Paul Krugman - The Third Depression

[ls99]

No problem.

Living with one's means is tough. LBYM is then out of the question.

Cheers.

 

[Gone4Good]

A simple answer is that hundreds of financial entrepreneurs would see this as a fantastic business opportunity.

And that is, of course, the line of reasoning that lead Keynes to quip . . . "We're all dead in the long run."

Yes, presumably a collapse of the world's financial system would provide great investment opportunities for anyone with any money left. But how long would it take to replace our existing multi-trillion dollar financial system? How much productive capacity (both labor skills and fixed plant) atrophies as that long process unfolds? What is the human toll? And we pay these wages for what gain?

 

[youbet]

The CCC was voluntary.

I never said otherwise.........

- What does it mean if I put 2x the number of laughing things at the end of my post? I never use them - just curious

I dunno..... Maybe that you have yourself convinced that your poop doesnt stink?

Folks interpret these things in their own ways. You'll have to make up your own mind.

 

[Gearhead Jim]

No problem.

Living with one's means is tough. LBYM is then out of the question.

Cheers.

Yep, subsistance farming is a great life.
So is having your entire family living in one room.

Credit is like wine- very nice in moderation but very destructive when overused. Five years ago, the whole world was drunk. Now, the WCTU wants everyone to completely quit, cold turkey.

 

[ERD50]

I can see all reasonable lines of discussion are at an end.

But it seems your line is about having your cake and eat it too, which it not reasonable either.

We rarely see a "crash" unless there was a preceding 'boom". We know that the economy goes in cycles, it just seems to be human nature - and there are reasons why business fall into the 'trap'. You can't let your competition gain market-share, so you end up in a race to expand as fast or faster than they do, but no one knows when the bubble pops. But if you don't keep up, you get left in the dust. I fear we are doomed to boom/bust cycles because of this.

If the govt was to do anything, I'd say they should have been raising requirements for loans during the boom. Not only would this have cut off some of the 'gasoline on the fire', but most people would be in a far better position to weather the crash. It would have been a stabilizing move.

The 10% margin requirement for stocks in the 20's payed a role in the sharp meltdown. So we now have a 50% margin requirement for stocks, but 10%, 5% or even 0% on a house in a bubble market? But it seems we wanted everyone to share in the good times, but nobody wants to pay the piper when they are hungover. Can't have your cake and eat it too - that leads to people 'starving' (maybe not literally, but I don't think the previous post was meant to be taken literally either).

-ERD50

 

[haha]

TARP and the rest of the do-gooding measures just postpone the inevitable crash.

My fear and expectation is that there will be no inevitable, air clearing crash. Assets will just continue to be kited, the situation will always be unstable and thus dangerous no matter how you play it.

If we ever should get the "big one" that government couldn't prop up, they would just take over all assets. Debt produces criticalities. In many areas, whether it is a marriage, a business or the whole economy there are what are essentially points of no return. Once at or past these, there is no more choice. You either keep lying and patching or get buried in the collapse. Governments don't like to be buried, so they keep lying and patching.

Ha

 

[rescueme]

In a job market this bad, I figure many employers are hoping to use "fear" to milk as much "free" productivity gain as they can.

The following shows that you are on to something (and I agree with you):

http://www.bls.gov/news.release/pdf/prod2.pdf

 

[Gone4Good]

But it seems your line is about having your cake and eat it too, which it not reasonable either.

Only if you ignore the record defaults, foreclosures, and personal bankruptcies that are taking place. The needed correction is in fact happening.

 

[ERD50]

Only if you ignore the record defaults, foreclosures, and personal bankruptcies that are taking place. The needed correction is in fact happening.

OK; but defaults, foreclosures, and personal bankruptcies are being paid for by the rest of us. Largely because some people used too much leverage during a boom cycle.

I would have preferred that the 'correction' was done back then - that would have made the current correction less painful for all.

-ERD50

 

[ziggy29]

OK; but defaults, foreclosures, and personal bankruptcies are being paid for by the rest of us. Largely because some people used too much leverage during a boom cycle.

I would have preferred that the 'correction' was done back then - that would have made the current correction less painful for all.

Agreed. But what's done is done. As I've said about my past and career/employer choices, we don't get a mulligan. Given that it happened, there are two aspect to deal with when it blows up: (1) how to contain the collateral damage -- the "economic shrapnel" if you will -- and (2) take some lessons learned from it so we can better avoid the situation next time.

The mere fact that it leaves a horrible taste in my mouth to subsidize the negative impacts of bad borrowing and lending decisions doesn't mean the alternative is *necessarily* better (Lehman, anyone?). I do think the public taste for continuing to introduce moral hazard by propping up the entities making bad or irresponsible choices is getting rather sour, though.

 

[ERD50]

Agreed. But what's done is done.

And I agree in turn.

I guess it's a response to those who seem to be saying how wonderful it is that the govt is trying to help people so much, when the govt should have been trying to reign in the problem to begin with, rather than do the messy clean up afterwards.

Hmmm, clean up? This is all having a familiar ring to it. I guess it is all just different symptoms of the same problem.

-ERD50

 

[RDamien]

Review U.S. economic history pre-1930 if you want to see how Austrian economics works. Not pretty.

Hmm that's rather trite and vague. Are we talking the gilded age or the roaring 20's? No doubt though that you're referring to the conditions described in Sinclair's "The Jungle"?

 

[samclem]

Hmm that's rather trite and vague. Are we talking the gilded age or the roaring 20's? No doubt though that you're referring to the conditions described in Sinclair's "The Jungle"?

Apparently, the economic work of the Austrian School is being cited as having been discreditied by unrelated activity that occurred decades before most of the Austrians' writings. Hayek received his Nobel Prize in economics in 1974, apparently the Nobel committee didn't get the news.

 

[ls99]

My fear and expectation is that there will be no inevitable, air clearing crash. Assets will just continue to be kited, the situation will always be unstable and thus dangerous no matter how you play it.

Ha

I think your theory is more likely to become reality than mine. A good clearing of inflated assets and egos would be good.

 

[samclem]

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final total catastrophe of the currency involved."
- Ludwig von Mises

 

[Gumby]

Apparently, the economic work of the Austrian School is being cited as having been discreditied by unrelated activity that occurred decades before most of the Austrians' writings. Hayek received his Nobel Prize in economics in 1974, apparently the Nobel committee didn't get the news.

My copy of The Road to Serfdom says it was written in 1944. Hayek could have been wrong when he wrote it. The mere fact that an event antedates the book's publication does not mean that event cannot be used to discredit the conclusions in the book. As far as the judgment of the Nobel committee goes, I note that Paul Krugman also recently won a Nobel Prize in Economics. It is doubtful he agrees with much of Hayek's work.

 

[Gone4Good]

Hmm that's rather trite and vague. Are we talking the gilded age or the roaring 20's? No doubt though that you're referring to the conditions described in Sinclair's "The Jungle"?

No. I was referring to the fact that we experienced a financial panic or depression every 15 to 20 years. As in . . .

The Panic of 1819
The Panic of 1837
The Panic of 1857
The Panic of 1873
The Panic of 1893
The Panic of 1907

If someone wants to hang their hat on the Roaring 20's as an example of great economic stewardship, it's worth noting that they ended with the Great Depression. The "Gilded Age" similarly ended with the Panic of 1893, which also resulted in a deep depression.

Apparently, the economic work of the Austrian School is being cited as having been discreditied by unrelated activity that occurred decades before most of the Austrians' writings.

Well, if you define Austrian economics as strict laissez-faire capitalism and hard money tied to shinny metals without the influence of a central bank, that pretty much defines the 100 years of economic policy that preceded the great depression (and mostly included the early years of the depression, too). You can see the stellar results in the links above.

 

[Gone4Good]

As far as the judgment of the Nobel committee goes, I note that Paul Krugman also recently won a Nobel Prize in Economics. It is doubtful he agrees with much of Hayek's work.

And he's not alone . . .

The Austrian theory of the business cycle varies significantly from mainstream theories, and is generally rejected by mainstream economists. Economists such as Gordon Tullock,[88] Bryan Caplan,[10] and Nobel laureates Milton Friedman[6][89] and Paul Krugman[7] have said that they regard the theory as incorrect.

It is rare indeed for Princeton and Chicago economists to agree on much of anything, and yet Krugman and Friedman agree on this.

 

[haha]

Will somebody plese send me a PM when you get this all worked out?

Ha

 

[RDamien]

No. I was referring to the fact that we experienced a financial panic or depression every 15 to 20 years. As in . . .

The Panic of 1819
The Panic of 1837
The Panic of 1857
The Panic of 1873
The Panic of 1893
The Panic of 1907

If someone wants to hang their hat on the Roaring 20's as an example of great economic stewardship, it's worth noting that they ended with the Great Depression. The "Gilded Age" similarly ended with the Panic of 1893, which also resulted in a deep depression.

Thank you. I hang my hat on nothing, I was forced to presume your meaning based on a vague assertion. I think you should read your links and the causes cited therein. If you believe the country was run in an Austrian manner during that time period, well suffice to say you'd be challenged on that.

You go on to point out that people disagreed with Hayek on the business cycle work he did. It took me several stunned moments to recover from the shock of economists disagreeing on something.

In any event going back to the first page I see you wrote this:

Another round of stimulus doesn't change the long-run fiscal picture at all.

So it seems as if you at least recognize Krugman is wrong where it matters most, what (if anything) to do. Saying he is right in predicting a bleak economic outlook? Ok. I'd like some credit for that too!

 

[Martha]

This thread is depressing. Time to take a forum break.

 

[Running_Man]

Well, if you define Austrian economics as strict laissez-faire capitalism and hard money tied to shinny metals without the influence of a central bank, that pretty much defines the 100 years of economic policy that preceded the great depression (and mostly included the early years of the depression, too). You can see the stellar results in the links above.

I myself thought the American Revolution and the ideals of individual responsibility worked out pretty well. In 1900 a dollar was still worth as much as it was in 1800. And the recessions of 1938, 1973, 1981 and 2008 were every bit as bad as those in the preceeding century.

1893 - Invention of the zipper
1873 - Invention of Barbed Wire
1857 - Invention of Pullman sleeper car
1837 - Invention of the telegraph
1819 - Invention of stethescope

On the other hand
1938 - Invention of LSD
1974 - Invention of Liposuction
1981 - MS DOS invented
2008 - Agroplast invented (pig urine plastic)

 

[ziggy29]

1981 - MS DOS invented

 

[dex]

Krugman Says U.S. Should Do `Everything We Can' to Boost Jobs - Bloomberg

“The most effective things you can do, in terms of actual bang for the buck, is actually having the federal government go out and hire people,” he said. “We are deep in the hole here, and you need to be unconventional to get out of it.”

+++++
Long-Term Deficits
The projected U.S. budget gap in 10 years can be brought under control with a “combination of modest tax increases and reasonable spending cuts,” particularly on health care, Krugman said, adding it’s “extremely unlikely” the U.S. would ever default on its debt.

+++++++


In my opinion the two quotes above sinks Krugman's creditability. (I'm not against social welfare programs.) Government jobs don't go away, increase budget deficits and debt. It will take large tax increases and large budget cuts to balance the budget.

 

[ziggy29]

Krugman Says U.S. Should Do `Everything We Can' to Boost Jobs - Bloomberg

“The most effective things you can do, in terms of actual bang for the buck, is actually having the federal government go out and hire people,” he said. “We are deep in the hole here, and you need to be unconventional to get out of it.”

From a true Keynesian point of view, this only works if you are willing to fire them once the private sector is hiring again. You know that won't happen. It's another example of "one-way Keynesian" thinking where we crank up public spending in rotten times but can't cut back in the good times.