patrick.net

60 Minutes just did a piece tonight on tearing down abandoned houses n Cleveland. They are going to demolish about 20,000 houses.

futuresmc says

What the HECK are you smoking Dan8276?! Seriously, have you ever read anything Keynes actually wrote, or just oversimplified critiques of it?

"To dig holes in the ground," paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. - Keynes

Unfortunately, Keynesians believe this crap even more than Keynes even intended. The idea that they have thought in every economics class is that it is the government's responsibility to increase aggregate demand, how doesn't matter, just as long as total spending (private + government) is at pre-depression levels, the economy will recover.

And Keynesians believe this because WWII proved it. WWII got us out of the last Great Depression and therefore it proves the above hypothesis. It's now dogma. No questioning it. That's why the banks got the bailout. That's why the auto industry got the bailout. That's why the government gave incentives for people to buy houses in 2008. It's all about stimulus.

What I'm arguing is that the real reason WWII ended the First Great Depression is that the war restored trust in the economy. Business started hiring and producing again because they knew Uncle Sam could pay. There was plenty of demand during the First Great Depression, but the demand went unsatisfied because no one could trust the economy because of all the scamming of the 1920s.

During WWII, Americans saved like crazy since they still couldn't buy anything. So after WWII, Americans had huge savings in things like war bonds. This meant that business could trust the economy again because they knew people had savings to spend. Had it not been for that, the First Great Depression would have resumed after WWII. Instead, since trust was restored, the next decade became a period of prosperity for America.

Today, trust has been wiped out by all the fraud in the financial industry. Worst still, the government has actively protected those who committed the fraud at the expense of their victims and society at large. Investors are thinking, if I get fucked over by some criminal, the government is going to protect him, not me. That's not good for making business deals.

The government can stimulate all it wants. It can triple the national debt in spending. That's not going to end this depression. If anything, it will prolong it for a decade.

In order to end the depression, government has to restore trust. To do that, government needs to start prosecuting financial fraud instead of appointing the criminals to high ranking positions in the government. And it needs to let well-run business take over when dumb, big dinosaur companies run themselves into bankruptcy. Had the federal government done exactly this back in 2008, we would no longer be in a depression. Period.

Why is this so hard to accept? If the stimulus worked, then why does the economy still suck balls? And if Bernanke is such a genius, why is 1 in 2 Americans below the poverty line now? Keynesians are simply choosing to completely ignore the reality all around them. And by the way, every in our government and on Wall Street is a Keynesian except Ron Paul and Peter Schiff, who have no say over anything. So if Keynesian Economics is so good, why are the results so bad?

HousingWatcher says

60 Minutes just did a piece tonight on tearing down abandoned houses n Cleveland. They are going to demolish about 20,000 houses.

Typical Keynesian idea. And it's not just Cleveland. It's happened in Detroit and in south Florida. I suspect it goes on elsewhere as well.

The Keynesians are always saying the problem with housing is that it was overbuilt rather than overpriced. I suspect I could sell any house in one week if I got to set the price.

Dan8267 says

the real reason WWII ended the First Great Depression is that the war restored trust in the economy. Business started hiring and producing again because they knew Uncle Sam could pay.

That's complete nonsnse. Businesses hired people because there was a huge demand for military equipment from the govt. Businesses needed to meet that demand and were forced to hire people. Confidence had nothing to do with it.

Dan8267 says

The Keynesians are always saying the problem with housing is that it was overbuilt rather than overpriced.

Housing most certainly was overbuilt. They were building hosues in the middle of nowhere far away from civilization.

futuresmc says

Keynes believed in government spending, but he wasn't a loon set on mass destruction.

The thing is, it doesn't even matter what Keynes believed. He's dead. What matters is what his apostles believe. And they believe in ridiculous things.

The Keynesian leaders of our country would believe that a feasible way to get out of this depression would be if America were attacked by space aliens. Because you see, if a threat of Martians were expected, we'd spend a lot of money on defense, and that aggregated demand would cause the economy to recover.

And if the space aliens don't attack? Well, if it all ends up being a hoax, then we are still better off because that hoax got us out of the depression.

Our Salvation!

Of course, I'm just being a complete, paranoid fool for bringing up this example. I'm just taking Keynesian thought to some bizarre extreme. There is no way the Keynesians in our government or media would actually believe something so fucking ridiculous.

Except that, they do, and that's what's scary.

http://www.youtube.com/embed/nhMAV9VLvHA

Dan--

What you're missing is that WWII eliminated the wealth disparity in the US. That is what healed the economy. Wealth disparity is the sickness.

http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#the-gap-between-the-top-1-and-everyone-else-hasnt-been-this-bad-since-the-roaring-twenties-1

You are right that wasteful government spending that doesn't go to the right people is useless. Nobody wants that. Keynesian or Austrian alike.

HousingWatcher says

That's complete nonsnse. Businesses hired people because there was a huge demand for military equipment from the govt. Businesses needed to meet that demand and were forced to hire people. Confidence had nothing to do with it.

Um.....

You also have to remember that we had the draft back then. Drafting people out of business and into war naturally would lift wages as there would be wage inflation due to the lower amounts of people. But it is not as if everything spent came back. Spending on war might seem to stimulate the economy but it isn't really so. Eventually the concept of defense becomes marginalized. If the USA made one more h bomb it would not add to the defense that much but it would cost more in maintenance.

Also remember is that the government took a command of the economy and rationed goods at home so how would that help an economy? Of course things got better after as if you restrict a good by taxation and take it off naturally consumption rises. If we took prices off of gasoline consumption would rise driving up the price from the additional demand. The government also had orders from companies to shift from consumer to war production. There is no real civilian use for a tank.

Government spending on the military has a greater use at home rather than during deployment. It is doubtful that some soldiers paying for some burgers at a camp in Afghanistan is going to make its way into their home towns..and yet we've closed military bases at home which does have a significant negative impact (I grew up near a base that closed in '95 and they are still debating today what to do with it)

I would almost counter that technically if the cause of the depression was the crash of '29 that we would have to be on the same level before that crash in order to call the depression off. That year was not 1941 but 1953..if the confidence was there during ww 2 why didn't the stock market go back up to where it was prior to the crash immediately?

Also what about the depression of 1920 and how we got out with no government intervention at all.

tatupu70 says

What you're missing is that WWII eliminated the wealth disparity in the US. That is what healed the economy. Wealth disparity is the sickness.

I agree that wealth disparity is a sickness, and a great one when as extreme as it is today. However, there was a still a huge difference between the Rockefellers and everyone else in the 1950s.

More to the point, decreasing the rich-poor gap isn't what ended the last depression. I haven't heard anyone propose that before. Everyone always credits the increase in spending as Krugman did in the above video.

tatupu70 says

You are right that wasteful government spending that doesn't go to the right people is useless. Nobody wants that. Keynesian or Austrian alike.

As Krugman stated in the video, even spending massive amounts on preventing a fictitious alien attack would not be a waste. It would be salvation. He proposed that if the government pulled of a hoax and got the American public to believe that space aliens were about to attack, that the government spending on the military would end the depression "in 18 months".

What I'm saying is that no amount of stimulus spending is going to restore trust in the financial system. We either have to wait a long time for people to forget about the fraud (10 years or so) or we need to prosecute the fraud so that everyone knows it won't happen again. If we do that, we can end the depression much sooner.

I'm all for shifting production from consumer goods like plasma TVs to useful infrastructure investments like building roads and fiber optic cables during times when consumer spending drops, but that isn't going to restore trust. And without trust, it's hard to do any business. And that is what Keynesians don't get. The only tools in their toolbox are lower interest rates and spend government money. And that's not good enough.

I would love to hear Paul Krugman, Ben Bernanke, Alan Greenspan, and Henry Paulson all stand up together and say that the depression will end if we prosecute all the perpetrators of fraud. Of course, Paulson is guilty of that fraud, so it won't happen.

Dan8267 says

What I'm saying is that no amount of stimulus spending is going to restore trust in the financial system. We either have to wait a long time for people to forget about the fraud (10 years or so) or we need to prosecute the fraud so that everyone knows it won't happen again. If we do that, we can end the depression much sooner.

I know that's what you're saying, but I agree with HW that that is complete nonsense.

tatupu70 says

Dan8267 says

What I'm saying is that no amount of stimulus spending is going to restore trust in the financial system. We either have to wait a long time for people to forget about the fraud (10 years or so) or we need to prosecute the fraud so that everyone knows it won't happen again. If we do that, we can end the depression much sooner.

I know that's what you're saying, but I agree with HW that that is complete nonsense.

Well, I guess we'll just have to agree to disagree because none of the Keynesians are willing to explain why if all the stimulus and bailout efforts worked, we still have huge unemployment and literally half the country living in poverty.

So, back to my original questions:

Dan8267 says

Explain to me then, exactly how the Federal Government's efforts to bail out too-big-to-fail banks and prop up housing prices avoided a depression?

50% of the people in our country are below the poverty threshold. Isn't that about the same level as during the First Great Depression?

Dan8267 says

Well, I guess we'll just have to agree to disagree because none of the Keynesians are willing to explain why if all the stimulus and bailout efforts worked, we still have huge unemployment and literally half the country living in poverty.

Well, this is a common mistake people make. If, because of the stimulus, unemployment is 8% instead of 18% would you call it a success?

But the wealth disparity issue is a difficult nut to crack. The Fed can't solve that one--it has to be Congress. And Congress is full of too many idiots that signed the no tax pledge.

On the bailouts--again, I will say that bailouts are not Keynesian in nature. The bailouts were viewed as a necessary evil by those in power. Very few people wanted to bail out the banksters. Whether it was true or not, smart people thought that the economy might actually cease to exist.

tatupu70 says

If, because of the stimulus, unemployment is 8% instead of 18% would you call it a success?

I'm all in favor of calling something a success or a partial success if it is verifiable that the operation actually caused the claimed effect. I do not buy that the stimulus or the bank bailouts have resulted in a net decrease in unemployment. For every bit of stimulus in one area, another area is depleted of an equal share of resources. For every action, there is an equal and opposite reaction. There's no free lunch.

When the Bush administration left office they said that torturing people works and that's proven because terrorist didn't successfully attack again after 9/11. Well, would there had been a successful terrorist attack if we hadn't tortured? This hardly constitutes proof that torture prevents attacks, especially when there were failed attacks that were not averted by torture.

So, why should I buy the reasoning that had we let the too-big-too-fail banks fail, unemployment today would be higher? Like Bush's argument for torture, the fact that a counterplan was not tested prevents us from comparing the results of the two.

I still have not heard one reason supported by concrete evidence that letting the too-big-to-fail banks fail would have been bad in the long run. It makes perfect sense that allowing smaller banks to eat the carcases of the large banks and gain market share would have restored trust in the financial system. Bad behavior and fraud gets punished. Prudent investing is rewarded. That's the whole justification for what makes capitalism work.

Dan8267 says

So, why should I buy the reasoning that had we let the too-big-too-fail banks fail, unemployment today would be higher? Like Bush's argument for torture, the fact that a counterplan was not tested prevents us from comparing the results of the two

You really need to separate the bailouts from the stimulus. Those were two very different actions brought about by very different situations. The stimulus was Keynesian in nature. The bailouts were not.

You can certainly argue that the bailouts were wrong and were a bad idea. I tend to agree, except that there were very smart men much closer to the action that were/are 100% convinced that the bailouts were absolutely necessary. They could have been wrong, of course, but it would have been an awfully big risk to take.

If there were no bailouts and the major banks failed, there would have been chaos and most likely a complete shutdown of society with an overthrow of the government on top.

Did you happen to see New Orleans post-Katrina? That's what the whole country would have been like, at least for a while. We have an entire society based upon paper currency held electronically in those banks. If they all failed rapidly and simultaneously, the game would have been over.

Think about it. The top 10 banks has roughly half of total market share. If only the top 10 banks would have failed half of the country would be instantly penniless. The currency would fail immediately. That would cause the rest of the banks to fail. The FDIC is not helping in this scenario.

Are you a farmer? That is the only way you are getting food. If you are a farmer you better have a whole arsenal of guns because someone is coming quick to take the farm from you. The police won't be there to help you because they will be concerned with feeding their families. Property rights will be out the door.

It's not like this hasn't happened elsewhere. We know what happens to human society in these situations. Darwinism in its rawest form. Survival of the fittest.

tatupu70 says

You don't think some of the 1% bought and paid for government officials to write the laws? And make the rules?

In any event, however we got to this place, we need to fix it. We won't have a healthy economy until the wealth disparity problem is fixed.

Of course I think they have bought and paid government officials. Just because they CAN doesn't make it right. But while they still CAN buy them the problem will persist.

Those take care of everyone from cradle to grave policies are working out so well.

You can't have a place to sleep, have a car let alone a newish car.
(is it just me, or is the age of the average Car on the road getting newer? Back in the eighties, it was very easy to spot the poor, they drove the broke ass clunkers, that was in need of repair between starts.) Cell phones for every member of your family, kids included, and call your self Poor.

This administration is awesome, from one side of their Asshole, they say they are saying unemployment is low. Then from the good side of their Asshole they are saying poverty is so rampantly out of hand, that one out of every two people are Piss Poor Pete.

But let me make this clear for everyone. The day that 50% of the people in this country when people are so bad off, that they considers them self "POOR". Poor in the "Peruvian" sense, not in the "Obama needs to get reelected" sense.
Then Our next leader will be decided by Revolt not elections.

FortWayne says

Those take care of everyone from cradle to grave policies are working out so well.

wtf are you talking about?

The GOP says

Cell phones for every member of your family, kids included, and call your self Poor.

I love this argument. If you have a cell phone you are obviously not poor. Have you seen how much cell phones cost? They are cheap just like every other non-aaple technological innovation in the last ten years. Lets say a cell phone is $50 bucks a month.

Here is my definition of poor. No health care. One in five (or six) do not have health insurance. Health insurance is $600 a month.

If you only have $100 left over after buying shelter and food each month, why not get a cell phone. You certainly cant get health insurance.

As much as you want to deny it, WWII was Keynesian. WWII consisted of massive govt. spending, not tax cuts.

Hospitals don't have to treat you if it is not an emergency. IF you have a tumor, then the hospital is not required to operate on you. If you need a transplant, they are not required to perform it.

david1 says

If there were no bailouts and the major banks failed, there would have been chaos and most likely a complete shutdown of society with an overthrow of the government on top.

Cool. Let's test that theory. $500 says that wouldn't have been the case. Hop in your Delorean and stop the bailouts so we can see the result. Short of that, I'd consider any predictions about what would have happened if the too-big-too-fail institutes had been allowed to fail to be conjecture, no matter how many times the conjecture is repeated.

shrekgrinch says

Then that is a pretty fucked up definition. Not having health insurance does not mean you don't have access to health care. Or did they suddenly change the laws forcing hospitals to treat anyone despite inability to pay?
Health insurance and actual health care are two completely different things. But that doesn't stop Libruhls from deliberately confusing them in order to 'sell' their BS.

Stabilize and release does not equal health care in the modern western world. Look up the EMTALA requirements. If you do not have insurance, and you are stable which is defined as able to:
Breathing
Feeding
Mobility
Dressing
Personal hygiene
Toileting
Medicating
Communication
And having no conditions that are immediately life-threatening

You are getting released without further care. Maybe if they changed the name from health care to "stable" care you would get it.

david1 says

Think about it. The top 10 banks has roughly half of total market share. If only the top 10 banks would have failed half of the country would be instantly penniless.

Wrong. FDIC insurance takes care of the deposits. Money doesn't magically disappear. The account holders are not harmed; they simply go to a new bank with their savings intact. The big banks cease to exist, not their depositor's money. No depositor would become penniless.

That's the whole point of FDIC insurance. Protecting depositors does not require protecting huge parasites. Many small banks failed, but their depositors did not lose a penny.

Dan8267 says

Cool. Let's test that theory. $500 says that wouldn't have been the case. Hop in your Delorean and stop the bailouts so we can see the result. Short of that, I'd consider any predictions about what would have happened if the too-big-too-fail institutes had been allowed to fail to be conjecture, no matter how many times the conjecture is repeated.

Go out and watch black Friday behavior for a good case study on what happens in human society when there is a scarcity of resources.

FortWayne says

Those take care of everyone from cradle to grave policies are working out so well.

Works out well when the government shortens the time between the two.

shrekgrinch says

hence why the New Deal was a failure but WWII was not.

Whether the New Deal was a failure or not, going from 1.5M unemployed to 13M unemployed was not the fault of Social Security, medicare, food stamps, CRA, HUD, high income taxes on the middle class, or any other shit that didn't exist back then.

Increased military spending wasn't spent until 1940.

Note that the 1937 recession was already on the wane before WW2 broke out. Also, by 1937 the GDP had fully recovered to where it was in the summer before the crash, it's previous high.

And in any case, War is a Government Program.

Dan8267 says

Wrong. FDIC insurance takes care of the deposits. Money doesn't magically disappear. The account holders are not harmed; they simply go to a new bank with their savings intact. The big banks cease to exist, not their depositor's money. No depositor would become penniless.

50% of Savings Deposits is about $3 Trillion. I don't think the FDIC trust has that to make depositors whole. And that's just the savings deposits.

The GOP says

The day that 50% of the people in this country when people are so bad off, that they considers them self "POOR". Poor in the "Peruvian" sense, not in the "Obama needs to get reelected" sense.

The article says that 50% of Americans are poor by the government standards, not by how they feel. I'm sure that more than 50% of the population feels that they are poor.

david1 says

I love this argument. If you have a cell phone you are obviously not poor. Have you seen how much cell phones cost? They are cheap just like every other non-aaple technological innovation in the last ten years. Lets say a cell phone is $50 bucks a month.

Agreed. Mobile phones may have been considered a luxury when they first came out, but today many Africans have mobile phones and hand-powered laptops but not enough food. It's cheaper to give someone a phone than it is to feed him for a month.

david1 says

Go out and watch black Friday behavior for a good case study on what happens in human society when there is a scarcity of resources.

Great example. A scarcity of low-prices XBoxes does lead to Mad Max Beyond the Thunderdome.

shrekgrinch says

WWII was not about hiring men to dig pot holes just so we could hire other men to fill them up again or other Keynesian-based New Deal nonsense. It was a massive government spending program grounded in supply-side economic results and putting millions of previously unemployed men into uniform...

Great, now I don't know which thesis is more ridiculous. Mad Max if we didn't bail out the bankers or Reaganomics getting us out of the last depression.

Economics is the new religion.

david1 says

Personal hygiene

I've worked with many people who are considered mentally stable but have no personal hygiene.

thunderlips11 says

And in any case, War is a Government Program.

Not only is war a government program, but the defense industry is the most massive government jobs program ever.

david1 says

Dan8267 says

Wrong. FDIC insurance takes care of the deposits. Money doesn't magically disappear. The account holders are not harmed; they simply go to a new bank with their savings intact. The big banks cease to exist, not their depositor's money. No depositor would become penniless.

50% of Savings Deposits is about $3 Trillion. I don't think the FDIC trust has that to make depositors whole. And that's just the savings deposits.

$3 trillion is pissing in the ocean.

The Size of the Bank Bailout: $29 Trillion

Dan8267 says

Cool. Let's test that theory. $500 says that wouldn't have been the case. Hop in your Delorean and stop the bailouts so we can see the result. Short of that, I'd consider any predictions about what would have happened if the too-big-too-fail institutes had been allowed to fail to be conjecture, no matter how many times the conjecture is repeated.

Just like saying things would have been hunky dory without the bailout is also conjecture. The point is--if there was a 10% chance of Mad Max, would you have intervened? What about 25% chance? 50% chance? Like you said-this is uncharted waters. Don't you have to err on the side of caution?

tatupu70 says

The point is--if there was a 10% chance of Mad Max, would you have intervened? What about 25% chance? 50% chance

That's the exact same line of reasoning the Bush administration used to justify torture. If there was a 10% chance of Saddam having a nuke...

I didn't buy it from Bush. I'm not buying it from Obama.

What if there is a greater chance that the fraud that occurred during the past decade happens again because they got away with it. I find the moral hazard to be far more probable.

In any case, after the depression is fixed, are we going to prosecute the fraud or break up the too-big-too-fail banks? I doubt it.

Dan8267 says

That's the exact same line of reasoning the Bush administration used to justify torture. If there was a 10% chance of Saddam having a nuke...

That analogy is completely ridiculous.

Dan8267 says

In any case, after the depression is fixed, are we going to prosecute the fraud or break up the too-big-too-fail banks? I doubt it.

That's a different subject, but I agree 100% that we must prosecute the fraud and break up the TBTF banks.

tatupu70 says

Dan8267 says

That's the exact same line of reasoning the Bush administration used to justify torture. If there was a 10% chance of Saddam having a nuke...

That analogy is completely ridiculous.

It's not an analogy. It's the exact same line of reasoning.

Dan8267 says

It's not an analogy. It's the exact same line of reasoning.

So is my buying car insurance the exact same line of reasoning then? There's a 1% chance I may get into a car accident, but the conequences could be very costly so I buy insurance.

tatupu70 says

Dan8267 says

It's not an analogy. It's the exact same line of reasoning.

So is my buying car insurance the exact same line of reasoning then? There's a 1% chance I may get into a car accident, but the conequences could be very costly so I buy insurance.

Does your car have weapons of mass destruction?