Keynesians Gone Wild (or at least Unhinged)
When it comes to debating the whole issue of extending the boom via money printing and borrowing or allowing the malinvested assets to be liquidated or changed to other, more profitable uses, Paul Krugman has become unhinged (like most Keynesians). This is what Keynesians insist upon proclaiming:
Booms run aground because people mysteriously stop spending;
Some booms are bubble-based like the Tech Bubble of the 1990s and the Housing Bubble of the last decade;
Even though the asset prices for the things in the bubble are out-of-kilter and it is apparent that the economic fundamentals are out of balance (like trying to put people with $50K incomes into $500K houses), the boom can be continued if the government borrows, prints, and spends enough because government spending is a perfect -- actually, superior -- substitute for spending by individuals and private firms. In fact, Keynesians claim that the REAL problem is that those out-of-kilter asset prices are falling, and that is what causes the economic downturn.
(Keynesians believe that effect is cause, and cause is effect. So, if prices fall, that is what causes a recession, and the way out is to reflate those prices.)
In other words, a boom can be sustained and nurtured by the government and then one day, the economy will be so recovered that private spending can mostly make up the difference until that day when people mysteriously stop spending again.
If anyone suggests to Krugman that the above scenario is fantasy, he becomes absolutely unhinged, as he has with the publication of David Stockman's new book and Stockman's recent NYT op-ed. Of course, Krugman insists that anyone who would hold views that differ from his holds them because that person wants others to suffer and die of starvation.
The word "liquidation" seem to be like waving the proverbial red flag in front of the bull, and I address that issue in my recent article on Lew Rockwell's page. (I have an error in the opening sentence; the Greider article was published in 1981, not 1982. I have notified the page manager and hope for a correction today.)
Labels: David Stockman, Liquidation
There's a small typo in the title of your post, Professor Anderson.
Are there any Keynesian economists that you do like, think are most intellectually honest, or have an appreciation for, whether it be a New Keynesian or a Post Keynesian?
Why can deflation be bad? In an environment of high personal debt which remains nominally fixed, the Austrian solution to a recession of deflation imposes severe pressures on debtors making the burden of their debt soar. Increased bankruptcy of both debtors and creditors follows imposing severe collapse far worse than it needs to be.
Hayek understood this process a long time ago and called it "secondary deflation" and understood that it was both real, unnecessary, and that stabilising measures were necessary, both monetary and (possibly) fiscal:
http://socialdemocracy21stcentury.blogspot.com/2011/09/did-hayek-advocate-public-works-in.html
So did Ludwig Lachmann:
http://socialdemocracy21stcentury.blogspot.com/2012/02/lachmann-endorsed-keynesian-stimulus-in.html
Anderson only speaks for a narrow set of increasingly unrepresentative Austrians called Rothbardians, and does not represent all Austrians.
E.g., even the GMU Ausrians recognise the reality of debt deflation:
http://www.coordinationproblem.org/2009/11/is-the-debtdeflation-theory-of-depressions-as-insightful-as-has-been-suggested.html
And even Roger Garrison recognises the possible deleterious effects of deflation:
"Deflation, like inflation, is a secondary issue in the Austrian literature. Growth-induced deflation, that is, the decline in some overall price index that accompanies increases in real output, is considered a non-problem. ...
Deflation caused by a severe monetary contraction is another matter. Strong downward pressures on prices in general put undue burdens on market mechanisms. Unless, implausibly, all prices and wages adjust instantaneously to the lower money supply, output levels will fall. Monetary contraction could be the root cause of a downturn - as, for instance, it seems to have been in the 1936–7 episode in the USA.
See R. W. Garrison, "The Austrian School," in B. Snowdon and H. R. Vane (eds), Modern Macroeconomics: Its Origins, Development and Current State, Edward Elgar, Cheltenham. 2005. p. 515.
Andersen can pretend that his views on deflation are some kind of universal Austrian theory utterly beyond dispute if he wants, but don't be fooled.
William L. Anderson said...
I think we can say the following about inflation and deflation: With inflation, we get the "good" effects first and the "bad" effects later. Inflation also distorts the structure of production, and transfers wealth from those on fixed incomes to those who are close to where the new money is put into the economy.
With deflation, we get the "bad" effects first and the "good" effects later, with deflation correcting the distortions created by the boom.
LK wants us to believe that inflation is a good thing and that the more of it we have, the better off we are.
LK said "In an environment of high personal debt which remains nominally fixed, the Austrian solution to a recession of deflation imposes severe pressures on debtors making the burden of their debt soar."
Yes and if we had an economy where the cycle of deflation was allowed its natural cleansing effect, behavior would change going forward and people would mitigate their debt appetite. One only needs to stick their hand in the fire once to learn.
Or are you so myopic you can't see that?
1. Hayek is simply wrong about "secondary deflation". And LK loves that argument because he does not understand economic calculation. And I have no obligation to defend Hayek when he's doing his Mises-lite routine.
2. DEBT DEFLATION IS THE ABCT. That Rothbardians ignore "debt deflation" is another of howler from LK's big bag of stupid. Further, THERE WOULD BE NO TAKING ON OF UNSUSTAINABLE PRIVATE DEBT BUT FOR THE PRICE DISTORTIONS CAUSED BY FIAT AND/OR MISLEADING FRB LOANS. Note how LK again completely distorts and ignores that actual Austrian analysis of price distortions and price corrections (as does every Keynesian in the galaxy) since LK does not understand or attempt to apply (even for sake of providing an example) the concept of economic calculation and miscalculation which is central to Austrian analysis.
3. Austrian analysis is obviously so profoundly correct that the Keynesians feel that they dare no directly it engage it and are apparently compelled to make their unhinged distortions.
#3 above should have read:
3. Austrian analysis is obviously so profoundly correct that the Keynesians feel that they dare NOT directly engage it and are apparently compelled to make their unhinged distortions.
Prof. Anderson asked: I have one question for these people: WHY would a bigger amount of "stimulus"money at the start actually given the economy the full "traction" that Krugman and DeLong claim that it would have done? Can they explain exactly why $400 million was exactly the amount of extra money needed to accomplish the permanent jump start?
http://consultingbyrpm.com/blog/2013/04/delong-flirts-with-notion-that-stimulus-efforts-thus-far-have-gained-nothing-on-the-margin.html#comment-60785
That is the essential question seeing that Lord Keynes has previously demonstrated that there is no such thing as a "trend line" (and hence no "gap") because "past data is not a useful tool for predicting the future state of the system". LK explains:
Certain types of phenomena in our universe are what mathematicians call non-ergodic stochastic systems. The concept of radical uncertainty applies to such systems, like medium term weather events, financial markets, and ECONOMIES [emphasis added], and other natural systems studied in physics.
In these systems, past data is not a useful tool for predicting the future state of the system and the problem of induction is particularly acute.
http://socialdemocracy21stcentury.blogspot.com/2011/03/uncertainty-and-non-ergodic-stochastic.html
Joe said...
Earth to Bob Roddis and Anderson. Haven't you heard of an equation. Krugman most likely calculated that number with an economic equation. He didn't pull it out of his ass.
Your non empirical, apriori "economics" is laughable and I doubt anyone of you know how to perform calculus. It also has no influence anywhere in today's politics nor at the Federal Reserve bank.
Don't pull that "No Keynesian in the galaxy seems to have any familiarity with even basic Austrian concepts and/or analysis, including Krugman, DeLong, Mike Norman, Lord Keynes and/or their vast horde of sycophants," rubbish on me, Bob. You obviously have never heard of this guy's channel on YouTube.
http://www.youtube.com/user/spawktalk/videos?view=0
He is a former Austrian and anarcho-capitalist libertarian. He now identifies more as a conservative. How do you explain this guy?
http://www.youtube.com/watch?v=RoU38dp785w
"...Lord Keynes has previously demonstrated that there is no such thing as a "trend line" (and hence no "gap") ..."
I have never said nor "demonstrated" any such thing -- and Roddis is either dishonest or incapable of reading English.
Trends, cycles and oscillations certainly occur in nonergodic systems.
One has no difficulty identifying an output gap or high unemployment in the present or immediate past.
What cannot be done in a pure nonergodic system is give a objective probability score for some specific state of the system in the future. In no sense does this mean no trends or cycles ever occur.
If Roddis denies that let him explain how long term climate can have trends and cycles while being nonergodic
Gee, after spending four years in a doctoral program, I had no idea that I was unfamiliar with calculus (and statistics and econometrics). Thanks for letting me know, Joe, that someone else must have taken those courses for me.
Are you trying to tell us that mathematical equations fully explain an economy? If that were so, the economy of the U.S.S.R. was composed of a large number of simultaneous equations solved by doctoral graduates of Moscow State University (where the curriculum, other than some Marxist-Leninist classes, pretty much was what it is in most American Ph.D. programs). They used very large matrices to solve the equations, and I am sure they looked good.
Of course, as my math econ professor told is, "It didn't do them much good." The economy was terrible.
Given that these people were whizzes at math, Joe, please explain to us why the Soviet economy was so bad. State ownership of factors? If you have math, why would that be a problem?
So, since you obviously have access to my records (I got a B in math econ and an A in econometrics in case you missed that), please share your wisdom with us as to why the mathematically-oriented Soviet economy sucked.
LK never even knows when he has suffered a definitive smackdown. If "past data is not a useful tool for predicting the future state of the system", there is no reason to think that the past few years unsustainable bubble purchases establish a "trend line" that MUST be emulated with additional artificial exogenous Keynesian distortion.
(1) Objective probability scores of some specific future state and (2) current real world quantities, the most recent part of past trends, are two different things.
Is roddis such an idiot he is incapable of observing empirical evidence of high unemployment now or real output collapse in very recent past?
I watched Sparkltalk's video on the 1920 depression. He examines it like LK, as a pure historical anecdote. I don't see an understanding of the impact of the war, price distortions or economic calculation. In fact, I didn't see those concepts mentioned at all. I'm shocked.
Uber-Keynesian Daniel Kuehn's paper on the 1920 depression has Krugman's seal of approval. Kuehn agrees with my assessment that his narrative is consistent with the Rothbardian narrative. Further, the 1920 depression was not caused by market failure but was caused by the government changing gears after years of wartime inflation, spending and controls. There is still no evidence that the market actually fails on its own. It's the government interventions that are ALWAYS the cause of the failure.
http://consultingbyrpm.com/blog/2013/04/war-and-the-fed.html#comment-60655
"There is still no evidence that the market actually fails on its own."
You've already asserted that free and voluntary FR banking is non fraudulent and acceptable:
http://socialdemocracy21stcentury.blogspot.com/2011/10/if-fractional-reserve-banking-is.html?showComment=1317650068819#c5701869836754102910
Yet FR banking is the cause of (alleged) Austrian business cycles.
Therefore your position already entails that markets can and do fail.
"However, Mises's chapter on the business cycle .... makes it clear that the necessary and sufficient cause of the cycle is the unsustainable divergence between the "loan" and "natural" rates of interest caused by the creation of fiduciary media"
So therefore even free and completely voluntary FR banking is a necessary and sufficient cause of the Austrian business cycle.
Yet you have already committed yourself to accepting free FR banking in your imagined utopian market.
Your position already logically entails that the "market actually fails on its own."
We've been over your misrepresentations of my views on FRB 15 times. I DON'T THINK IT WOULD WORK. It would only work in the event that the bank, depositor and payee understand the contract and in free market, prices would be stated in brands of money. I also do not think payees will accept the notes if they understand what they are.
That being said and I can't say this enough: TO THE EXTENT THAT NO ONE IS MISLED, THERE WILL BE NO FRAUD AND NO BUSINESS CYCLE BECAUSE THE RESULTING PRICES WILL NOT BE MISLEADING.
If people are misled by misleading prices, there will probably be a business cycle. THE FRAUD OR MISUNDERSTANDING AT THE POINT OF ACCEPTANCE OF THE NOTES IS CO-EXTENSIVE WITH THE LIKELIHOOD OF MISLEADING PRICES AND A BUSINESS CYCLE. The go together like love and marriage.
All of your phony "arguments" are based upon (a probably purposeful) misunderstanding of the NAP, prohibitions against fraud and the nature of economic calculation/miscalculation.
"TO THE EXTENT THAT NO ONE IS MISLED, THERE WILL BE NO FRAUD AND NO BUSINESS CYCLE BECAUSE THE RESULTING PRICES WILL NOT BE MISLEADING."
Impossible. Once any type of FR banking exists -- even where people fully understand that all banknotes are promissory notes -- fiduciary media will exist, and fiduciary media are necessary and sufficient causes of the cycle.
What your argument boils down to is this:
(1) I accept that some people will economise on use of commodity money by using negotiable debt instruments in reality, but
(2) nobody will economise on use of commodity money by using negotiable debt instruments in reality.
(1) and (2) mutually contradictory and constitute asserting propositions p ^ ~p at the same time.
You violate the law of non contradiction and cannot argue with breaking basic laws of logic.
But then anyone familiar with you already knew that.
Cato said...
I love comments like this from "Joe":
"Krugman most likely calculated that number with an economic equation. He didn't pull it out of his ass."
This is a great synechdoche for the adoration Krugman feels from his followers, who are not actually "liberals" but rather occupy another dot on the redneck spectrum.
It is "most likely" that Krugman used an equation. Haha...I think that's what his students fall asleep telling themselves. "Sure, it sounds more absurd than Beckett, but I'll bet he had his slide-rule out!"
As for pulling things out of his ass...
Here is a link to a Krugman essay. The second sentence is "Howard Dean didn't scream."
http://www.nytimes.com/2008/07/04/opinion/04krugman.html?adxnnl=1&adxnnlx=1365381890-jscWPTOfWCQUvGfsCZRS+Q
Here is Howard Dean screaming on Youtube
http://www.youtube.com/watch?v=D5FzCeV0ZFc
If you set up your browser tabs right, you can listen to Howard Dean scream while reading Krugman tell you that it never happened.
Krugman pulls -- out of his ass -- claims that you can invalidate with a simple Google search. If you have an ounce of healthy skepticism in you, you have to ask what else he's making up, no matter what your ideology.
Furthermore, what is so impressive about an equation? Wow! Math! Power Rule! Chain Rule!
But that does not explain economic activity. One can create models that try to abstract from reality, but they are not reality itself. Furthermore, Krugman truly seems to believe that we can take all of the complexities of a market economy, all of the billions of prices, all of the heterogeneous assets, and all of the various products and dump everything into "aggregate demand" and "aggregate supply." It is ludicrous.
In 2002 Krugman said that,
"Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html
In 2005, Krugman admitted that the Fed had created a housing bubble and that it wasn't surprising because...
"After all, the Fed's ability to manage the economy mainly comes from its ability to create booms and busts in the housing market."
http://www.nytimes.com/2005/05/27/opinion/27krugman.html
But by 2010 Krugman completely changed his story and tried to absolve the Fed by saying...
"These considerations suggest that it would be wrong to attribute the real estate bubble wholly, or even in large part, to misguided monetary policy."
http://www.nybooks.com/articles/archives/2010/sep/30/slump-goes-why/?pagination=false
And then by 2012 Krugman started flat-out lying about what he said in the past by claiming he "never bought the story" that the Fed was the cause of the Housing Bubble. I guess it was the other Paul Krugman at the NYT who wrote that column in 2005.
http://www.youtube.com/watch?v=KrfRS07CAHc ( video: 32:40 mark )
And most recently Krugman has said that the housing bubble was "just one of those things that happens" every once in a while.
http://www.youtube.com/watch?v=PD-EWxl_s4o&feature=plcp
You people should be excited for Steve Keen's Minsky project. Keen has serious doubts about the failure of the models in neoclassical economics. Other than that, it seems like you are trapped in a time before the onset of computers. I doubt Ludwig von Mises would have such asinine views if he were to have lived in the 1990s or the current century. It's like you're trying to conduct rocket science with pickaxes rather than relying on the latest science and technology.
Good luck trying to indoctrinate the masses with your pro-deflation economics! Many people already think Ron Paul and Rand Paul are kooks and cranks.
Keen has pointed out the failure of models in mainstream economic thought.
That was a badly written sentence above and this is what I meant to say.
Keen and the Minsky-ite were vanquished long ago.
http://krugman-in-wonderland.blogspot.com/2013/02/kick-that-keynesian-habit.html?showComment=1360502200698#c1128148807086389412
"Or are you so myopic you can't see that? "
No. It is what Ayn Rand called the "blank-out".
Your "methodology" is still pretty asinine to me. Can someone explain it?
"If you set up your browser tabs right, you can listen to Howard Dean scream while reading Krugman tell you that it never happened."
You don't make music videos for a living by any chance do you? I think you're onto something.
Your "methodology" is absolutely asinine. Could you please explain why you think it is not?
Ah!!! Here's a genius who doesn't understand that economic "equations" like the ones he is referring to are indeed indeed pulled out of the speaker's arse (I prefer The Queen's English, you see).
What Joe is saying is that technology changes the Law of Scarcity, and that anyone who believes that scarcity still is at the base of economic theory has "asinine" views. Technology combined with entrepreneurship has allowed people to enjoy more goods than had been so in the past, but it does not change the laws of economics.
By the way, Joe, is discussing the "division of labor" also asinine? Is the discussion of capital asinine?
Please tell me which of Mises' views were asinine. You tell the readers that this man, who spoke nearly a dozen languages and who had marvelous insights on things was an idiot. By the way, if he was so terrible, then why were the Nazis so keen on having him arrested?
This is the usual nonsense we get from Keynesians. They want us to believe that an economic downturn somehow eliminates scarcity because "idle resources" are so plentiful that we can magically resurrect them by throwing lots of new money into the economy. Furthermore, they assure us, that money will find its way to EXACTLY the places it needs to go.
That is what one calls "trickle down" theory.
(S – I) = (G – T) + (X – M)
GDP = C+I+G+(X-M)
It's not that hard to understand the brilliance behind these two equations! We're not on the Bretton Woods system anymore, therefore the kinds of analyses that you're making are very ignorant of how governments and the macro economy work. Why is it so difficult for Austrians to understand this? Part of the reason that we see some of the problems is that the Federal Reserve still acts like as if we were on a gold standard at all.
That comment was from me.
- Joe
Wow. C + I + G + (X-M) is so precise and so all-encompassing that there can be no argument against it.
The trouble is that Austrians understand this equation quite well. It operates under the assumption that there is no difference to the economy between private spending and government spending, and that government spending is a perfect substitute for investment spending.
By the way, your famed multiplier is 1 over the rate of savings, which means that the less people save, the richer we become. It is the idea that we truly can spend ourselves into prosperity.
The Fed acting as though it is on a gold standard? With all of the purchase of assets done by the Fed these past five years? You have to be kidding.
You never answered my first question. How do you explain economic growth? How does an economy grow?
And why is it that the U.S.S.R., which used that wondrous Keynesian equation and used huge mathematical models to run the economy, was such an economic failure? There is nothing in Keynesian theory to explain why the U.S.S.R. had shoddy goods (they never could build a decent car), mass shortages, and bad food.
I am waiting for the explanation, but I doubt it will come. Or, maybe you will say that the problem was that the government there didn't print enough money.
Take credit card debt and student loan debt for example. The government could just issue a trillion dollar coin and have both of those problems taken care of with one foul swoop. If China starts asking the US to pay them back, that wouldn't be an issue either. We can never run out of dollars because the US and other world economies operate under a fiat currency system.
Krugman doesn't have time to debate economic creationists and certain people who keep trying to have debates with him through charity are only doing so to smear his character.
"And why is it that the U.S.S.R., which used that wondrous Keynesian equation and used huge mathematical models to run the economy, was such an economic failure? There is nothing in Keynesian theory to explain why the U.S.S.R. had shoddy goods (they never could build a decent car), mass shortages, and bad food."
That's a contemptible straw man. Since when did any Keynesian, including Krugman and Mankiw, advocate for the outright central planning that F.A. Hayek wrote in "The Road to Serfdom." Krugman has even said that he's a free market welfare state economist.
http://www.youtube.com/watch?v=9dcPhfraCnY
He's the furthest thing from being a Stalinist Marxist socialist crank.
One last point.
Government deficits are in reality private sector surpluses because the government issues its own currency. See? Now that wasn't so hard for you to get unless you still believe in the great austerity myth or balancing the budget during a depression or after one of the largest output gaps since The Great Depression.
Ah!! GDP! That nonsense concept, or, in the more appropriate words of Ayn Rand, that anti-concept that is meant to destroy concepts. Once you accept insanity like GDP, how do you expect to be taken seriously?
Bala, now you're just making up rubbish. You deny the concepts of GDP and aggregate demand and completely miss the point! Where are you getting this from? Murray Rothbard, the racist "economist" who tried to reach out to White nationalists in the 1980s and possibly wrote the infamous Ron Paul newsletters?
We start with a post entitled "Keynesians Gone Wild (or at least Unhinged)" and in response we get "Rothbard, the racist 'economist' who tried to reach out to White nationalists in the 1980s".
Hey Joe, I explained above why there is no "trend line" and thus no "gap".
Further, there is no reason to think that private spending induced by a funny money binge is in any way a sustainable "trend" that should be emulated and artificially replicated and there is no reason to think that government spending is the same thing as private spending induced by a funny money binge. You guys just aren't very smart. We already know you are dishonest and dishonorable.
Just curious. What would be so bad about white racists, Nazis and other loathsome types adopting the non-aggression principle? None of us would ever have to encounter them and they could not vote to take away our right to never encounter them.
Government deficits are in reality private sector surpluses because the government issues its own currency. See?
I see that you are an MMT nitwit. The "deficits" you are describing would be a sitution where the government just creates funny money by spending it without a central bank or tax collections. It would be based upon the theft of purchasing power from the rest of society that does not get the money first. A totalitarian nightmare brought to us from folks who worship the total state and who do not understand sound money, voluntary exchange, Cantillon Effects, price distortions or economic calculation.
What about Rothbard's frightening stance on children and human rights? What was he talking about when he said this?
"But the parent should have the legal right not to feed the child, i.e., to allow it to die. The law, therefore, may not properly compel the parent to feed a child or to keep it alive. (Again, whether or not a parent has a moral rather than a legally enforceable obligation to keep his child alive is a completely separate question.) This rule allows us to solve such vexing questions as: should a parent have the right to allow a deformed baby to die (e.g. by not feeding it)? The answer is of course yes, following a fortiori from the larger right to allow any baby, whether deformed or not, to die. (Though, as we shall see below, in a libertarian society the existence of a free baby market will bring such 'neglect' down to a minimum.)"
Appealing to racists only made the Austro-libertarian lose credibility in the minds of the general public. That is my point. Why do you think so many people on Stormfront support Ron Paul?
"I see that you are an MMT nitwit. The "deficits" you are describing would be a sitution where the government just creates funny money by spending it without a central bank or tax collections. It would be based upon the theft of purchasing power from the rest of society that does not get the money first. A totalitarian nightmare brought to us from folks who worship the total state and who do not understand sound money, voluntary exchange, Cantillon Effects, price distortions or economic calculation."
Oh great! The whole debasing the currency argument.
How do you not get that we don't advocate mindless money printing but stable prices? Taxation is sort of like the unprinting of said money.
Joe:
Are you familiar with the term "ad hominem"? Rothbard was the greatest American of the 20th Century. In one's own private neighborhood, one can be a pious fundamentalist Christian or an atheist lesbian and people are going to set their own rules of behavior regardless of Rothbard's musings on the subject. Further, Rothbard's musings on the subject of the "ethics of liberty" have nothing to do with neither Krugman, Mike Norman nor you having the slightest familiarity with Austrian concepts and/or analysis.
So many times before have I seen the pathetic attempts such as yours to change the subject or to scream "racist racist racist" at us. As I said above, you are dishonest and dishonorable. And not very smart.
Hey Joe. You need to be careful about implying I am a racist, given that three of my adopted children either are black or Hispanic. So, you really need to pull back.
You can criticize my economics all you want, but do not go into the racism nonsense or I will have to delete your posts.
You really need to watch calling Ron Paul a racist, too. As I said before, when you start slandering people, it goes too far. So, it is your choice as to whether or not you continue to post.
And if you continue to make these kinds of incendiary comments under the name of "anonymous," I will have no choice but to assume that is you.
There is much on Rothbard's social views that I disagreed. He was a good economist, but I vehemently part from him (and Walter Block) on the issue of children and "evictionism."
And what is an "economic creationist"?
Fair enough. I will not it up again to respect the rules that you have set for this blog.
I am also glad to see that you do not agree with Rothbard's views of children. That was the one thing that concerned me and made me assume the worst, which is why I brought up the issue in the first place. For that, I would like to make an apology.
Aziz Meshiea said...
Joe said "Take credit card debt and student loan debt for example. The government could just issue a trillion dollar coin and have both of those problems taken care of with one foul swoop. If China starts asking the US to pay them back, that wouldn't be an issue either. We can never run out of dollars because the US and other world economies operate under a fiat currency system. "
Seriously this is so typical of Krugmanite defections from reality. So just print more money pay off everyone's debts credit card student loan and foreign debt and since everyone loves holding the US dollars they will just take all the cash and everything will be great becuase we can spend all that new money with no negative effects whatsoever. Its magic! Ahh Zimbabwe never happened either. Wait Zimbabwe didnt have dollars thats why they couldnt get away wit it. The USD is DIFFERENT i tell you!!!
Accepted, Joe. Believe me, there are a number of areas from which I part with some of the more vocal Austrians/Libertarians. And, yes, there are people in that group I don't much like and keep my distance when we are at conferences.
I'd say more, but suffice it to say that being an Austrian economist is not the same as buying into some of the other things we are told are "essential" to libertarianism. Believe me, I don't dream of a libertarian utopia or of escaping to a walled community or anything like that.
"Many people already think Ron Paul and Rand Paul are kooks and cranks."
Ahh, nothing like a good dose of argumentum ad populum to get the week started!
Great response, btw, Axiz. That encompassed precisely what I was thinking. I almost wish these mouth-breathers would get their wish granted and have one of those hair-brained ideas come to fruition. And after it goes horrifically and tragically wrong, to the point that even the hordes of people glued to the "Kardashians Take Miami" marathon see the light, maybe we can finally toss these Keynesian and MMTer knuckleheads into the dustbin of history for good.
Dinero said...
The problem with Jo's suggestion of Government spending without debt is that it would remove the discipline that governments spending grow the tax base to enable the funding of the repayment of the debt and in such a way be beneficial and not harmful to the economy. Also Government funded enterprises would crowd out private.
Wrong Dinero. What if the government actually does remove funds from the private sector through borrowing?
The answer is that the government spends those funds right back into the economy. Nothing would happen. The net amount of money would not change in the economy as demonstrated here and the amount of money would be the same, so there is no such thing as a "crowding out" effect.
Adding to the deficit is equal to adding the financial balances of the public sector.
If the government ran a surplus, it is actually removing these same funds from the private sector! This may sound like an absurd concept, but think hard enough, and it will make sense to you. Stop thinking of government as being the same as an individual!
Remember! The government issues its own currency and then spends it. It's not that difficult to understand these sorts of realities and I still don't get why Austrians have a hard time getting this since there is so much talk about the "dangers" of fiat money on this blog and others. Maybe it's just another blunder from the right wing.
Crowding out -
a private enterprise that has to make a profit cannot compete with a government funded enterprise that does not have to make a profit, and can continue pay for more staff and supplies, with the debt free money you suggest, even if all is wasted on an ongoing bases. That is the crowding out effect.
Steve Keen answers your question here.
http://www.businessspectator.com.au/article/2010/6/8/global-financial-crisis/private-demand-being-crowded-out?OpenDocument=&src=blb
Worse still, the way that the government actually creates money sinks the crowding out boat. If the government runs a deficit (and – an important note – if it has a central bank that must do its bidding), then the deficit can be financed by the central bank crediting the government's account with it, in return for recording a debt of the government to the central bank. This increases the money supply, and unless the government then sells bonds to the public, this is likely to drive interest rates down, not up.
As the previous RBA governor Ian MacFarlane put it: "Any government deficits not financed by an exactly coincident issue of debt to the public, for example, would mean a rise in cash and a fall in interest rates."
If some of the government deficit isn't offset by selling bonds to the public, the debt created between the government and the central bank must also be serviced; but that is also a book entry for a government that has a 'captive' central bank. It's only when the government sells bonds to the public (especially the offshore public) at a market-determined rate that it can have problems in servicing its debt.
So a government deficit per se isn't going to cause 'crowding out' – as Ian MacFarlane notes, it actually might cause interest rates to fall, which would make private borrowing cheaper and actually encourage private investment rather than stifling it. Private spending itself could expand because of the increase in the money supply caused by the government deficit, or because the private banking system also expanded the money supply by creating more loans.
We also would not need to resort to austerity in order to reduce the national debt, if that's even an issue. All the government would have to do is purchase the debt back and either they can print money, increase taxes, or reducing government spending. These two options can be varied and modified to reach most of the outcomes wanted.
That is not how I was using the term at all.
I did explained what I meant by Cowding out at my comment
1.28pm.
The point is the the fact that the Government must repay its debts is not a bad thing , it is a good thing.
As it disciplins its activities to those activities that are beneficial to the economy.
Politics Debunked said...
http://www.politicsdebunked.com/article-list/budget-lottery
"A new look at government data indicates within the next decade the federal government may be spending more on entitlement programs and interest than it receives in revenue. It couldn't spend money on anything else and balance the budget. Within the next 10-25 years (forecasts vary) simply the interest on the debt may be more than revenue. The budget couldn't be balanced even in theory which means the country would have effectively gone bankrupt before that. "
Odd, I thought I posted this earlier. re: Keynesian stimulus, if you look at the actual data in a very simple way this page describes:
http://www.politicsdebunked.com/article-list/spendingpattern
"Data shows that most often the faster government spending grows, the slower the rest of the economy grows. The slower government grows, the faster the rest of the economy grows. This pattern appears throughout the world and isn't unique to the US. The results are easy to see in graphs below"
Joe said "All the government would have to do is purchase the debt back and either they can print money…"
At what cost to the currency, economy and savers? You see, that simpleton argument has a major flaw. You assume that option comes at no cost. Please don't respond with the sophomoric "we can't afford not to do it" or "it's better than the cost of the Austrian alternative, etc."
At what cost? What are the future ramifications, seen and unseen?
Blabber all you want, but GDP IS an anti concept and a nonsense concept because it claims to "measure" economic output while merrily ignoring the heart of a capitalist economy - capitalist saving. So the moment you use it in an economic argument, you lose all credibility.
Just wondering if LK expects to be taken seriously when he a) presents Googlibly false information and b) actually sits at his keyboard and types the word 'lol'.
And this last repeatedly.
Perhaps he is a teenage girl after all.
LK was quoted extensively today by DeLong. And LK was still preaching at us in the Bob Murphy comments.
http://consultingbyrpm.com/blog/2013/04/potpourri-138.html#comment-61076
LK didn't answer my many questions and critiques. I'm shocked.
"LK didn't answer my many questions and critiques. I'm shocked."
Maybe because trying to debate a dogmatist like you gets tiring after a couple hundred times. Ever think of that, Bob?
Funny how these nitwit MMTers have the answers to run the entire economy but can't successfully run their own businesses.
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