The View From 1776

Amplifying Krugman

The economy is more complex than Paul Krugman’s simplistic macroeconomics model.

Posted by .(JavaScript must be enabled to view this email address) on 11/15 at 01:00 AM
  1. "The economy is more complex than Paul Krugman
    Posted by .(JavaScript must be enabled to view this email address)  on  11/15  at  10:56 AM
  2. Krugman and Keynes see getting demand restored in the economy the answer to the current stagnation. Restoring demand is a better driver than some goofy Republican-style investment tax credit to industry, because it jump starts the cycle. Giving industry a tax break will do nothing to cause them to buy more machinery because without orders to fill, they have no rational reason to expand production capacity and will not buy the machines.

    Stimulating demand in this economy is best done through public works projects (infrastructure, mass transit, etc.) which will have long-term societal benefit to the country, as well as getting more jobs created.

    Merely sending out checks to the country as Bush has done, will not work now because everybody is so frightened that they would put the money in the mattress for the depression they think is coming.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/15  at  03:15 PM
  3. Why are you guys allergic to capital formation through savings, investment and sensible fiscal and regulatory policy? It's amusing how the interests of the state are perceived to be served through the discouragement of savings, investment and capital formation. Ever wonder why? Sensible fiscal and regulatory policy frees the private economy, creates jobs and reduces dependence on the state and it's redistributionist, vote buying demagoguery while maintaining a stable currency and purchasing power. We can't have that! Sending out checks IS a Keynesian tactic and keynesians run the banking system which benefits from ever increasing debt creation through over consumption while the people are forever in hock.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/16  at  03:16 PM
  4. I am not allergic to savings, investment and sensible fiscal and regulatory policy per se. It is just that in the deep hole we find ourselves, they are not the medicine we need.

    Vitamins are great, but if the patient needs an antibiotic, vitamins - though in and of themselves laudable - will not cure the patient.

    Yes, "Pump priming" the economy by injecting money into it is a Keynesian principle. But no all methods of pump priming produce equal results. Some ways of stimulating will have a bigger bang for the buck.

    You can buy military hardware, for instance, and get some limited increased economic activity, but if you buy infrastructure, you get a 2x or 3x "multiplier" effect, because the investment cascades and causes additional related private spending -- which you do not get with buying, say, a bomb, for instance.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/16  at  09:40 PM
  5. Then you agree that 100% expensing of capital investment is a good thing and ending the noncompetitive corporate 'income' tax or at least the double taxation on corporate earnings through dividend taxation would be appropriate? Think about the 'multiplier' effects in that case. Or are you more comfortable keeping that capital in the hands of an exteremely inefficient and uneconomical state? The state produces nothing. It can tax, print or keep interest rates artificially low and encourage malinvestment through credit expansion. Only the central state is without competitive pressure allowing it to focus on maintaining power rather than sound markets.
    Keynes used the example of putting men to work digging ditches and then filling them up. Pump priming to Keynesians, doesn't have the fine distinctions you think it has. One thing is certain, everything the state touches from the point of view of economics and cost/benefit analysis, it will turn to crud. It will always confuse it's interests with the interests of the productive economy.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/17  at  11:57 AM
  6. Talking about simple mindedness, many commentators on this blog have said that the best way to stimulated growth is to cut taxes. One pundit pointed to Ireland and that its extraordinary economic success was due to that countries low taxes. Well, that success has come to an end. What low taxes may have done to Ireland is encouraged excesses, which now it is paying the price with an economic slump, like the rest of the world.

    The View, more than many others, has relied on simple mindedness to makes its political and economic arguments. To understand the world one has to nuance (the Constitution comes to mind). The View has never been very good at that. That is why it has supported simple minded people like George Bush, who in his non-nuancing screwed up the nation and his party. And a simple minded focus on religion did help either.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/19  at  11:17 AM
  7. In a fiat money, fractional reserve system regulated by central banks the only possible excesses which can develop within an economy are directly and exclusively tied to policy. That's the way it is, was and always will be. No matter how 'they' try to banish the business cycle through regulation or taxing or spending or redistribution or favoring 'labor' or punishing 'capital', they will fail and accomplish nothing other than spreading the pain.A free market allows a pricing mechanism to operate, freely and uncoerced reflecting the collective wisdom of all, offered without force. Enforcing contracts and preventing unfair monopolistic practices is the purpose of the law and strictly limited regulation. The current situation in Ireland is a perfect example of a common logical fallacy i.e, confusing correlation and causation. It's a global economy and the current slowdown is directly related to credit creation run amok. That is a phenomenon of bad central bank policy and the revenue requiremnts of states who simply can't stop spending.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/19  at  04:22 PM
  8. Tom C. appears to be a "true beiever," whose faith-based vision of the market as the best control of all systems, large or small, high or low, complicated or simple, seems to conflict with the recent reality of the market crash. In this case the unfettered markets did not "see" what was best for their own good.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/23  at  02:01 PM
  9. "By allowing more of the cost of machinery and equipment to be deducted more quickly, first-year expensing causes new investment to be made sooner."

    If they'd added "personnel" to that -- in the form of interview, relocation, education and training expenses -- and step up measures to combat initiation of force and fraud in business, they'd be on the right track.

    If we want people to save and invest, we certainly need to throttle inflation while allowing stock-owners to throttle executives' tendency to divert ever more of the short-term profits into their own pockets, while ravaging the firm's long-term prospects.

    One of Keynes's mistakes was mistaking the jolt that could come from any of numerous sources, with one particular source -- government spending, and concluding that even vastly increasing mal-investment would help. What gets reset by any jolt is public confidence. It breaks people out of their expectations and allows them to make shifts in implicit "contracts" that they'd coasted along, failing to make, before. The multiplier effect of confidence is key to economic cycles.

    What we have now is not a free market. We have not had free markets in the USA for a century. Governments at every level and around the globe have been meddling, initiating force and fraud, extorting some, subsidizing others, raising barriers to trade here and lowering them there, imposing regulations that have nothing to do with honest trade. And, of course, jiggering the value of currency -- paper and now e-currency. Hard money would at least cut down on such distortion and fraud.
    Posted by jgo  on  11/23  at  03:41 PM
  10. 'Unfettered markets'? What color is the sky on your planet? I suppose we're both true belivers. I believe in human nature, ordered liberty and the diffusion of power. You believe in the state as a god and heavy handed, top down coercion. I don't mystify the state as some sort of super-human power but as a mere collection of human beings with interests detached from the reality imposed on all by market forces. Laizze-faire can be translated as 'let them be'. 'Them' represents the economic activity of a free people. Social engineering, abstract equality, redistribution, improper regulation and the sapping of property rights or the slow destruction of the principle of subsidiarity would not exist in a laissez-faire economy. This is a mixed economy at best within a social democracy. "Unfetterd capitalism"? Nonsense!
    Posted by .(JavaScript must be enabled to view this email address)  on  11/24  at  12:33 PM
  11. The argument is not between totally state-regulated and totally unregulated commerce. It is rather whether government has any role at all in regulating commerce.

    If we were all idealistic angels looking out for the common good, no regulation might work. Unfortunately, there are those among us who take advantage of others, or who do not care about others, and it because of them that regulations are needed.

    The factory owner who injects poisons into the air and rivers to maximize his profits would be allowed to do so under a completely Laizze-faire market, but those of us down wind or down stream would suffer for his greed.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/24  at  01:30 PM
  12. TC,

    You know what is meant by 'unfettered markets'. It is as descriptive like the 'free market' is. We all know that there is no such thing as a truly free market, just like there is no utterly unfetter market. They are, in a sense, an exaggeration. But those descriptions are made to convey a point. And probably you generally understand the idea that is being conveyed.

    During the last few years, with Bush&Co;. markets have been more unfettered than fettered, to the detriment of the whole. Bush&Co;. leaned too much in favor of 'unfettered' , which has culminated in a financial crisis. Great legacy, eh?
    Posted by .(JavaScript must be enabled to view this email address)  on  11/24  at  01:52 PM
  13. J- You described a failure of 'unfettered markets'. Your premise is nonsense. Regulating interstate commerce was a power granted the federal government long ago. They've created the current problems by overstaepping their bounds, not your mythical unfeterred markets. Like your fantasy of the poison injecting business man who cares little for his capital, property or his customers you're willing to transfer power to the fantasy of a disinterested state which literally doesn't care for anything other than maintaining power. Who suffers for their greed? It's not the guy downwind, it's everyone.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/24  at  01:56 PM
  14. Exaggerated use of terms like "laissez faire" which literally means "let it work", and "unfettered markets" to mean allowing initiation of force and fraud usually serve as spin-words, used to imply one thing while literally stating something else... so that you don't have to defend anything in particular.

    Regulation of INTER-STATE commerce was delegated to the federal government, but since a couple court cases about a century ago, it's been used to control intra-state commerce. Regulation originally meant to make something work smoothly, while now it's meant to initiate force and fraud in order to exercise arbitrary power over people.

    There's nothing wrong with attempting to defend against initiation of force and fraud, and it's a fine purpose for governments. The problem is government initiation of force and fraud, i.e. some people exercising arbitrary power over others. With the former you get free markets; with the latter you get various forms of collectivism (fascism, socialism, corporatism, communism), all of which are harmful to most individuals, and to the economy.
    Posted by .(JavaScript must be enabled to view this email address)  on  11/24  at  06:59 PM
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