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Blockhead confidence
Joined: 02 Apr 2008
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 Posted: Sun Feb 01, 2009 7:38 pm Post subject: |
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| Kuros wrote: |
Krugman is as devoted a partisan as he is brilliant with economics. I would never, EVER, trust him to an honest treatment of a rival theory of economics.
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Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods�implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?
Most modern hangover theorists probably don't even realize this is a problem for their story. |
Wait, but doesn't he later give the answer? People are holding onto cash, and this is why there's such a threat of deflation. If people are hoarding cash then nothing extra is being consumed. How is this a problem for the Austrian theory? Am I missing something? |
I think he means to imply that 'hoarding cash' is financial investment. Unless you think he envisages companies buying a matress warehouse and stuffing banknotes under it.
You're right Krugman is a bad political pundit and a great economist. But then you say his partisanship in politics suggests something similar in economics, that he would unfairly describe rival theories. Asymmetry in political and economic ability justifies symmetry in rejecting his characterisations of opposing positions? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Sun Feb 01, 2009 8:01 pm Post subject: |
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| Blockhead confidence wrote: |
You're right Krugman is a bad political pundit and a great economist. But then you say his partisanship in politics suggests something similar in economics, that he would unfairly describe rival theories |
Which is exactly what he did re: Austrian hangover theory. 1400 words without the word "debt", which just happens to be the exact center of the idea.
And he then, a decade later, did it again:
http://krugman.blogs.nytimes.com/2008/12/27/hangover-theorists/
A drive-by hack job that included this as evidence:
| Quote: |
1. It doesn�t explain why there isn�t mass unemployment when bubbles are growing as well as shrinking � why didn�t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business?
2. It doesn�t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble.
One striking fact, which I�ve already written about, is that the current slump is affecting some non-housing-bubble states as or more severely as the epicenters of the bubble. Here�s a convenient table from the BLS, ranking states by the rise in unemployment over the past year. Unemployment is up everywhere. And while the centers of the bubble, Florida and California, are high in the rankings, so are Georgia, Alabama, and the Carolinas. |
Firstly, the third paragraph is nonsense. The United States is an integrated economy. Houses aren't 100% sourced in the place that they sit. That aside, the 'hangover theory' says nothing of a bubble having to exist in one place at one time. Indeed, this chart from the Guardian puts the global asset bubble at 290 trillion dollars. TTTtrillion. T.
http://www.guardian.co.uk/business/dan-roberts-on-business-blog/interactive/2009/jan/29/financial-pyramid
And point number 1). Mises and his ilk don't make the point he is arguing against.
2) This was a general asset bubble, Andy Xie (an actual, real, working, useful economist) refers to the preceding 20 years as a super-cycle. Everything is worth more than it should be. Not just houses. Healthcare, tuition, cars, phones, food, oil, commodities of all kinds, wages, and everything else. When the bubble pops, OF COURSE employment rises across the board (provided wages are "sticky" on the downside).
Does he think only houses had a bubble?
The Austrian theory on debt based expansions causing future unemployment stands. Krugman hasn't scratched it. He has misrepresented it. Straw-manned it. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun Feb 01, 2009 9:12 pm Post subject: |
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| Blockhead confidence wrote: |
| Kuros wrote: |
Krugman is as devoted a partisan as he is brilliant with economics. I would never, EVER, trust him to an honest treatment of a rival theory of economics.
| Quote: |
Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods�implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?
Most modern hangover theorists probably don't even realize this is a problem for their story. |
Wait, but doesn't he later give the answer? People are holding onto cash, and this is why there's such a threat of deflation. If people are hoarding cash then nothing extra is being consumed. How is this a problem for the Austrian theory? Am I missing something? |
I think he means to imply that 'hoarding cash' is financial investment. Unless you think he envisages companies buying a matress warehouse and stuffing banknotes under it.
You're right Krugman is a bad political pundit and a great economist. But then you say his partisanship in politics suggests something similar in economics, that he would unfairly describe rival theories. Asymmetry in political and economic ability justifies symmetry in rejecting his characterisations of opposing positions? |
I haven't studied the Austrians well, but I'm pretty sure he isn't presenting their position as they would. So, yes, I think I'm justified in rejecting his characterization of an opposing position. |
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Blockhead confidence
Joined: 02 Apr 2008
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| Posted: Mon Feb 02, 2009 2:04 am Post subject: |
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| mises wrote: |
| Blockhead confidence wrote: |
You're right Krugman is a bad political pundit and a great economist. But then you say his partisanship in politics suggests something similar in economics, that he would unfairly describe rival theories |
Which is exactly what he did re: Austrian hangover theory. 1400 words without the word "debt", which just happens to be the exact center of the idea.
And he then, a decade later, did it again:
http://krugman.blogs.nytimes.com/2008/12/27/hangover-theorists/
A drive-by hack job that included this as evidence:
| Quote: |
1. It doesn�t explain why there isn�t mass unemployment when bubbles are growing as well as shrinking � why didn�t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business?
2. It doesn�t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble.
One striking fact, which I�ve already written about, is that the current slump is affecting some non-housing-bubble states as or more severely as the epicenters of the bubble. Here�s a convenient table from the BLS, ranking states by the rise in unemployment over the past year. Unemployment is up everywhere. And while the centers of the bubble, Florida and California, are high in the rankings, so are Georgia, Alabama, and the Carolinas. |
Firstly, the third paragraph is nonsense. The United States is an integrated economy. Houses aren't 100% sourced in the place that they sit. That aside, the 'hangover theory' says nothing of a bubble having to exist in one place at one time. Indeed, this chart from the Guardian puts the global asset bubble at 290 trillion dollars. TTTtrillion. T.
http://www.guardian.co.uk/business/dan-roberts-on-business-blog/interactive/2009/jan/29/financial-pyramid
And point number 1). Mises and his ilk don't make the point he is arguing against.
2) This was a general asset bubble, Andy Xie (an actual, real, working, useful economist) refers to the preceding 20 years as a super-cycle. Everything is worth more than it should be. Not just houses. Healthcare, tuition, cars, phones, food, oil, commodities of all kinds, wages, and everything else. When the bubble pops, OF COURSE employment rises across the board (provided wages are "sticky" on the downside).
Does he think only houses had a bubble?
The Austrian theory on debt based expansions causing future unemployment stands. Krugman hasn't scratched it. He has misrepresented it. Straw-manned it. |
Debt-funded recovery is a problem for Keynsianism. It might be central to the Austrians' critique of Keynes, but do you really think they (the Austrians) are defined as being 'whatever doesn't require debt is good for recovery'? You may have mistaken the intent of Krugman's essay.
As for your bubbles, the point Krugman was trying to make was, when people pull their money out of bubble-related investments, why doesn't this cause a boom in whatever sector their funds are transferred to? Some kind of 'equal and opposite reaction' theory applied to recessions. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Feb 02, 2009 4:13 am Post subject: |
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| Blockhead confidence wrote: |
As for your bubbles, the point Krugman was trying to make was, when people pull their money out of bubble-related investments, why doesn't this cause a boom in whatever sector their funds are transferred to? Some kind of 'equal and opposite reaction' theory applied to recessions. |
This happened.
When the financial crises started the 'global pool of money' quickly exited the American financials (and housing related investments) and piled into commodities, this causing the massive commodity bubble last summer. Then, when that popped, they piled into bonds. That bubble is still expanding.
But that was a super-bubble on top of a general asset bubble. Everything is inflated because of loose credit. The Guardian article above shows how inflated. |
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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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| Posted: Mon Feb 02, 2009 7:51 am Post subject: |
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One of the things that Krugman doesn't get, which is why he should be referred to as a political hack and not an economist, is that when a bubble pops in a fiat money environment, then the total asset values can just fall. The nominal wealth just disappears - it ceases to exist. It doesn't go anywhere, people don't pull it out. It is just gone. Because it is a fiat money environment, other areas, related or not, can fall as well, with asset values just vanishing overnight. The nominal wealth ceases to exist.
Meanwhile, the debt continues to exist. People find themselves in positions with zero or even negative net values. They have to put in cash or sell. And values fall even further. This causes other people to pull out some of their remaining wealth which further depresses prices, some of which is held as cash and that little that is invested elsewhere is not enough to drive another sector up to comparable levels to the one that initially fell.
Of course, an inflated economy needs to deflate. Fiat currency needs to be backed by something or eventually it will fall to zero.
Fiat money is the primary problem, which he fails to comprehend.
Debt is the next problem, which he ignores and again fails to comprehend.
Krugman is like a kid with a plastic, toy doctor's set being let into a real hospital. We would never let a child use real instruments to operate on a real patient.
We should never allow political hacks such as Krugman and Obama's other advisors the chance to work on our real economy. |
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mises
Joined: 05 Nov 2007
Location: retired
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caniff
Joined: 03 Feb 2004
Location: All over the map
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| Posted: Mon Feb 02, 2009 10:34 am Post subject: |
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I like Dennis, but I like his wife even more.
I also intuitively believe he's on to something here. The Fed hasn't exactly been on the side of the average joe (me). |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Feb 02, 2009 10:47 am Post subject: |
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| ontheway wrote: |
Fiat money is the primary problem, which he fails to comprehend.
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I've always look towards the Fed itself, and not the institution of fiat in itself as the main problem. I figured if the Treasury held all the shares of the central bank (as is the case in Canada where the BofC is owned by the Ministry of Finance) the system would be more appropriate and more stable. I'm reassessing. |
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Pluto
Joined: 19 Dec 2006
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| Posted: Mon Feb 02, 2009 4:47 pm Post subject: |
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How Government Prolonged the Depression
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The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.
The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.
Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.
Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935. |
more
Various papers by Harold Cole
It seems that Ontheway is right and many of the data are telling us that government prolonged the 1930's downturn; it should have ended in 1935/36. It seems that the Depression ended in 1943 because FDR discovered he had to deregulate and reduce taxes to advance the war machine. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Mon Feb 02, 2009 8:56 pm Post subject: |
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| Pluto wrote: |
How Government Prolonged the Depression
| Quote: |
The New Deal is widely perceived to have ended the Great Depression, and this has led many to support a "new" New Deal to address the current crisis. But the facts do not support the perception that FDR's policies shortened the Depression, or that similar policies will pull our nation out of its current economic downturn.
The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.
Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.
Why wasn't the Depression followed by a vigorous recovery, like every other cycle? It should have been. The economic fundamentals that drive all expansions were very favorable during the New Deal. Productivity grew very rapidly after 1933, the price level was stable, real interest rates were low, and liquidity was plentiful. We have calculated on the basis of just productivity growth that employment and investment should have been back to normal levels by 1936. Similarly, Nobel Laureate Robert Lucas and Leonard Rapping calculated on the basis of just expansionary Federal Reserve policy that the economy should have been back to normal by 1935. |
more
Various papers by Harold Cole
It seems that Ontheway is right and many of the data are telling us that government prolonged the 1930's downturn; it should have ended in 1935/36. It seems that the Depression ended in 1943 because FDR discovered he had to deregulate and reduce taxes to advance the war machine. |
But the story is useful. That's why we never hear of the depression in the early 20's. |
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Pluto
Joined: 19 Dec 2006
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| Posted: Wed Feb 04, 2009 9:02 am Post subject: |
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Yes, the 1921 Recession was more severe than the 1929 downturn. The government did nothing and it was over within a year.
Came across this quote and found it relevant.
| F.A. Hayek wrote: |
| Some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics. |
Keynes General Theory was mostly based on aggregate supply and aggregate demand. It completely ignored the importance of sound currency as it relates to pricing theory. This may be the whole reason Keynesians have a hard time understanding money and debt. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 04, 2009 1:36 pm Post subject: |
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| So, Pluto are you alone in a vast sea of Keynesians at grad school? Or, are some profs/students aware? |
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Kuros
Joined: 27 Apr 2004
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| Posted: Wed Feb 04, 2009 3:17 pm Post subject: |
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| Pluto wrote: |
| Yes, the 1921 Recession was more severe than the 1929 downturn. The government did nothing and it was over within a year. |
Of course, Hoover did nothing for years after the crash. Calling it the 1929 downturn is itself misleading, as the worst of it hit in 1932.
Not trying to invalidate your point, but I think the early part of the Great Depression underscores the dangers of trade barriers (i.e. Hawley-Smoot), the later part of it (1936) the dangers of clumsy interventionism. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Wed Feb 04, 2009 3:25 pm Post subject: |
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| Soot-Hawley raised tariffs on 20,000 (I think) goods. That won't happen again, but some carefully placed protectionism is welcome and needed. Of course, even the slightest deviation from corporate-free-trade will be screamed down as Soot-Hawley by hacks. Anyways. |
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