patrick.net

We know he's clueless.
The funny thing for me is that the world's richest (fat, slob) Mexican had to bail out the NYTimes. Carlos Slim is the epitome of 1%, robber baron who got control of Telmex and made a giant fortune gouging the tens of millions of Mexicans for telephone services.
I grew up in the NYC area and was fed a steady diet my whole life of the liberal elitist nonsense they believe.
I knew a couple NYTimes writers who spent the summer on Martha's Vineyard, I dated one editor's daughter.
I'm not trying to impress, but to let readers know that the whole East Coast rich liberal political/media scene is completely clueless and in a bubble. They exist in a bubble of Washington DC-Manhattan-Vineyard-Cambridge Mass, with some trips to London and Paris thrown in.
I moved from this milieu to work and live in a third world country opened my eyes but talking with the clowns like Krugman became impossible for me later on.
Krugman and his ilk have no idea what the real world is like, and they never will. They're pathetic.
By the way, I have seen this movie before, but on a smaller scale, in Mexico. The USA can make so much money available in the system and borrow/give away so much welfare, unemployment, government jobs that the economy will SEEM to grow. It will be like Mexico when the pesos value fell through the floor in the 80's.
I saw the Peso go from about 28/$1 to about 60/$1 USD in a short time. After it went lower still, they decided to change the peso, 1000pesos=1 New peso.
Today it is about 14 New pesos=14,000 pesos/$1 USD.
Yet, because some mexicans have improved their living standard overall, the Mexican government is fine with their situation.
Imagine being a Mexican guy who had saved up his money and was retired in 1981? He sure was fucked but by now he'd likely be dead anyway.
Punishing savers, punishing investment, punishing and taxing capital, transferring saving and capital to govermnent welfare programs will not help the truly productive people in the USA. It will put more people on the dole and more dependent on the govt. which is of course the grand plan of people like Krugman and Obama. A pox on them.

Krugman turned off comments on his articles for a reason.

One could argue that we aren't having inflation due to the higher unemployment rate. It could be said that rather than raising prices or trying to shrink portions that companies simply laid people off. It is harder to compete in the marketplace when the consumer has more information than ever. Who would have thought that even ten years ago someone could scan products and find cheaper places online. Retailers are now gradually being reduced to showrooms.

Inflation can also be imported as seen with the price of oil. When a country uses a commodity that is used in other areas then higher consumption of one can lead to higher prices in others. The ethanol policy led to significant food prices to increase in Latin America (which I'm sure Krugman ignored)

StillLooking says

The price of gold and silver show inflation.

No this is incorrect. In fact, I have a Krugman article why it is incorrect -- and I think Krugman is right on this one. He argues that the low real interest rates are the driver of high gold prices.

http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-wonkish/

Counter-intuitive, but gold is an excellent hedge during deflation. It does well during inflation also, but does much better in times of deflation.

Silver on the other hand, has a lot of industrial demand. If we have a recession, silver prices will crash. Plus, silver is much more volatile.

See this:
http://professorfekete.com/articles%5CAEF140YearsOfSilverVolatility.pdf

StillLooking says

And further the price of gasoline and groceries show inflation.

Yes they indicate inflation, agreed. but it is transitory and it can't last if people don't have more money to spend.

http://www.shadowstats.com/alternate_data/inflation-charts

If you measure Consumer inflation per 1980 BLS method, we're north of 10%.

Krugman sees deflation in the overall economy (which I think is correct - deleveraging is the theme for next decade or even more), so let's bring in a new word: Stagflation. Inflation in things people need, deflation in things people don't need.

But you can't continue to have inflation in things people need, without real increase in wages. Which means that commodity prices will come down since there's still no "real" inflation.

So in summary: I think Krugman's diagnosis of the problem is correct, but Krugman's proposals for solutions are horribly wrong.

Easy monetary policy is not helping the average American reduce his debt burden, only real wage inflation will.

We also need intelligent fiscal policy (cut spending and fix our complex tax code), but then 'intelligent' and 'politicians' are antonyms :)

Krugman's another fallacy is he is totally married to Keynesian way of solving economic issues, which is provably wrong and demonstrated to be wrong in real life as well.

It is dangerous to be dogmatic; It is wise to be pragmatic.

uomo_senza_nome says

We also need intelligent fiscal policy (cut spending and fix our complex tax code), but then 'intelligent' and 'politicians' are antonyms :)

OK then. How would you suggest we get wage inflation?

Where do you cut spending?

How would you change our tax code?

tatupu70 says

How would you suggest we get wage inflation?

See, if the US was Sweden -- I would have suggested higher taxes on the wealthy and government redistribution through welfare programs (or even better, hand out vouchers so that people can have spending choices, which will make the end quality of the product much better. Sweden hands out vouchers to parents for their children's tuition).

But I don't think that is politically feasible here. Moreover, it doesn't even make practical sense to expect people here to accept such a solution, purely because the politicians are so corrupt. Why would you give more heroin to a drug addict? See my point?

tatupu70 says

Where do you cut spending?

End corporate subsidies, foreign wars and stop giving any aid (because the aid goes towards propping up dictators in foreign countries) for a start. That should cut quite a bit. I'm sure there's a lot more, but that is a good place to start I think.

tatupu70 says

How would you change our tax code?

This is politically a hard problem to crack. I am with Ray Dalio on this: He suggested that we cut spending by the same proportion that we raise taxes. This - he suggested will help us grow at about 1-2%, not great but better than a recession. Problem is unemployment will remain high, which increases risk of social unrest. Unemployment takes a long time to get better, because there's already massive misallocation of labor happened due to the housing bubble.

Either way the plan (of cutting spending and raising taxes) can happen only if politicians can work through in an intelligent, adult-like manner. I doubt they will, which is why the situation might get a lot worse before the politicians act. They are good at reacting, not at being pro-active.

uomo_senza_nome says

He suggested that we cut spending by the same proportion that we raise taxes. This - he suggested will help us grow at about 1-2%, not great but better than a recession.

This isn't one of the "cut spending" canards that basically equates to cut the spending that I don't like or agree with, is it? Because it falls into the category that if you just drive less your car wil get better mileage.
Every bit of government debt is an asset to somebody or entity according to the Modern Monetary Theory. It more a matter of who ends up with the majority of that money

uomo_senza_nome says

Why would you give more heroin to a drug addict? See my point?

Nope--not really. You didn't answer the question. I'm not asking what shouldn't we do--I have all sorts of answers to that question. I'm asking what should we do.

uomo_senza_nome says

End corporate subsidies, foreign wars and stop giving any aid (because the aid goes towards propping up dictators in foreign countries) for a start. That should cut quite a bit.

I don't have the numbers readily available, but I don't think that will make a ripple in the ocean of spending. My guess is that it's less than 10% of our deficit.

uomo_senza_nome says

This is politically a hard problem to crack. I am with Ray Dalio on this: He suggested that we cut spending by the same proportion that we raise taxes.

Again--that's not an answer. I asked how to change the tax code... It's easy to call politicians idiots--it's much harder to actually suggest solutions.

foreign wars

Hundreds of Billions a year, plus many billions down the road in repairs, replacement, and VA costs.

Assuming an annual level of the current Continuing Resolution (H.J.Res. 44/P.L. 112-4) and
based on DOD, State Department/USAID, and Department of Veterans Administration budget
submissions, the cumulative total appropriated from the 9/11 for those war operations, diplomatic
operations, and medical care for Iraq and Afghan war veterans is $1.283 trillion including:

Some 94% of this funding goes to the Department of Defense (DOD) to cover primarily
incremental war-related costs, that is, costs that are in addition to DOD’s normal peacetime
activities. These costs include:
• military personnel funds to provide special pay for deployed personnel such as
hostile fire or separation pay and to cover the additional cost of activating
reservists, as well pay for expanding the Army and Marine Corps to reduce stress
on troops;
• Operation and Maintenance (O&M) funds to transport troops and their equipment
to Iraq and Afghanistan, conduct military operations, provide in-country support
at bases, and repairing war-worn equipment;
• Procurement funding to cover buying new weapons systems to replace war
losses, and upgrade equipment, pay modernization costs associated with
expanding and changing the structure of the size of the Army and Marine Corps,
• Research, Development, Test & Evaluation costs to develop more effective ways
to combat war threats such as roadside bombs;
• Working Capital Funds to cover expanding the size of inventories of spare parts
and fuel to provide wartime support; and
• Military construction primarily to construct facilities in bases in Iraq or
Afghanistan or neighboring countries.

http://www.fas.org/sgp/crs/natsec/RL33110.pdf

Please note that the $1.2+T is just for Iraq/Afghanistan, and not the military in general, this does not include Virginia-class submarines, or the F-22 program, or the Littoral Combat ship, or the cost of maintaining bases, paying salaries, etc. on the almost 200 bases outside the United States, many of which are outside the ME theater of operations.
(EDITED: Adjusted expense so far vs. just 2011)

tatupu70 says

I'm asking what should we do.

I'm saying that there's an inherent distrust in the government and rightfully so. I was trying to set the picture for the solution. I'm not stating what we shouldn't do, I'm trying to reach a solution from a sound premise.

tatupu70 says

but I don't think that will make a ripple in the ocean of spending. My guess is that it's less than 10% of our deficit.

LOL, thunder's statistics mean that if you abort all military spending right here, right now, we won't have any deficit. wtf are you talking about? Just 10%?

tatupu70 says

I asked how to change the tax code... It's easy to call politicians idiots--it's much harder to actually suggest solutions.

I gave you a solution -- we have to do both. There is a LOT of wasteful spending, spending cuts are easy to propose; very hard to get through a political system that's already addict on over-spending.

$3.7 trillion is the figure that is generally cited as the projected ten-year impact of the Bush tax cuts. Letting the tax cuts expire will eliminate $3.7 trillion. That's one way of changing the tax code.

Just to clarify, you hear a lot of BS about Entitlements.

Most "Entitlements" are ill-named, since Social Security and Medicare are paid for by payroll taxes. They're not something for nothing, as certain forces try to distort it. Getting something you pay for isn't an entitlement. An entitlement is shit like alumni admissions, you get moved ahead in the line to get into a certain college because your parents went there.

The problem isn't Entitlements, it's the fact that all the money that was supposed to be earmarked for Entitlements was spent on Discretionary Spending, like Highway Projects and the Military.

Our problem ISN'T Entitlements or Mandatory Spending, it's Discretionary Spending.

(EDITED To explain what an example of entitlement in the modern world looks like)

shrekgrinch says

Hear! Hear! Which means it is all redistributionist welfare when you look at the big picture anyway.

It's more like mandatory insurance, or a mandatory annuity.
shrekgrinch says

What happens when you raise taxes...?

Companies and People reinvest profits so they don't have to pay taxes, creating more jobs.

shrekgrinch says

Answer for the clueless: Tax receipts from those so taxed go down

Except when receipts went up under the Clinton tax hikes and went down under the Bush tax cuts.

shrekgrinch says

Even the little guy will find ways around it if tax levels are high enough -- try paying via debit/credit card/check in Greece.

Not really. Unlike Greece, we have a massive and powerful IRS.

shrekgrinch says

Complete bullshit because it uses static modeling that ignores actual behavioral changes from people.

What people are you talking about Shrek? If you're talking about everyone, then everyone spends about the same amount of money on food/shelter/gas etc. The difference is in the % of their income that they actually spend on essentials. The extremely wealthy (which would be top 0.1%) simply just don't spend that much on essentials.

See this for hard data:

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1860

Even if you look at the impact in percentage terms, the rich still took home more than their share: after-tax income went up by 0.7 percent for the bottom quintile, 2.5-2.6 percent for the middle three quintiles, 4.0 percent for the top quintile, and 8.2 percent for the top 0.1 percent.

So the tax cut expiration will really not affect any consumption patterns.

shrekgrinch says

Wonder why they can't generate enough tax revenue to balance their budgets?

For all the examples you give where it doesn't work, I can give enough examples where it works also. Norway, Sweden to name two. What you need is a transparent, corrupt-free governance. Wealth disparity is a problem, you can't ignore it based on just political views. You have to face the facts.

uomo_senza_nome says

LOL, thunder's statistics mean that if you abort all military spending right here, right now, we won't have any deficit. wtf are you talking about? Just 10%?

First off--you didn't say abort all defense spending. If you meant that, then the deficit picture changes. You said end all foreign wars.

uomo_senza_nome says

I gave you a solution -- we have to do both. There is a LOT of wasteful spending, spending cuts are easy to propose; very hard to get through a political system that's already addict on over-spending.
$3.7 trillion is the figure that is generally cited as the projected ten-year impact of the Bush tax cuts. Letting the tax cuts expire will eliminate $3.7 trillion. That's one way of changing the tax code.

lol--saying cutting spending and raising taxes is not detailing how to overhaul a tax code.

Letting the Bush cuts expire is a start, but I'd hardly call that "overhauling the tax code". I expected you'd have a little more radical suggestion.

Why do we have to "overhaul" the tax code? The only ones who want to overhaul it are the rich peopel who want to replace it with a flat tax that will drastically cut their tax burden.

shrekgrinch says

And companies do not create jobs just for avoiding taxes...since the cost of hiring and having employees is so uncertain thanks to ObamaCare.

When a company decides to use excess income to operations instead of taking them out in profits, they create jobs, either directly themselves or by buying things from other companies who then hire more employees to satisfy the increased demand.

Higher Taxes encourage this behavior.

And the high earners are often the decision makers and owners of corporations.

Shrek,

You are talking about the Laffer Curve and its premise is accepted by both sides.

However, you are also assuming that our current tax rates are to the right (or above) of the maximum on the Laffer Curve, while the Bush tax cuts (and Clinton tax increases) have shown that the tax rates in the US are to the Left (and below) the maximum on the Laffer Curve.

Increasing Tax rates will increase Tax Revenues until the maximum on the Laffer Curve.

To summarize,
1. Lowering tax rates along the upward sloping points of the Laffer curve will decrease tax receipts. (like what happened with the Bush tax cuts)
2. Increasing Tax rates along the upward sloping points of the Laffer curve will increase tax receipts (like what happened when Clinton raised tax rates)

Obvi.

thunderlips11 says

shrekgrinch says

They sure as hell don't now, despite the US have one of the highest corporate tax rates in the world (more if you count the state corporate income tax on top of that).

On paper, the margin rates are high. In reality, the effective rates are lower than anytime since WW2.

Shrek never deals in actual facts like effective tax rates.

shrekgrinch says

despite the US have one of the highest corporate tax rates in the world

I see your rushing to submit all of your nominations for the Dumbest Post of 2011. Keep them coming... time is running out.

shrekgrinch says

They sure as hell don't now, despite the US have one of the highest corporate tax rates in the world (more if you count the state corporate income tax on top of that).

Shrek - seriously wtf?

http://jessescrossroadscafe.blogspot.com/2011/11/us-corporate-taxes-as-percent-of.html