iraqis?

    But now bridges to nowhere and dead Iraqis are on saaaaaale!!! Kill 2 for the price of one! Get ’em before they’re all gone.

  57. That is bullshit, and I hate humanity and can’t stand defending it. But you do not know how to spend anyone’s earnings better than they do, because it is theirs not yours.

    The arrogance of that statement is fucking amazing.

    Like Chad, Im pretty sure I know better than many people what they should do with their money. Unlike Chad, Im only willing to give them advice, but who the fuck knows? I might be wrong.

    Chad isnt just arrogant. He is evil.

    The arrongance is understandable, acting on it isnt.

  58. You’ve got to love being called an idiot by a guy who thinks that the Republicans have been in control of Congress for the last thirty years.

  59. Wow. Chad blew my mind a few posts ago. He said that tax cuts are borrowing from your future self, but deficit spending somehow isn’t. I have now idea who he thinks you ARE borrowing from, but I bet it will be entertaining to find out.

    By the way, Chad, I highly suggest you read this public de-pantsing of Krugman’s inane theories. A few choice quotes:

    “In other words, to get the decline, FDR had to make up a larger and larger amount of America’s overall economic activity every year – a very unsustainable pattern. Yet Krugman somehow comes to the conclusion that improvement in economic statistics is exactly the same as improvement in the economy itself. When the government stopped artificially improving the statistics, America’s economy was almost as bad as ever. Some fix.”

    “After a couple years of the predictable regression that comes when there aren’t any more money dumps – during which Krugman would be frantically pulling a Mortimer Duke and screaming at Truman, “Turn those machines back on!” – the country entered one of the greatest boom periods in history.”

  60. Like Chad, Im pretty sure I know better than many people what they should do with their money. Unlike Chad, Im only willing to give them advice, but who the fuck knows? I might be wrong.

    I disagree. You may know how to better invest or create more gains, or save, or grow someones income, but that does not equate to a better use per the person. Some live like rock stars and damn the torpedoes and it works out some live like misers and never grow a dime. Many fall in the middle. You have to know what the person wants. After that I’d agree with you as long as you were operating towards the person’s wishes.

  61. Chad arguing economics is kind of like a derailed Japanese bullet train careening into a school for retarded children… It’s a painful sight to see, but damn it… I can’t turn away. The hilarious (and disturbing) part is that as Chad, the train-conductor, is plowing his way through the confused and bloodied screaming children, he looks at his watch while pressing down the intercom button, saying;
    “?????????????????????”

    It’s… Why… It must be some kind of performance art.

    Also – I know I made this clear earlier, but I’m with Robc on the inflation/hyper-inflation. I don’t see any reason to believe that the people in charge won’t go full retard on monetizing all this debt. I get the argument that they wouldn’t be that dumb since it would expose the bankruptcy of their ideas, but I’m also not that cynical – I don’t think they actually know that their ideas are bankrupt. So I mean… Looking at this completely honestly – and non-cynically… These guys truly believe they are doing the right thing. Bernanke thinks he understands the great depression – and his understanding is, from what I can gather, a very poor/confused version of the scenario Milton Friedman postulated… And Friedman – while, I think right in terms of what instigated the collapse (i.e. monetary tightening) in 1929, still ignored the massive monetary expansion that caused the bubble to begin with… So I’m not saying that politicians or Federal Reserve people are “stupid”, per se – they have no idea what’s going on right now, and they’re listening to all the wrong people. So the idea that they’d somehow manage to rein their spending in and not dump the trillions of dollars into the macro-economy seems like wishful thinking at best.

    And again… any deflation (which I just pleasantly experienced in my own wages… Hooray for that…) is a natural contraction in response to government policy and not as a result of it. But still, if you take a slightly longer view – 10 years, 20 years… there’s absolutely nothing in the history of the Federal Reserve that makes me believe we won’t see significant inflation soon.

  62. “… has seriously muddled and confused libertarians’ thinking on this issue with respect to our economy, where most of the inflation of the past twenty years has been generated with inflation in credit rather than currency.”

    Same thing. The Fed is buying up the debt with money created out of thin air. This is inflationary. Yes, prices are coming down on certain assets, but Friedman was right when he say these are always monetary phenomenon.

    There’s no such thing as magic fairy dust to be sprinkled on the “credit.”

    “Anyone who believes that tax cuts can stimulate the economy is counting on people to be irrational, in defiance of the very core of free-market ideology.”

    This was said in regards to people not spending their money … savings (capital) drives an economy, not spending. You’re putting the cart before the horse!

  63. That was one of the most amusing mis-translations I’ve ever seen- “I am scheduling people’s rights” rather than “We’re right on schedule”. Which is somehow strangely appropriate…

  64. OK, that was a bit of hyperbole but it’s still kind of funny the way translation software mangles things- Japanese doesn’t lend itself well to direct translation. Better would be something like ???????? although since Japanese trains are nearly always on time it would be unlikely a train conductor would ever make a statement like “we’re right on schedule” as that would be everyone’s assumption.

  65. Hey – I don’t speak Japanese, much less write it, I just thought it’d be a better joke.

  66. A joke… it seems, that you may have missed.

  67. banks actually prefer it when you DON’T pay down your debts. Pro tip: That’s how they make money.

    I sure hope Chad opens a bank. I’ll try very hard to be his best customer

  68. The upper limit of the Laffer Curve is 80%. Thus, the government should take 80% of your money and decide where to invest it, because otherwise that money would go to cheap Chinese crap, SUV’s, and McMansions. That’s it. There’s nothing else for sale. You have no choice but to make the wrong choice. Therefore the government, which knows best, should decide what the best choice is, and make it. I anticipate 99% support for the government’s choices with the exception of a few ideological nutcases. Freedom is slavery.

    Just to be totally consistent, I have joined the Army and donated 100% of my salary back to the Treasury.

    1. The upper limit of the Laffer Curve is 55% not 80%

  69. Remember, a tax cut is a forced loan

    Are you nuts? A tax cut is reduction in losses to theft. It has nothing at all to do with lending in any way.

    -jcr

  70. People are idiots and don’t even get their own private decisions right,

    Scratch a liberal, find an autocrat. For little wannabe dictators like Chad, the most frustrating thing about other people is that we refuse to obey him.

    Yo, Chad: fuck you.

    -jcr

  71. Did you know the Japanese don’t even have a word for joke?

  72. Or perhaps they only get jokes that are actually funny?

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