Paul Krugman is a jackass (3 Viewers)

[pantagrapher]

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

At some point in the last year or so didn't he come out and agree about the death panel thing?

Agree about it? I'm not sure I understand the question.

 

[Sergeant Spelt]

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

At some point in the last year or so didn't he come out and agree about the death panel thing?

Agree about it? I'm not sure I understand the question.

that basically we would end up with something akin to them

 

[Sergeant Spelt]

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

At some point in the last year or so didn't he come out and agree about the death panel thing?

Agree about it? I'm not sure I understand the question.

that basically we would end up with something akin to them

I guess this is what I am thinking of.

 

[pantagrapher]

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

At some point in the last year or so didn't he come out and agree about the death panel thing?

Agree about it? I'm not sure I understand the question.

that basically we would end up with something akin to them

He supported having Medicare finance end-of-life consultations as an effective cost-control. But nobody who took the debate seriously ever agreed to the ridiculous and misleading term "death panels." ETA: He does like to use the term "death panels" now and then, but it's obviously tongue-in-cheek.

 

[pantagrapher]

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

At some point in the last year or so didn't he come out and agree about the death panel thing?

Agree about it? I'm not sure I understand the question.

that basically we would end up with something akin to them

I guess this is what I am thinking of.

I kind of guessed that's where this was going. Yes, when he uses the term "death panels," he is mocking the term, not agreeing that what he supports is actually a death panel.

 

[Sergeant Spelt]

So why can’t we do that? Because we have a powerful political movement in this country that screamed “death panels” in the face of modest efforts to use Medicare funds more effectively, and preferred to risk financial catastrophe rather than agree to even a penny in additional revenues.

At some point in the last year or so didn't he come out and agree about the death panel thing?

Agree about it? I'm not sure I understand the question.

that basically we would end up with something akin to them

I guess this is what I am thinking of.

I kind of guessed that's where this was going. Yes, when he uses the term "death panels," he is mocking the term, not agreeing that what he supports is actually a death panel.

oh

 

[rolyaTy]

Attacking S&P is dumb. If you disagree with their analysis, then say why. And don't just say, "because 2 trillion is a really big number."

Probably not enough room in his NYT column to get into specifics. He's gone into more detail on his blog over the past week.

Skimmed his blog. Not much else there other than why the 2 trillion mistake was something that people who do budget work routinely wouldn't make it and a general trashing of S&P and credit downgrades of stable countries in general. At a certain level, I can see the absurdity argument of it: realistically, what is the probability that the US defaults on its debt in the next 30 years. Really. But that's an indictment of assigning credit values to nations in the first place. If you're going to do that, and if the US is going to hang its hat on its credit worthiness, then this is what these agencies do. You can't dislike them just because their models don't like you any more.

You can dislike them because they, and other credit agencies, have had a piss-poor record predicting with accuracy the credit worthiness of things, especially sovereign nations. But wasn't the S&P involved in the whole credit ratings stuff surrounding mortgage backed securities, and Lehman Brothers, etc? Yeah, i trust their analysis about as far as I can...well, you get the point.

 

[pantagrapher]

The Fed to the Rescue?

Joe Gagnon has a widely-discussed proposal for dramatic Fed action. I’m for it — not because we know it would work, but because it might, and we desperately need to do something.

My only quarrel is with Joe’s concession to inflation hawkery, in which he declares that

Naysayers will argue that this strategy is a recipe for runaway inflation. Indeed, they have been saying that for nearly three years, but inflation remains extremely low. Inflation will never increase to a significant extent as long as unemployment lingers at this elevated level. But the Federal Reserve could assuage the fears of the inflation hawks by stating clearly that its policy would be rapidly reversed in the unlikely event that core inflation rises above 3 percent on a sustained basis.

Actually, there’s a very good case for allowing inflation to rise above 3 percent, to 4 or even 6 percent, for several years. Don’t take it from me — take it from Greg Mankiw and Ken Rogoff. Indeed, it’s arguable that inflation, both actual and expected, is the main thing the Fed should deliver, if it can.

Joe is suggesting the 3 percent cap to appease the inflation hawks. But if you’ve been following this debate at all, you know that they can’t be appeased. Anything short of a return to the gold standard will leave them screaming about hyperinflation just around the corner; no amount of actual evidence will convince them otherwise. So as long as we’re trying to get the Fed to do the right thing, let’s have it do the right thing,

The problem, of course, is that the Fed is itself intimidated. It doesn’t need legislative authority to act, but it is looking over its shoulder. The people imposing disastrous austerity are also the people doing their best to prevent any alternatives.

Indeed, if the Fed announces even a mild further expansion — QE2.1, as some people are calling it — watch for the furious reaction.

 

[pantagrapher]

Graph

I don’t have time to do all the references, but here’s a quick summary of what Very Serious People have been saying over the past 2 1/2 years:

May 2009: Interest rates have risen on hopes of recovery, but lots of people claim that we’re seeing crowding out by government borrowing; the WSJ announces that the bond vigilantes, the “disciplinarians” of US policy, have arrived.

Fall 2009: Although rates keep refusing to soar, the story I hear is that it’s all because hedge funds are borrowing short and lending long, and that it’s going to end in grief any day now when this “carry trade” collapses. Obama goes on Fox and says that we have to cut the deficit or we’ll have a double dip.

May 2010: A slight rise in rates due to renewed optimism about recovery is described in news reports — and this is reported as a fact, not a speculation — as a sign of worries about US debt. Meanwhile, the OECD calls for immediate rate hikes.

Fall 2010-present: Despite the persistence of low rates, politicians and pundits state — again, as a fact, not a hypothesis — that we’re going to have a terrible crisis within 2 years if the deficit isn’t slashed.

Meanwhile, some us worked with a very different story: the Fed will determine short rates, and the long rate reflects expected future short rates. And the Fed will keep short rates near zero as long as the economy remains deeply depressed. So the long rate reflects beliefs about prospects for recovery, and hence of an eventual move off the zero-rate policy. According to this view, a weaker economy will push rates down even as it raises the deficit.

And right now, with the 10-year rate at 2.19% — 2.19%! — the market is basically signaling that it doesn’t care a bit about the deficit, but that it’s terrified about growth prospects.

But I’m not a Serious Person.

Dismal Thoughts

To be an economist of my stripe these days — basically a Keynes-via-Hicks type, who concluded as soon as Lehman fell that we were in a classic liquidity trap with all that implied — is a bittersweet experience, with the bitter vastly greater than the sweet.

The good news, such as it is, is that our underlying model has performed very well. Interest rates have stayed low despite large government borrowing; crowding out has been totally absent; huge increases in the monetary base have not been highly inflationary.

The bad news is that policy makers almost everywhere have failed dismally, and seem determined not to take on board the lessons of experience, either historical or what we’ve learned the past few years. As Joe Stiglitz says,

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

Robert Reich, talking to people in the administration, says that there has been a deliberate decision to focus on the wrong issues, knowing that they’re the wrong issues:

So rather than fight for a bold jobs plan, the White House has apparently decided it’s politically wiser to continue fighting about the deficit. The idea is to keep the public focused on the deficit drama – to convince them their current economic woes have something to do with it, decry Washington’s paralysis over fixing it, and then claim victory over whatever outcome emerges from the process recently negotiated to fix it. They hope all this will distract the public’s attention from the President’s failure to do anything about continuing high unemployment and economic anemia.

And in Europe, says Kantoos Economics, a low inflation target has become a sacred icon even though all evidence – including the experience under the gold standard! — says that this will be fatal:

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

I’m still trying to make sense of this global intellectual failure. But the results are not in question: we are making a total mess of a solvable problem, with consequences that will haunt us for decades to come.

 

[Socrates11]

And right now, with the 10-year rate at 2.19% 2.19%! the market is basically signaling that it doesnt care a bit about the deficit, but that its terrified about growth prospects.

Of course the market doesn't care a bit about the deficit. They don't make money on it. They make money on growth, real or perceived, and in some cases betting against growth. But the government tackling the deficit and paying down the debt does nothing to help them get their bonuses.

 

[Andy Dufresne]

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

"Not well designed" you say? Let me show you my shocked face.

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

He doesn't really believe that, does he?

 

[rolyaTy]

Attacking S&P is dumb. If you disagree with their analysis, then say why. And don't just say, "because 2 trillion is a really big number."

Probably not enough room in his NYT column to get into specifics. He's gone into more detail on his blog over the past week.

Skimmed his blog. Not much else there other than why the 2 trillion mistake was something that people who do budget work routinely wouldn't make it and a general trashing of S&P and credit downgrades of stable countries in general. At a certain level, I can see the absurdity argument of it: realistically, what is the probability that the US defaults on its debt in the next 30 years. Really. But that's an indictment of assigning credit values to nations in the first place. If you're going to do that, and if the US is going to hang its hat on its credit worthiness, then this is what these agencies do. You can't dislike them just because their models don't like you any more.

You can dislike them because they, and other credit agencies, have had a piss-poor record predicting with accuracy the credit worthiness of things, especially sovereign nations. But wasn't the S&P involved in the whole credit ratings stuff surrounding mortgage backed securities, and Lehman Brothers, etc? Yeah, i trust their analysis about as far as I can...well, you get the point.

Sure. But everybody was involved in the whole mortgage backed securities mess. But people still go to Goldman Sachs. At the end of the day, models are fallible. But just taking one negative event and using it to discredit an organization just when they said something you don't like.... that's not honest. Nobody had a problem with the ratings agencies doing their job before they downgraded the US.

I did. I've disliked them all ever since it came to be shown that they were incompetent (at best) or complicit (at worst) with the poorly rated securities during the MBS stuff. Goldman Sachs job wasn't to rate the security of investments, that was the credit rating agencies, and frankly they failed. Additionally, their track record has been poor in predicting defaults of sovereign nations in situations like the US is in. More often than not, they get that wrong, and when they get it right, generally they do so AFTER it's apparent to the markets what's going to happen.So in situations like this, I discredit them, based on their past performance on issues of this scale, based on their 2 trillion dollar error, and based on their performance in the financial crisis in 2008.

 

[pantagrapher]

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

"Not well designed" you say? Let me show you my shocked face.

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

He doesn't really believe that, does he?

That's a quote from Kantoos Economics, and they don't call it a goal that's been realized, they call it a project.

 

[Slapdash]

Attacking S&P is dumb. If you disagree with their analysis, then say why. And don't just say, "because 2 trillion is a really big number."

Probably not enough room in his NYT column to get into specifics. He's gone into more detail on his blog over the past week.

Skimmed his blog. Not much else there other than why the 2 trillion mistake was something that people who do budget work routinely wouldn't make it and a general trashing of S&P and credit downgrades of stable countries in general. At a certain level, I can see the absurdity argument of it: realistically, what is the probability that the US defaults on its debt in the next 30 years. Really. But that's an indictment of assigning credit values to nations in the first place. If you're going to do that, and if the US is going to hang its hat on its credit worthiness, then this is what these agencies do. You can't dislike them just because their models don't like you any more.

You can dislike them because they, and other credit agencies, have had a piss-poor record predicting with accuracy the credit worthiness of things, especially sovereign nations. But wasn't the S&P involved in the whole credit ratings stuff surrounding mortgage backed securities, and Lehman Brothers, etc? Yeah, i trust their analysis about as far as I can...well, you get the point.

Sure. But everybody was involved in the whole mortgage backed securities mess. But people still go to Goldman Sachs. At the end of the day, models are fallible. But just taking one negative event and using it to discredit an organization just when they said something you don't like.... that's not honest. Nobody had a problem with the ratings agencies doing their job before they downgraded the US.

I did. I've disliked them all ever since it came to be shown that they were incompetent (at best) or complicit (at worst) with the poorly rated securities during the MBS stuff. Goldman Sachs job wasn't to rate the security of investments, that was the credit rating agencies, and frankly they failed. Additionally, their track record has been poor in predicting defaults of sovereign nations in situations like the US is in. More often than not, they get that wrong, and when they get it right, generally they do so AFTER it's apparent to the markets what's going to happen.So in situations like this, I discredit them, based on their past performance on issues of this scale, based on their 2 trillion dollar error, and based on their performance in the financial crisis in 2008.

It should be the job of investors. Relying on ratings paid for by the issuers of the securities is a big problem. Particularly when the issuer is not disclosing adverse interest on the securities.

 

[rolyaTy]

And right now, with the 10-year rate at 2.19% — 2.19%! — the market is basically signaling that it doesn’t care a bit about the deficit, but that it’s terrified about growth prospects.

Of course the market doesn't care a bit about the deficit. They don't make money on it. They make money on growth, real or perceived, and in some cases betting against growth. But the government tackling the deficit and paying down the debt does nothing to help them get their bonuses.

And that's his point. Growth prospects right now are what we should focus on, not the deficit, not with rates so low for borrowing money.

 

[Andy Dufresne]

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

"Not well designed" you say? Let me show you my shocked face.

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

He doesn't really believe that, does he?

That's a quote from Kantoos Economics, and they don't call it a goal that's been realized, they call it a project.

Well, okay.But it's more than just what he cites that's wrecking that project.

 

[rolyaTy]

It should be the job of investors. Relying on ratings paid for by the issuers of the securities is a big problem. Particularly when the issuer is not disclosing adverse interest on the securities.

Agreed...the whole ratings agency thing is suspect to me, and we should rely on our own judgments on the security of our investments...which would tend to make us not interested in complicated financial products that we can't understand, if we actually took that advice, but people chase returns more than sound investments, and in order for someone to get an idea of the security of a complex financial product, you almost need a credit rating agency to dive in and figure it out, but i think from what we've seen from these agencies is gross negligence (MBS/financial 2008 troubles) or incompetence (2 trillion dollar error glazed over).

 

[Slapdash]

It should be the job of investors. Relying on ratings paid for by the issuers of the securities is a big problem. Particularly when the issuer is not disclosing adverse interest on the securities.

Agreed...the whole ratings agency thing is suspect to me, and we should rely on our own judgments on the security of our investments...which would tend to make us not interested in complicated financial products that we can't understand, if we actually took that advice, but people chase returns more than sound investments, and in order for someone to get an idea of the security of a complex financial product, you almost need a credit rating agency to dive in and figure it out, but i think from what we've seen from these agencies is gross negligence (MBS/financial 2008 troubles) or incompetence (2 trillion dollar error glazed over).

I think the part of Dodd-Frank(and actions of regulators) to sever the link between regulation and rating agencies is a huge step on this. Still, as long as the issuer pays model stays in place these things are going to happen. I wouldn't call it gross negligence as much as severely misaligned incentives. Even then, smaller agencies were warning the large ones about these mortgages deals and were completely ignored so I dont think the negligence charge is totally uncalled for.

 

[Topes]

Relying on ratings paid for by the issuers of the securities is a big problem. Particularly when the issuer is not disclosing adverse interest on the securities.

Bingo! I'm thinking S&P wasn't pleased with the payment received for rating the US Credit.

 

[MasterofOrion]

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan's long malaise. Now we know we didn't learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren't forced to return to lending. Our leaders tried papering over the economy's weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

"Not well designed" you say? Let me show you my shocked face.

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

He doesn't really believe that, does he?

That's a quote from Kantoos Economics, and they don't call it a goal that's been realized, they call it a project.

Interesting article. This is the quote that I fell summarizes the article.

Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery.

In other words, those who in debt will be helped (U.S. government) at the expense of those who save/lend. I believe there is a real plan to pay off our government obligations with inflated dollars. That means SS and medicare everything. This solution has real consequences.

 

[pantagrapher]

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan's long malaise. Now we know we didn't learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren't forced to return to lending. Our leaders tried papering over the economy's weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

"Not well designed" you say? Let me show you my shocked face.

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

He doesn't really believe that, does he?

That's a quote from Kantoos Economics, and they don't call it a goal that's been realized, they call it a project.

Interesting article. This is the quote that I fell summarizes the article.

Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery.

In other words, those who in debt will be helped (U.S. government) at the expense of those who save/lend. I believe there is a real plan to pay off our government obligations with inflated dollars. That means SS and medicare everything. This solution has real consequences.

I think the fact that it will aid the overall recovery negates the assertion that it is "unfair and arbitrary." But even if it were objectively "unfair and arbitrary," should we continue to imperil U.S. growth, complete with all the innocent actors who will suffer from prolonged stagnation, because the solution is "unfair and arbitrary" to a particular segment of the economy?

 

[MasterofOrion]

When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan's long malaise. Now we know we didn't learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren't forced to return to lending. Our leaders tried papering over the economy's weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.

"Not well designed" you say? Let me show you my shocked face.

I sincerely do hope that I read the wrong newspapers and missed all those European economists and commentators screaming all these things (or even better: that I am wrong). But whenever I try to hear something, there is just silence – or Axel Weber lashing out at Olivier Blanchard. Meanwhile, European policy makers and central bankers are wrecking one of the most fascinating projects in human history, the unity and friendship among the countries of Europe. This is beyond depressing. Way beyond.

He doesn't really believe that, does he?

That's a quote from Kantoos Economics, and they don't call it a goal that's been realized, they call it a project.

Interesting article. This is the quote that I fell summarizes the article.

Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery.

In other words, those who in debt will be helped (U.S. government) at the expense of those who save/lend. I believe there is a real plan to pay off our government obligations with inflated dollars. That means SS and medicare everything. This solution has real consequences.

I think the fact that it will aid the overall recovery negates the assertion that it is "unfair and arbitrary." But even if it were objectively "unfair and arbitrary," should we continue to imperil U.S. growth, complete with all the innocent actors who will suffer from prolonged stagnation, because the solution is "unfair and arbitrary" to a particular segment of the economy?

I agree to a point. We have to fix this economy and it has a cost. I am sold yet, that inflation is the mechanism we should use. Why do you think inflation will work?

 

[pantagrapher]

Franc Thoughts on Long-Run Fiscal IssuesRegular readers of comments will notice a continual stream of criticism from MMT (modern monetary theory) types, who insist that deficits are never a problem as long as you have your own currency. I really don’t want to get into that fight right now, because for the time being the MMT people and yours truly are on the same side of the policy debate. Right now it really doesn’t matter at all whether the United States issues zero-interest short-term debt or simply prints zero-interest dollar bills, and concern about crowding out is just bad economics.But we won’t always be in a liquidity trap. Someday private demand will be high enough that the Fed will have good reason to raise interest rates above zero, to limit inflation. And when that happens, deficits — and the perceived willingness of the government to raise enough revenue to cover its spending — will matter.I have a specific example that illustrates my point: France in the 1920s, which I wrote about in my dissertation lo these many years ago. Like many nations, France came out of World War I with very large debts, peaking at 240 percent of GDP according to this recent IMF presentation (pdf, slide 17). And France was unable politically to raise enough taxes to cover the cost of servicing that debt. And investors lost confidence in the government’s solvency.Various expedients were tried, including — late in the game — creation of monetary base, which was advocated by a finance minister on the (very MMT) grounds that the division of government liabilities between currency and short-term bills made no difference. But it turned out that it did: the franc plunged, and the price level soared.Now as it turned out this was just what the doctor ordered: because France’s budget problem was overwhelmingly the debt overhang rather than current spending, inflation eroded the real value of that debt and made possible the Poincare stabilization of 1926.So what does this say about the United States? At a future date, when we’re out of the liquidity trap, public finances will matter — and not just because of their role in raising or reducing aggregate demand. The composition of public liabilities as between debt and monetary base does matter in normal times — hey, if it didn’t, the Fed would have no influence, ever. So if we try at that point to finance the deficit by money issue rather than bond sales, it will be inflationary.And unlike France in the 1920s, such a hypothetical US deficit crisis wouldn’t be self-correcting: the biggest source of our long-run deficit isn’t the overhang of debt, it’s the prospective current cost of paying for retirement, health care, and defense. So such a crisis — again, it’s very much hypothetical — could spiral into something very nasty, with very high inflation and, yes, hyperinflation.Now, all of this is remote right now. And notice too that France in the 1920s stabilized with debt of 140 percent of GDP — far higher than the numbers that are supposed to terrify us now. So none of this is relevant to the current policy debate.But since the MMTers seem to have decided to harass those of us who want stronger action now but think there really is a long-run fiscal issue, I needed to put this out there.

 

[pantagrapher]

Apropos of much of this discussion over the past couple years, the government can currently borrow money at negative real rates over a five or seven-year time horizon.

 

[Andy Dufresne]

Apropos of much of this discussion over the past couple years, the government can currently borrow money at negative real rates over a five or seven-year time horizon.

That's great, but it's people that have to pay that back.

 

[pantagrapher]

Apropos of much of this discussion over the past couple years, the government can currently borrow money at negative real rates over a five or seven-year time horizon.

That's great, but it's people that have to pay that back.

When the money is this cheap and the economy is depressed, I think it's a good investment for the future. Especially if we can knock out some world-class infrastructure in the process.

 

[MasterofOrion]

Franc Thoughts on Long-Run Fiscal IssuesRegular readers of comments will notice a continual stream of criticism from MMT (modern monetary theory) types, who insist that deficits are never a problem as long as you have your own currency. I really don't want to get into that fight right now, because for the time being the MMT people and yours truly are on the same side of the policy debate. Right now it really doesn't matter at all whether the United States issues zero-interest short-term debt or simply prints zero-interest dollar bills, and concern about crowding out is just bad economics.But we won't always be in a liquidity trap. Someday private demand will be high enough that the Fed will have good reason to raise interest rates above zero, to limit inflation. And when that happens, deficits — and the perceived willingness of the government to raise enough revenue to cover its spending — will matter.I have a specific example that illustrates my point: France in the 1920s, which I wrote about in my dissertation lo these many years ago. Like many nations, France came out of World War I with very large debts, peaking at 240 percent of GDP according to this recent IMF presentation (pdf, slide 17). And France was unable politically to raise enough taxes to cover the cost of servicing that debt. And investors lost confidence in the government's solvency.Various expedients were tried, including — late in the game — creation of monetary base, which was advocated by a finance minister on the (very MMT) grounds that the division of government liabilities between currency and short-term bills made no difference. But it turned out that it did: the franc plunged, and the price level soared.Now as it turned out this was just what the doctor ordered: because France's budget problem was overwhelmingly the debt overhang rather than current spending, inflation eroded the real value of that debt and made possible the Poincare stabilization of 1926.So what does this say about the United States? At a future date, when we're out of the liquidity trap, public finances will matter — and not just because of their role in raising or reducing aggregate demand. The composition of public liabilities as between debt and monetary base does matter in normal times — hey, if it didn't, the Fed would have no influence, ever. So if we try at that point to finance the deficit by money issue rather than bond sales, it will be inflationary.And unlike France in the 1920s, such a hypothetical US deficit crisis wouldn't be self-correcting: the biggest source of our long-run deficit isn't the overhang of debt, it's the prospective current cost of paying for retirement, health care, and defense. So such a crisis — again, it's very much hypothetical — could spiral into something very nasty, with very high inflation and, yes, hyperinflation.Now, all of this is remote right now. And notice too that France in the 1920s stabilized with debt of 140 percent of GDP — far higher than the numbers that are supposed to terrify us now. So none of this is relevant to the current policy debate.But since the MMTers seem to have decided to harass those of us who want stronger action now but think there really is a long-run fiscal issue, I needed to put this out there.

Inflation will help government but it will hurt others. For example, government will pay its entitlements as promised in money worth much less. So grandma will get her check but it will not go nearly as far.But I don't think we can deflate our debt like France did in the 20's. Why, although I don't know how France financed its debt, I suspect it is with long term notes. Most of the U.S. debt is in short term notes. About 3/4 of our debt in in 5 year notes or shorter. This means that as inflation goes up so interest rates at a much fast pace as was done in the past. So instead of paying a very small interest rate on our large loan it will be a much higher interest rate. We can not erode our debt with inflation anymore. In fact, I would be safe to say inflation would make our problems much worse.

 

[Slapdash]

Apropos of much of this discussion over the past couple years, the government can currently borrow money at negative real rates over a five or seven-year time horizon.

That's great, but it's people that have to pay that back.

Sure, but it is cheaper to do it now than pay cash for it in the future. If it is something that is truly needed, like upgrading our terrible infrastructure it makes sense to pull it forward. Of course, we could always dial up some more inflation and then it is even better.

 

[Andy Dufresne]

Apropos of much of this discussion over the past couple years, the government can currently borrow money at negative real rates over a five or seven-year time horizon.

That's great, but it's people that have to pay that back.

Sure, but it is cheaper to do it now than pay cash for it in the future. If it is something that is truly needed, like upgrading our terrible infrastructure it makes sense to pull it forward. Of course, we could always dial up some more inflation and then it is even better.

How much infrastructure is left to upgrade after Stimulus 1?

 

[pantagrapher]

Apropos of much of this discussion over the past couple years, the government can currently borrow money at negative real rates over a five or seven-year time horizon.

That's great, but it's people that have to pay that back.

Sure, but it is cheaper to do it now than pay cash for it in the future. If it is something that is truly needed, like upgrading our terrible infrastructure it makes sense to pull it forward. Of course, we could always dial up some more inflation and then it is even better.

How much infrastructure is left to upgrade after Stimulus 1?

According to my pie charts, a lot.

 

[Andy Dufresne]

How much infrastructure is left to upgrade after Stimulus 1?

According to my pie charts, a lot.

Link?

 

[pantagrapher]

How much infrastructure is left to upgrade after Stimulus 1?

According to my pie charts, a lot.

Link?

Here you go.

 

[Bronco Billy]

Credibility, Chutzpah And DebtBy PAUL KRUGMANThe real question facing America, even in purely fiscal terms, isn’t whether we’ll trim a trillion here or a trillion there from deficits. It is whether the extremists now blocking any kind of responsible policy can be defeated and marginalized.

Well, for a guy who demanded that the stimulus be a hell of a lot bigger than it was, and now wanting to talk about responsible policy well after the horse is out of the barn, he sure picked the right title for his article.If this country had been run according to Krugman's ideals, the Federal government would be running up $3T deficits every year and wouldn't even think about slowing down anywhere in the near future.

 

[RCon]

Apropos of much of this discussion over the past couple years, the government can currently borrow money at negative real rates over a five or seven-year time horizon.

That's great, but it's people that have to pay that back.

Sure, but it is cheaper to do it now than pay cash for it in the future. If it is something that is truly needed, like upgrading our terrible infrastructure it makes sense to pull it forward. Of course, we could always dial up some more inflation and then it is even better.

Or maybe it makes sense to do those things that are needed while sacrificing some other expenditures.

 

[Andy Dufresne]

How much infrastructure is left to upgrade after Stimulus 1?

According to my pie charts, a lot.

Link?

Here you go.

Well I'm convinced!

 

[pantagrapher]

How much infrastructure is left to upgrade after Stimulus 1?

According to my pie charts, a lot.

Link?

Here you go.

Well I'm convinced!

 

[pantagrapher]

The Hijacked CrisisBy PAUL KRUGMANPublished: August 11, 2011 Has market turmoil left you feeling afraid? Well, it should. Clearly, the economic crisis that began in 2008 is by no means over.But there’s another emotion you should feel: anger. For what we’re seeing now is what happens when influential people exploit a crisis rather than try to solve it.For more than a year and a half — ever since President Obama chose to make deficits, not jobs, the central focus of the 2010 State of the Union address — we’ve had a public conversation that has been dominated by budget concerns, while almost ignoring unemployment. The supposedly urgent need to reduce deficits has so dominated the discourse that on Monday, in the midst of a market panic, Mr. Obama devoted most of his remarks to the deficit rather than to the clear and present danger of renewed recession.What made this so bizarre was the fact that markets were signaling, as clearly as anyone could ask, that unemployment rather than deficits is our biggest problem. Bear in mind that deficit hawks have been warning for years that interest rates on U.S. government debt would soar any day now; the threat from the bond market was supposed to be the reason that we must slash the deficit now now now. But that threat keeps not materializing. And, this week, on the heels of a downgrade that was supposed to scare bond investors, those interest rates actually plunged to record lows.What the market was saying — almost shouting — was, “We’re not worried about the deficit! We’re worried about the weak economy!” For a weak economy means both low interest rates and a lack of business opportunities, which, in turn, means that government bonds become an attractive investment even at very low yields. If the downgrade of U.S. debt had any effect at all, it was to reinforce fears of austerity policies that will make the economy even weaker.So how did Washington discourse come to be dominated by the wrong issue?Hard-line Republicans have, of course, played a role. Although they don’t seem to truly care about deficits — try suggesting any rise in taxes on the rich — they have found harping on deficits a useful way to attack government programs.But our discourse wouldn’t have gone so far off-track if other influential people hadn’t been eager to change the subject away from jobs, even in the face of 9 percent unemployment, and to hijack the crisis on behalf of their pre-existing agendas.Check out the opinion page of any major newspaper, or listen to any news-discussion program, and you’re likely to encounter some self-proclaimed centrist declaring that there are no short-run fixes for our economic difficulties, that the responsible thing is to focus on long-run solutions and, in particular, on “entitlement reform” — that is, cuts in Social Security and Medicare. And when you do encounter such a person, you should be aware that people like that are a major reason we’re in so much trouble.For the fact is that right now the economy desperately needs a short-run fix. When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older. When millions of willing and able workers are unemployed, and economic potential is going to waste to the tune of almost $1 trillion a year, you want policy makers who work on a fast recovery, not people who lecture you on the need for long-run fiscal sustainability.Unfortunately, giving lectures on long-run fiscal sustainability is a fashionable Washington pastime; it’s what people who want to sound serious do to demonstrate their seriousness. So when the crisis struck and led to big budget deficits — because that’s what happens when the economy shrinks and revenue plunges — many members of our policy elite were all too eager to seize on those deficits as an excuse to change the subject from jobs to their favorite hobbyhorse. And the economy continued to bleed.What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.The usual suspects will, of course, denounce such ideas as irresponsible. But you know what’s really irresponsible? Hijacking the debate over a crisis to push for the same things you were advocating before the crisis, and letting the economy continue to bleed.

 

[Andy Dufresne]

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

The word "infrastructure" is really starting to annoy me.However, I was thinking that some sort of debt forgiveness programs (as bitter, BITTER of a pill they would be to sell and swallow) might have some merit if it were to increase consumer demand on the other side. The problem there is how do you not just start the cycle over again?

 

[timschochet]

I'm somewhat open to Krugman's economic ideas- at least, I'm interested in hearing them. I have come to the conclusion that in today's terrible and very complicated global economy, my preconceived, rather libertarian notions of what should be done may not be applicable any longer. So Krugman may have good points to make and I'd like to learn more.

But the problem is that his articles, which are always so angry and sarcastic, have almost become caricatures. All of the most recent ones, including the one pantagrapher just posted, include the following points:

1. Republicans are fanatical and idiots.

2. Obama and the Democrats are weak and not progressive enough.

3. You should have listened to me long ago; now it may be too late.

 

[Andy Dufresne]

I'm somewhat open to Krugman's economic ideas- at least, I'm interested in hearing them. I have come to the conclusion that in today's terrible and very complicated global economy, my preconceived, rather libertarian notions of what should be done may not be applicable any longer. So Krugman may have good points to make and I'd like to learn more.But the problem is that his articles, which are always so angry and sarcastic, have almost become caricatures. All of the most recent ones, including the one pantagrapher just posted, include the following points:1. Republicans are fanatical and idiots.2. Obama and the Democrats are weak and not progressive enough.3. You should have listened to me long ago; now it may be too late.

Couldn't have written it better myself. My feelings exactly.

 

[Bronco Billy]

The Hijacked Crisis

By PAUL KRUGMAN

Published: August 11, 2011

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

The usual suspects will, of course, denounce such ideas as irresponsible. But you know what’s really irresponsible? Hijacking the debate over a crisis to push for the same things you were advocating before the crisis, and letting the economy continue to bleed.

[Danny Costanzo]"Could you be any dumber, Snake?"[/Danny Costanzo]

Jesus H Christ, it's difficult to believe that anyone posts this guy's articles and then thinks they have any credibility. The country's debt is headed to well over $20T in the next 5 years or so. Our credit rating has just been downgraded because Congress spends way too much and has no intention of finding a solution. Krugman's solution? THE GOVERNMENT NEEDS TO SPEND A TON MORE THAN IT IS NOW!

Krugman is a bonafide dyed-in-the-wool socialist. Yeah, that's worked well throughout the history of civilization.

 

[Arsenal of Doom]

I'm somewhat open to Krugman's economic ideas- at least, I'm interested in hearing them. I have come to the conclusion that in today's terrible and very complicated global economy, my preconceived, rather libertarian notions of what should be done may not be applicable any longer. So Krugman may have good points to make and I'd like to learn more.But the problem is that his articles, which are always so angry and sarcastic, have almost become caricatures. All of the most recent ones, including the one pantagrapher just posted, include the following points:1. Republicans are fanatical and idiots.2. Obama and the Democrats are weak and not progressive enough.3. You should have listened to me long ago; now it may be too late.

There's a pretty clear distinction between Krugman's work as an economist and Krugman's work as a partisan talking head. He approaches them as different jobs, and what you get typically get in the NYT opinion section is the partisan side. His blog is generally more economist oriented. They are grounded in the same economic theory, of course, but the hyper-partisanism is much more evident in the op-ed columns.

 

[Andy Dufresne]

"You know what would fix the problem? Aliens!"

 

[Jackstraw]

The Hijacked Crisis

By PAUL KRUGMAN

Published: August 11, 2011

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

The usual suspects will, of course, denounce such ideas as irresponsible. But you know what’s really irresponsible? Hijacking the debate over a crisis to push for the same things you were advocating before the crisis, and letting the economy continue to bleed.

[Danny Costanzo]"Could you be any dumber, Snake?"[/Danny Costanzo]

Jesus H Christ, it's difficult to believe that anyone posts this guy's articles and then thinks they have any credibility. The country's debt is headed to well over $20T in the next 5 years or so. Our credit rating has just been downgraded because Congress spends way too much and has no intention of finding a solution. Krugman's solution? THE GOVERNMENT NEEDS TO SPEND A TON MORE THAN IT IS NOW!

Krugman is a bonafide dyed-in-the-wool socialist. Yeah, that's worked well throughout the history of civilization.

More jobs reduce the deficit. We can grow our way out of negative debt to GDP ratios. You might disagree but I certainly don't see what's preposterous about that policy option. Your prescription is basically mirrored in the Japan 10 year economic slump.

 

[rolyaTy]

The Hijacked Crisis

By PAUL KRUGMAN

Published: August 11, 2011

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

The usual suspects will, of course, denounce such ideas as irresponsible. But you know what’s really irresponsible? Hijacking the debate over a crisis to push for the same things you were advocating before the crisis, and letting the economy continue to bleed.

[Danny Costanzo]"Could you be any dumber, Snake?"[/Danny Costanzo]

Jesus H Christ, it's difficult to believe that anyone posts this guy's articles and then thinks they have any credibility. The country's debt is headed to well over $20T in the next 5 years or so. Our credit rating has just been downgraded because Congress spends way too much and has no intention of finding a solution. Krugman's solution? THE GOVERNMENT NEEDS TO SPEND A TON MORE THAN IT IS NOW!

Krugman is a bonafide dyed-in-the-wool socialist. Yeah, that's worked well throughout the history of civilization.

More jobs reduce the deficit. We can grow our way out of negative debt to GDP ratios. You might disagree but I certainly don't see what's preposterous about that policy option. Your prescription is basically mirrored in the Japan 10 year economic slump.

I think Krugman is saying that our primary threat right now isn't our debt levels, but the lack of demand for products. We have the ability to borrow now at very low rates to stimulate our economy. 10 years from now, the real cost of this extra borrowed money will be much lower than, say, the expenses associated with lost productivity/revenues over the same time period.To say he simply wants the government to spend more, and not go into his reasoning for this, is doing it a disservice. If people took a more nuanced and detailed look at his opinions, they might not be so quick to write them off.

 

[Bronco Billy]

More jobs reduce the deficit. We can grow our way out of negative debt to GDP ratios. You might disagree but I certainly don't see what's preposterous about that policy option. Your prescription is basically mirrored in the Japan 10 year economic slump.

As the "too small" $1T stimulus clearly and uncontrovertibly showed, government spending is not a panacea for a lack of long term job growth. Never has been, never will be. When the spending goes away, so do the jobs. Endless spending to maintain the jobs over the long term is inarguably unsustainable.It's a model that does not work.

 

[pantagrapher]

More jobs reduce the deficit. We can grow our way out of negative debt to GDP ratios. You might disagree but I certainly don't see what's preposterous about that policy option. Your prescription is basically mirrored in the Japan 10 year economic slump.

As the "too small" $1T stimulus clearly and uncontrovertibly showed, government spending is not a panacea for a lack of long term job growth. Never has been, never will be. When the spending goes away, so do the jobs. Endless spending to maintain the jobs over the long term is inarguably unsustainable.It's a model that does not work.

Stimulus, at least as advocated by Krugman, is not intended to be a long-term job growth solution.

 

[Statorama]

"You know what would fix the problem? Aliens!"

Nobel Prize winner, folks.

 

[Slapdash]

More jobs reduce the deficit. We can grow our way out of negative debt to GDP ratios. You might disagree but I certainly don't see what's preposterous about that policy option. Your prescription is basically mirrored in the Japan 10 year economic slump.

As the "too small" $1T stimulus clearly and uncontrovertibly showed, government spending is not a panacea for a lack of long term job growth. Never has been, never will be. When the spending goes away, so do the jobs. Endless spending to maintain the jobs over the long term is inarguably unsustainable.It's a model that does not work.

Amazing use of smoke and mirrors here.

 

[rolyaTy]

More jobs reduce the deficit. We can grow our way out of negative debt to GDP ratios. You might disagree but I certainly don't see what's preposterous about that policy option. Your prescription is basically mirrored in the Japan 10 year economic slump.

As the "too small" $1T stimulus clearly and uncontrovertibly showed, government spending is not a panacea for a lack of long term job growth. Never has been, never will be. When the spending goes away, so do the jobs. Endless spending to maintain the jobs over the long term is inarguably unsustainable.It's a model that does not work.

I guess you're opposed to using antibiotics when people are sick too, because once the antibiotics are out of the system, the body can no longer fight the illness! Shots of epinephrine to people having an allergic reaction are stupid too because, once the shot wears off, what's gonna be there to help prevent the airways from closing up again! BOOOOO, BOOOOO, heed my misunderstanding of how temporary solutions never help! It's inarguable! It just doesn't work. Period. End of story. Why? Because I said so. Write it in stone.