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"Deficit Hawks are hypocrites"


By tovarichpeter   Follow   Mon, 12 Nov 2012, 3:56am PST   3,484 views   54 comments
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http://www.nytimes.com/2012/11/12/opinion/krugman-hawks-and-hypocrites.html?src=me&ref=general&gwh=689372ED0CDB7CD906D1A9B13AB33957

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Bellingham Bill   Mon, 12 Nov 2012, 1:20pm PST   Share   Quote   Permalink   Like   Dislike     Comment 15

well, my overall point is that cost inflation without wage inflation will result in reallocation.

To some extent this means hot dogs instead of steak and a falling standard of living, but balancing that is the way we push up home prices and rents.

Most renters can afford steak, so we maintain some spending reserve after we cover the rent.

My thesis is that should cost of living continue to go up, renters theoretically can go on strike for lower rents.

But this is difficult, since LLs hold the whip hand here. But balancing that is an empty apartment gathers no rent at all.

http://research.stlouisfed.org/fred2/series/CUUR0000SEHA

is a brutal chart

marcus   Mon, 12 Nov 2012, 10:21pm PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 16

mell says

It's funny, as soon as you put a couple of layers of abstraction in between people totally lose the ability to reason whereas everybody would agree that taking your kids college fund money and spending it on a nice house or a couple of luxury vacations is pretty selfish and economically a very poor decision for their kids.

I agree with all of this. But not that KEynesian is at fault or that republicans are the more fiscally prudent party.

Paul Ryan voted for two unfunded wars (which Obama later put on the books), not to mention medicare pat D (more unpaid for spending) as well as tax cuts, that were the true cause of our sorry ass financial state.

Keynesian economics says that when things are going well it is the time to worry about deficits, not to at that time spend money then on tax cuts (mostly for the wealthy) and to initiate wars that are off the books.

marcus   Mon, 12 Nov 2012, 10:24pm PST   Share   Quote   Permalink   Like   Dislike     Comment 17

Maybe you missed this.

http://www.youtube.com/watch?feature=player_embedded&v=LcvLHHMC4iI

http://patrick.net/?p=1218682

Too much information perhaps ?

mell   Mon, 12 Nov 2012, 11:04pm PST   Share   Quote   Permalink   Like   Dislike     Comment 18

marcus says

Paul Ryan voted for two unfunded wars (which Obama later put on the books), not to mention medicare pat D (more unpaid for spending) as well as tax cuts, that were the true cause of our sorry ass financial state.

Agreed - and tax increases will likely be part of addressing the deficit as well as cutting costs. The republicans have done nothing to address this lately, if not they have been worse under Bush. But that doesn't mean that deficit hawks don't have a point. If they also happen to be republican and supporting the current clown-brigade, then they are also hypocritical. The Keynesian way - though it is flawed IMO - never intended to have uncontrolled deficit spending. It was about temporarily growing the deficit and building up resources to pay back or forward during the good economic times. We have left that path long ago by never demanding any payback or cuts from anybody, with both major political parties at fault.

marcus   Mon, 12 Nov 2012, 11:18pm PST   Share   Quote   Permalink   Like   Dislike     Comment 19

mell says

But that doesn't mean that deficit hawks don't have a point

But, real deficit hawks would not have voted for the Bush tax cuts.

And many of the people who act like deficit hawks, were not hawks when the problem was caused, but they are now because the deficit IS out of control, and they know that they can get traction through the conservative entertainment complex, blaming liberals and Obama. This is about the power struggle, not being a true deficit hawk.

They know that there are millions of dimbulbs that won't get exposed to this info http://www.youtube.com/watch?feature=player_embedded&v=LcvLHHMC4iI

Or that if they did see it, they wouldn't believe it or comprehend it.

mell says

It was about temporarily growing the deficit and building up resources to pay back or forward during the good economic times. We have left that path long ago by never demanding any payback or cuts from anybody, with both major political parties at fault.

I agree with all of this.

Among other things, I blame the dogma that lower taxes always lead to growth. Even Laffer never implied this. Only when taxes are too high is this true.

uomo_senza_nome   Mon, 12 Nov 2012, 11:51pm PST   Share   Quote   Permalink   Like   Dislike     Comment 20

Melmakian says

You don't need a wage-price spiral for inflation

whatever inflation you see in prices of commodities is temporary. That's the point when we say that inflation cannot sustain itself.

Inflation is increase in money supply in addition to the human behavior element of increase in velocity. Without velocity, you can grow the money supply 200% and there can be no inflation.

http://bpp.mit.edu/usa/

Monetary policy will always help the big banks, that's why the Fed exists. Protect the banking class is their mantra.

Bellingham Bill   Tue, 13 Nov 2012, 1:02am PST   Share   Quote   Permalink   Like   Dislike     Comment 21

mell says

It was about temporarily growing the deficit and building up resources to pay back or forward during the good economic times

there's NO reason we can't always have good economic times.

The economy IS NOT that random -- each year we actually make more wealth than we consume.

Whenever it goes crash-boom-bang, it has been due to mass fraud and bubbles.

The key thing is everyone being able to pay for what they consume and not resorting to credit, since credit can be a lie.

uomo_senza_nome   Tue, 13 Nov 2012, 1:07am PST   Share   Quote   Permalink   Like   Dislike     Comment 22

Bellingham Bill says

The key thing is everyone being able to pay for what they consume and not resorting to credit, since credit can be a lie.

IMO -- this is where Krugman has made a significant intellectual blunder and he is still making it.

This article by Keen gets to the heart of the argument.

(may require registration to read it fully)

http://krugman.blogs.nytimes.com/2012/03/27/minksy-and-methodology-wonkish/

“If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand.” - Krugman

aggregate demand = change in income + change in debt

That is Keen's thesis and I think that bodes well with reality. Especially during the housing bubble phase, which was purely driven by inorganic credit growth.

justme   Tue, 13 Nov 2012, 3:01am PST   Share   Quote   Permalink   Like   Dislike     Comment 23

uomo_senza_nome says

whatever inflation you see in prices of commodities is temporary

Price spikes (not exactly the same as "inflation") in commodities may be temporary, there is usually a lingering higher price level even after the spike subsides.

"Inflation" (the annual or time-rate change in price) may be "temporary", then return to a low number, but the prices themselves will nevertheless stay at their higher levels. So the effect of inflation is a permanent price increase.

The permanent higher prices do not go away unless there is deflation. And as we know, the Fed will fight ASSET deflation at any cost to the 99%.

An additional observation that I think is very important:

The Fed loves asset inflation
The Fed hates asset deflation
The Fed hates wage inflation
The Fed cares about consumer inflation only if it drives wage inflation.

That is the Fed in a nutshell.

Vicente   Tue, 13 Nov 2012, 3:06am PST   Share   Quote   Permalink   Like   Dislike     Comment 24

justme says

The Fed hates wage inflation

Why do you say this?

The Federal Reserve doesn't see it as their concern. Unemployment is something they do worry about. They don't care if you have a McJob as long as it counts as employment. It's the CEO's and FIRE gods who don't want wage inflation, because they want your nuts in a vice so they can have more for themselves and less for everyone else.

justme   Tue, 13 Nov 2012, 3:13am PST   Share   Quote   Permalink   Like   Dislike     Comment 25

justme says

The Fed hates wage inflation

Vicente says

Why do you say this?

Because of the evidence.

Vicente says

It's the CEO's and FIRE gods who don't want wage inflation, because they want your nuts in a vice so they can have more for themselves and less for everyone else.

Exactly. So whose bidding do you think the Fed does, the 1% CEO crowd or the 99% nuts-in-a-vice crowd?

There's your answer.

Justme's rule: The officially stated goal of any institution is rarely [edited] the real or true goal.

uomo_senza_nome   Tue, 13 Nov 2012, 3:28am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 26

Vicente says

The Federal Reserve doesn't see it as their concern

No. They do. But the way they see it, price inflation causes wage inflation and not the other way around. Here's a Cleveland Fed paper that argues on this point.

I'm sure it's a complex feedback loop where both are true to some degree, but it's hard to see any evidence that the Fed is helping the stagnant wage problem. They are all about asset prices. Correction: They are all about bank balance sheets and asset prices are an important component of bank balance sheets. Mark to fantasy accounting is to help big banks hide losses.

Protecting the banking class is the key to Fed's policy. Here is Bernanke's recent exchange with Reuters.

To the extent that home prices begin to rise, consumers will feel wealthier, they'll feel more -- more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they'll, you know, make a better return on that purchase. So house prices is one vehicle. - Bernanke

To me that reads - home prices are one channel to blow a bubble. There are other channels too, stocks, commodities.

This would be funny if the real world did not suffer. Bernanke's grand experiment is on people's lives.

justme   Tue, 13 Nov 2012, 3:49am PST   Share   Quote   Permalink   Like   Dislike     Comment 27

Senza,

On the topic of how bad Bernanke is or is not:

Let us not forget that Greenspan was the one that started the mania with his unbridled appetite for asset inflation.

You may recall that as late as 2004 and 2005, Greenspan was very happy to force interest rates low and pump up any asset class that would respond, in this case mainly housing. A long as he did not see any wage inflation, he would keep the music playing, and he did, until the bubble burst.

Bernanke is not nearly as bad as Greenspan. Bernanke got the cleanup duty after Greenspan wrecked everything. Bernanke is trying to create some housing inflation again, which is very bad, but I understand WHY he is trying. I don't agree with Bernanke, but I do understand why he does what he does.

(what's the name of that song, Senza una Donna :))

uomo_senza_nome   Tue, 13 Nov 2012, 4:49am PST   Share   Quote   Permalink   Like   Dislike     Comment 28

justme says

Let us not forget that Greenspan was the one that started the mania with his unbridled appetite for asset inflation.

Talking about Greenspan, here is a piece smacking with irony.

Who needs Gold when we have Greenspan?

Dan8267   Tue, 13 Nov 2012, 4:58am PST   Share   Quote   Permalink   Like   Dislike     Comment 29

Bellingham Bill says

no wage inflation, no inflation.

Inflation is the increase in the money supply, not an increase in prices. Relative increases in prices are an effect of inflation, not inflation itself.

Relative decreases in prices are an effect of decrease demand and unemployment.

It's quite possible for prices to stay at a constant rate while both inflation and unemployment is high and demand is low. That's exactly the game the Federal Reserve has been playing the past few years while keeping the interest rates near zero. The Fed has been trying to offset unemployment and low demand with just enough inflation to keep prices a constant while shifting the burden of the bad debt from banker-gamblers to the general public.

Unfortunately, such a system has the stability of a pencil being balanced on its tip. Eventually, it will all fall one way or the other.

Dan8267   Tue, 13 Nov 2012, 5:04am PST   Share   Quote   Permalink   Like   Dislike     Comment 30

Contrary to the way it’s often portrayed, the looming prospect of spending cuts and tax increases isn’t a fiscal crisis. It is, instead, a political crisis brought on by the G.O.P.’s attempt to take the economy hostage.

Exactly.

And just to be clear, the danger for next year is not that the deficit will be too large but that it will be too small, and hence plunge America back into recession.

Don't agree with that. Sounds like Krugman agrees with Cheney when the Sith Lord said, "Reagan proved deficits don't matter. Now let's throw these puppies into the river.", or something like that.

Spending on the wrong things and spending more than one earns are both significant problems.

tatupu70   Tue, 13 Nov 2012, 6:00am PST   Share   Quote   Permalink   Like   Dislike     Comment 31

Dan8267 says

Inflation is the increase in the money supply, not an increase in prices. Relative increases in prices are an effect of inflation, not inflation itself.

I don't want to get into another argument about the definition of inflation because it's useless at this point.

But clearly, you can have price increases in commodities due to increased demand or decreased supply that have nothing to do with money supply. eg. dwindling oil reserves, population growth abroad, etc.. How would you characterize that phenomena?

uomo_senza_nome   Tue, 13 Nov 2012, 6:13am PST   Share   Quote   Permalink   Like   Dislike     Comment 32

tatupu70 says

How would you characterize that phenomena?

Dan is not saying that all relative price increases are an effect of inflation. Of course other factors can cause price increases that has nothing to do with change in money supply and/or velocity.

Dan8267   Tue, 13 Nov 2012, 6:15am PST   Share   Quote   Permalink   Like   Dislike     Comment 33

tatupu70 says

I don't want to get into another argument about the definition of inflation

True, diction (the mapping of words (character sequences) to definitions) is not important, unless the mapping is altered specifically with the intent of preventing discussions of certain topics, as in the case of the redefining of inflation and in the case of Newspeak from 1984. In such cases, clarifying and using the original meaning is important because

1. Such topics are being suppressed.
2. There is ample historical text using the original definition.
3. There is no word with the same meaning as the original definition.
4. The censors are attempting to remove the power of a concept by removing the power of a word. Allowing the censors to control conversation is always bad.

tatupu70 says

But clearly, you can have price increases in commodities due to increased demand or decreased supply that have nothing to do with money supply. eg. dwindling oil reserves, population growth abroad, etc..

True.

tatupu70 says

. How would you characterize that phenomena?

Reliance on unsustainable resources. Such resources will eventually run out and the greater the reliance on them the more severe the economic impact will be when those resources finally do run out. For this reason, the worst thing that can happen to the U.S. is for it to find new sources of oil and to become an oil-exporting nation again.

Increase supply will lower prices and increase demand and consumption, which increases the sudden crash at the end of the fossil fuel area. I'd rather fall from one stories than two.

uomo_senza_nome   Tue, 13 Nov 2012, 6:16am PST   Share   Quote   Permalink   Like   Dislike     Comment 34

Dan8267 says

The Fed has been trying to offset unemployment and low demand with just enough inflation to keep prices a constant while shifting the burden of the bad debt from banker-gamblers to the general public.

That statement seems to implicate that the borrower is not at fault and it's all the bankers' fault. That is not the case. Nobody forces you to borrow more than you can afford to pay back. Due diligence pays.

Bellingham Bill   Tue, 13 Nov 2012, 6:20am PST   Share   Quote   Permalink   Like   Dislike     Comment 35

Dan8267 says

inflation is the increase in the money supply

not what I was talking about, I was talking about the cost of living, like all normal people would take it.

and the relationship with money and "inflation" also requires velocity.

http://research.stlouisfed.org/fred2/graph/?g=cNg

shows your definition is non-descriptive.

The Fed could double the money supply but if they gave all the new money to me there would be zero inflation as a result.

I think the 1970s were inflationary since many new workers were entering the workforce and altering the structure of the economy. Both the 1970s and 1980s saw 20M new jobs -- each decade!

The mid-2000s were inflationary as the suicide lending bubble was pushing tons of money into the economy again, which was quickly spent.

When that was shut off, we've got disinflationary pressures -- most people are broke, employment is sketchy, gas is double what it was 10 years ago, etc.

uomo_senza_nome   Tue, 13 Nov 2012, 6:23am PST   Share   Quote   Permalink   Like   Dislike     Comment 36

Bellingham Bill says

When that was shut off, we've got disinflationary pressures -- most people are broke, employment is sketchy, gas is double what it was 10 years ago, etc

Stagnation as far as the eye can see .

The Fed stabilized the patient, but the patient remains in the ICU because the doctors cannot agree on the treatment. And of course, the medical directors are stealing the medicine and selling it on the black market. So we have quite the dilemma.

The credibility trap is preventing genuine reform, and the financial system is continuing to distribute the bulk of all new income growth to the wealthiest few, which leaves the vast middle with little discretionary income to fuel demand and organic growth. It is a false equilibrium, but these can last for a decade or more.

Dan8267   Tue, 13 Nov 2012, 6:26am PST   Share   Quote   Permalink   Like   Dislike     Comment 37

It is important to acknowledge this simple truth. No economic problem is caused by the lack of money as money is purely an arbitrary measuring stick. Blaming the lack of currency units for economic problems is like blaming the lack of inches on a foot-long ruler for the size of your penis. Your penis doesn't become longer simply because one redefines an inch from 1/12th of a foot to 1/24th of a foot. Inch mark inflation does not make your dick bigger.

Economic problems are caused by

1. The misallocation of economic resources including labor, materials, and production.

2. The idling of resources, especially labor.

3. The trading of long-term prosperity for short-term wealth.

4. Bad or fraudulent accounting.

5. Cost shifting - the transfer of costs from the producers of a good or service to other parties. Cost shifting causes misallocation of resources and inaccurate accounting.

For example, all pollution and subsidies. Coal is "cheap" only because the true costs of coal are shifted from coal power plants to society as a large. If these costs were adsorbed by the coal power plants, than coal-generated electricity would be among the most expensive forms of electricity.

6. The exploitation of resources that should not be exploited because doing so is too risky or too costly in the absence of cost shifting.

For example, deep water drilling for oil. If oil companies had to insure for the worst possible disasters, deep water drilling would be prohibitively expensive. This is the free market stating unequivocally that such drilling is not economically prudent.

Smart capitalism isn't about gobbling up all resources, but rather intelligently deciding which resources should be exploited and which should not.

7. Wasteful spending including earmarks, defense, and war.

8. Corruption due to high ranking politicians being bribed to pass legislation that goes against the efficiency and fairness of the market. Any legislation written by a corporation is almost guaranteed to be something designed to give that corporation an advantage by making the market less free. Corporations hate free markets.

A free market is a market that operates free from control of any entity whether government or private business. A free market is not a market in which all players are free to do what they want. The word "free" in free market modifies the word "market" not the word "player".

Dan8267   Tue, 13 Nov 2012, 6:33am PST   Share   Quote   Permalink   Like   Dislike     Comment 38

Bellingham Bill says

Dan8267 says

inflation is the increase in the money supply

not what I was talking about, I was talking about the cost of living, like all normal people would take it.

I'm not less "normal" for knowing the real, correct definition of inflation and refusing to be brainwashed by the Federal Reserve. I'm more "informed" for knowing the correct definition.

There is already a standard English term for cost of living. It's "cost of living". What word or phrase in English refers to the increase of a money supply resulting in the shifting of purchasing power from those who hold currency units to those who create them other than "inflation"?

Please use "cost of living" when you mean "cost of living" and "inflation" when you mean "inflation". Understanding the difference between the two and discussing both as separate phenomenons is important.

The quality of your life can increase with the cost of living. Areas with higher costs of living are often better places to live. Areas with rising costs of living are areas in which wages are increasing and the quality of life is increasing.

In contrast, inflation lowers your quality of life by stealing your purchasing power. Inflation is nothing more than the thinly masked theft of your money. It's no different than if the bankers physically stole the dollar bills out of your wallet or the money out of your checking/savings account.

Inflation steals your money and gives it to bankers. And by stealing your money, the bankers are stealing that part of your life that you spent earning that money. Stealing life is murder, whether the part of life stolen is at the end or from the middle.

Quigley   Tue, 13 Nov 2012, 6:35am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 39

A good example of commodity prices being unlinked to inflation is the price of heroin, which fell from the heights to the floor a few years after we invaded Afghanistan. Other commodities rose in price, most rose quite a bit including gasoline and oil. But heroin prices became so cheap that kids from the 2000s could afford raging addictions at McJob prices!
So yes, inflation is hard to quantify based on commodity prices. Which is why the Fed does care about wage inflation, as it's a far more accurate predictor.

Dan8267   Tue, 13 Nov 2012, 6:39am PST   Share   Quote   Permalink   Like   Dislike     Comment 40

Bellingham Bill says

and the relationship with money and "inflation" also requires velocity.

http://research.stlouisfed.org/fred2/graph/?g=cNg

shows your definition is non-descriptive.

The Fed could double the money supply but if they gave all the new money to me there would be zero inflation as a result.

Note even close. As soon as you spent the money it would enter the system. And the purchases you make would come from the purchasing power of everyone else. It is mathematically set to be a zero-sum game.

Arguing that money added to the system but isolated in some subsystem has no effect is essentially playing a semantic game. The subsystem is better thought of as a separate system until the money flows into the original system. At that point, the inflation is real and precisely measurable.

Here's an engineering principle: Keep it Simple! This principle should be applied to accounting and monetary policies as well.

The only purpose in inflation is to steal wealth from the population at large, particularly savers, and to give it so some other group who probably are bastards who don't deserve it and are responsible for wrecking the economy in the first place.

Inflation is a tax on savings, paid for by the financially responsible, and given to bankers. If I'm going to pay a tax, it should be to government for the purpose of running government, protecting the people, and providing government services. I should not be paying taxes to rich, greedy bankers who are responsible for most of the economic problems in our society. Bankers are worse than pedophiles. Would you want your tax dollars going to pedophiles?

uomo_senza_nome   Tue, 13 Nov 2012, 6:44am PST   Share   Quote   Permalink   Like   Dislike     Comment 41

Dan -

I can agree with your argument that money supply doesn't matter, but money velocity totally matters. Consider the problem of hoarding gold during the Great Depression. Hoarding of gold actually caused the idling of resources that you are talking about.

http://jessescrossroadscafe.blogspot.com/2012/10/the-great-depression-in-ten-pictures.html

According to you, FDR is a thief. There are many in the far right (Lew Rockwell and his associated Austrian friends) who claim the exact same thing even today. But there is another view. FDR simply did what he could to revive the economy, given the situation he had been presented.

Dan8267   Tue, 13 Nov 2012, 6:46am PST   Share   Quote   Permalink   Like   Dislike     Comment 42

uomo_senza_nome says

Dan8267 says

The Fed has been trying to offset unemployment and low demand with just enough inflation to keep prices a constant while shifting the burden of the bad debt from banker-gamblers to the general public.

That statement seems to implicate that the borrower is not at fault and it's all the bankers' fault. That is not the case. Nobody forces you to borrow more than you can afford to pay back. Due diligence pays.

I don't see how my statement in any way implies what you say it does. Nor do I believe that the borrower isn't at fault or didn't knowingly take part in fraudulent loans. Not sure how you are connecting the two.

uomo_senza_nome   Tue, 13 Nov 2012, 6:47am PST   Share   Quote   Permalink   Like   Dislike     Comment 43

Dan8267 says

The only purpose in inflation is to steal wealth from the population at large, particularly savers, and to give it so some other group who probably are bastards who don't deserve it and are responsible for wrecking the economy in the first place.

Do you realize that there are a lot of "corrupt" or "irresponsible" savers? Example: politicians, rich bankers - the very people you demonize. May be inflation is not a bad thing after all, screw the corrupt politicians and the bankers who are sitting on a pile of Treasury bonds.