patrick.net

And Krugman, being a Keynesian, still believes that aggregate demand is the one and only solution to depressions. This is bad, bad reasoning. You should never extrapolate a rule from only one example, especially when that example ignores many lurking variables.

To quote myself from a previous thread,

Keynesians falsely believe that WWII ended the depression by increasing aggregate demand rather than the real reason: WWII restored the trust in the economic engine by ensuring payments for production. Trust, not demand, is the oil of the engine. There was plenty of demand for goods and services during the depression, but no trustworthy means of payment. The same is true today.

The solution is to stop the accounting fraud and realize losses quickly and accurate. Prosecute those who committed fraud and let companies in which fraud ran rampant go bankrupts. Let smaller, more honest firms feed of the carcasses of the too-big-to-fail firms. Then overhaul the system so that it is transparent and people don't have to rely on trust.

Everyone knows that the losses must be fully realized eventually. Nothing can stop that. The approach Keynesians are taking is to realize the losses as slowly as possible spreading them over decades. To do this they must continue the accounting fraud that caused the financial crisis. And in doing so, they prevent trust from being re-established. The end result is that this depression will continue for at least another five years. This depression will be as long as the last one. Unemployment and real wages together won't return to normal levels for at least another five years.

To continue with the lurking variables, before WWII there were two industrialized economic centers: America and Europe. After WWII, Europe was devastated. Europeans were starving. The factories were all destroyed.

Meanwhile, America was completely untouched by the war, except for Pearl Harbor in Hawaii. So America was the only industrialized nation at the time. It had absolutely zero competition. Gee, you think that might have contributed to America's boom. An entire continent of people demanding the production of an industrialized economy but unable to produce it themselves and having to turn to America, the only country that had the ability to produce goods at the time. Fuck, if we had that today, nobody would be unemployed.

WWII killed off all the economic competition for America. To make today like the 1940s, we'd have to nuke all of China, India, and many other 3rd world nations. We need a different solution.

bgamall4 says

austerity cannot work.

Austrian economics isn't just about living within your means. Austrian economics is not synonymous with austerity despite what sound bytes the media mindlessly parrots.

The difference between what we are doing and what we should do are:

1. We shouldn't debase our currency through inflation. This is simply stealing wealth from savers to pay off the debts of people who gambled. This is neither socially just nor wise as it encourages reckless behavior and taking on debt and discourages savings and honest investments.

2. We shouldn't spend money on whatever special interest has the best lobbyists. Contrary to Keynesian philosophy, paying men to dig holes and fill them in is not a path to prosperity. Neither is the aggregated demand generated by warfare. Using wealth to destroy infrastructure is always counter-productive.

3. Instead, we should carefully spend what we have and what money we borrow on investments that provide a real, not imaginary, return. Investments like better power grids, fiber optic Internet access, solar and wind energy farms, hydroponic farms, mass recycling centers, carbon sequestration. What you spend money on matters. Simply spending does not lead to prosperity

4. The money should not be borrowed from the Federal Reserve, nor should the Fed be allowed to increase the money supply. Lack of money is never, ever, ever the problem. Money is an imaginary measuring stick and nothing more. It is not wealth. Increasing money does not increase wealth. It transfers wealth from responsible people to the central banks.

5. Instead the federal government should directly issue government bonds with 8% tax-free interest rates and sell these bonds to U.S. citizens only. If the gvt does this, there would be absolutely no lack of cash for government spending as millions of citizens would gladly take a 100% safe investment with 8% tax-free real return (remember, no inflation!). This is what got the U.S. economy out of the First Great Depression. Back then, they were called war bonds. (Technically, my bond idea is a better stimulus, but those are details.)

6. The massive amount of resources being allocated to the defense industry should be almost entirely reallocated to internal infrastructure until the depression is solved and then should be freed by eliminating federal income tax on the first $100k/yr of earnings.

Also, any idea that you can grow your way out of debt is ultimately doomed to fail. The Earth has finite capacity and cannot support indefinite economic growth. Therefore,

7. Our economic system should be based on maximizing the per capita production rather than blinding seeking unbridle growth. Not only would our economy be better, but so would our environment.

8. Money removed from the economy by any means (deflation or hording) does not decrease wealth. Wealth is determined entirely by present and past production and waste and deterioration. Decreasing the money supply does not decrease wealth, it increases the purchasing power of savings and earnings. If the wealthy were hording money, we'd be better off. Instead, they have dropped all their money in exchange for gold and other assets. The wealthy are hording wealth not money.

bgamall4 says

End demand is a function of an adequate supply of money and of desire to buy.

No. I could run the entire world's economy on one dollar. And I could run it better than our economies currently run, with no bubbles and bursts, no business cycle, no environmental damage, and maximum long-term productivity.

Most important of all, it only takes a single dollar to conduct all present and future business. For more details, read this old thread.

bgamall4 says

Dan, that is BS. Lack of money turning over in the economy was a huge problem in the great depression and is a problem now.

Don't believe everything they taught you in elementary school. American history for kids is 90% propaganda.

Dan8267 says

2. We shouldn't spend money on whatever special interest has the best lobbyists. Contrary to Keynesian philosophy, paying men to dig holes and fill them in is not a path to prosperity. Neither is the aggregated demand generated by warfare. Using wealth to destroy infrastructure is always counter-productive.

bgamall4 says

You are kidding right? Americans who travel abroad say everything from airports to roads are in decay here compared to elsewhere.

Performing legitimate and useful repairs on infrastructure is the Austrian remedy. Paying a man to dig a hole in the ground and then fill it up accomplishing nothing is the Keynesian solution. Paying that man to dig and refill the hole prevents you from using that man to build a road or airport. That's why Keynesian economics is stupid.

bgamall4 says

Then Japan R Us, only we borrow from abroad due to our trade deficit, making us more vulnerable to our creditors.

Japan's two lost decades were caused because the Japanese government refuse to let any of its banks go under. Hence the term "zombie bank".

Dan8267 says

Money removed from the economy by any means (deflation or hording) does not decrease wealth. Wealth is determined entirely by present and past production and waste and deterioration.

bgamall4 says

People in the Great Depression would laugh you out of town on that one if they were still around.

Some of them are still around. But as most Americans in the First Great Depression were patsies who didn't have any understanding of why the system collapsed and had no power to correct it. Much like today.

Still, maybe you are right. The truth goes through three phases. First it is ridiculed. Then it is violently opposed. Finally, it is accepted as self-evident. I'm on stage three and you are on stage one. Come back in twenty years and buy me a beer.

You don't get the idea that money isn't actually a real thing. It's an arbitrary measuring stick. People are out of work because their potential productivity is being wasted by malinvestment of resources and fraudulent accounting.

If printing money was the answer, the economy would be trivial to fix overnight. Printing money is easy. You don't even have to print it. You just update a row in a database and you can quadruple the money supply. Do you really thing that doing that would fix the economy?

It's amazing how many people actually buy the ridiculous proposition that you can have a zero percent of the population producing actually goods and services and still have a robust economy if you just have enough monetary units or if you just keep increasing the number of monetary units.

The U.S. economy has over 500 times as many monetary units as it did in 1913 -- and that's a damn conservative estimate (it's probably over twice that) -- and yet there isn't enough money? Exactly how many monetary units would it take to run the economy in your opinion bgamall4? And if we adjusted the money supply to that or twice that would you then say ok, we can keep the money supply constant?

Dan8267 says

It's amazing how many people actually buy the ridiculous proposition that you can have a zero percent of the population producing actually goods and services and still have a robust economy if you just have enough monetary units or if you just keep increasing the number of monetary units.

Actually it's amazing how ridiculously you distort and misrepresent Keynesian theories. You are very good at presenting strawmen though.

tatupu70 says

Actually it's amazing how ridiculously you distort and misrepresent Keynesian theories.

I don't think it is a distortion.

Keynesian economics rests on the foundation that reduction in aggregate demand is the cause of the bust. That's totally backwards.

The cause of the bust is that malinvestments during the boom phase go kaput.

Secondly, Keynesian economics also recommends that government intervention will help solve the problem of inadequate aggregate demand. Government intervention is always done at the expense of the saver class. Keynes clearly did not have any respect for the savers.

Instead of just stating "you are very good at presenting strawmen", please directly argue for Keynesian economics.

What you're doing is called "Ad Hominem", a classic logical fallacy.

uomo_senza_nome says

Keynesian economics rests on the foundation that reduction in aggregate demand is the cause of the bust. That's totally backwards.

No--that's not true at all. Determining what caused the bust is important, but Keynesian economics is telling you what to do now.

uomo_senza_nome says

The cause of the bust is that malinvestments during the boom phase go kaput

That is certainly part of the cause now. (as it usually is) The income inequality is another cause. Regardless, lack of demand is the issue that must be solved whatever the cause.

uomo_senza_nome says

Government intervention is always done at the expense of the saver class. Keynes clearly did not have any respect for the savers.

That is factually incorrect. Keynes advocted for governments to run surpluses during the good times so that there would be rainy day funds available for use during bad times. Inflating currency would not be required. That fact that our government is not fiscally responsible enough to do it is not a reflection on Keynes.

uomo_senza_nome says

What you're doing is called "Ad Hominem", a classic logical fallacy.

No--not really. If I said Dan was a Patriots fan, therefore his views on economics are crap--that would be an Ad Hominem attack. What I did was simply point out his strawman arguments.

tatupu70 says

No--that's not true at all.

Care to explain why? Or would this just be a blind assertion? Krugman is screaming from the rooftops about lack of aggregate demand. And you can't find a more reputable Keynesian than Krugman.

tatupu70 says

Regardless, lack of demand is the issue that must be solved whatever the cause.

Lack of demand is an issue because you are focusing only on spending and paying no respect to saving. Lack of demand is the effect of households faltering with too much debt .

Reflect on that statement for a moment. And tell me if debt is the problem or demand is the problem.

Stagnant wages is also a problem, but that ties in with the too much debt problem. Wages remaining stagnant have forced households to take on more and more debt until SHTF.

There are several ways of solving it, but we're arguing about the primary cause here.

tatupu70 says

Keynes advocted for governments to run surpluses during the good times so that there would be rainy day funds available for use during bad times. Inflating currency would not be required. That fact that our government is not fiscally responsible enough to do it is not a reflection on Keynes.

This is true. I read a statement somewhere that the present day policy makers are more Keynesian than Keynes. :)

tatupu70 says

What I did was simply point out his strawman arguments.

Point out where they are so that we can see them. Blind assertions get us nowhere.

bgamall4 says

And because libertarians believe they should keep it and because they think it is stealing to tax it, there is no way to get it to the economy that needs it under the libertarian system.

correct!

I think Krugman is largely wrong on the prescriptive side ($10 gasoline isn't going to be doing anyone any good) but that doesn't mean the anti-Keynesians in general or the Miseans in particular are correct about anything.

The real fault of the libertarian right is their blind spot on land.

http://geolib.com/essays/sullivan.dan/royallib.html

and also neoliberal globalism. I'm all for globalism that doesn't come with a trade deficit, but it's selling this country out to push for globalism in the current environment.

bgamall4 says

Artificial distinction.

Are you trying to make the argument that it does not matter whether we perform useful work or non-useful work, just as long as there is work? That is certainly the Keynesian idea. But really, do you believe there is no material differences between the following three scenarios as far as economic productivity is concerned?

Scenario 1: Useful work
We repair roads and infrastructure, upgrade our power grid, build green power production like solar/wind/hydro, improve schools, rebuild New Orleans where it won't get flooded, provide super-fast Internet access to every residency, school, library, and business.

Scenario 2: Destructive work
We build more weapons, advance weapon technology, drop bombs on weaker nations, build more bombs to replace those, increase the number of air-craft carriers, and destroy the infrastructure of other countries.

Scenario 3: Useless but non-destructive work
We build a giant statue of a penis that can be seen from space, the largest structure ever. Then we blow it up. Repeat process 100 times.

If you think that scenario 2 and 3 are as good as scenario 1, then you are not using common sense. Scenario 3 produces no wealth and scenario 2 destroys wealth.

Dan8267 says

The U.S. economy has over 500 times as many monetary units as it did in 1913 -- and that's a damn conservative estimate (it's probably over twice that) -- and yet there isn't enough money? Exactly how many monetary units would it take to run the economy in your opinion bgamall4? And if we adjusted the money supply to that or twice that would you then say ok, we can keep the money supply constant?

bgamall4 says

It is with the 1 percent. And because libertarians believe they should keep it and because they think it is stealing to tax it, there is no way to get it to the economy that needs it under the libertarian system.

The issue of taxing the rich is completely orthogonal to what we are discussing. Hell, I'm for taxing the rich much more than you are. But that's not what we're discussing here.

The Federal Income Tax is not even remotely related to the issue of inflation. Nor is it relevant to the issue of stopping the fraudulent accounting and realizing the losses quickly so they don't keep the unemployment rate high. Furthermore, the rich have replaced their USDs with gold and other assets.

Finally, you still haven't answered the question. You stated that there isn't enough monetary units in the economy. How many monetary units are enough and if we put that many monetary units in the system will people like you stop insisting on adding more monetary units every day? I.e., Do you want inflation simply to tax those with savings, even the poor an middle class who bear the brunt of inflation?

tatupu70 says

Actually it's amazing how ridiculously you distort and misrepresent Keynesian theories. You are very good at presenting strawmen though.

Give a specific example of where I am presenting a strawman argument and why it is a strawman argument. Simply asserting such a thing is a piss poor argument and does not advance this discussion.

And what you call "ridiculous", I call rational and objective reasoning based on mathematics rather than political ideology.

uomo_senza_nome says

Keynesian economics rests on the foundation that reduction in aggregate demand is the cause of the bust. That's totally backwards.

Correct. Both great depressions were triggered by unbridle risk taking amplified by leverage and accounting fraud, and when the fraud was uncovered, instead of realizing all the loses quickly and reallocating resources to productive industry, the money masters chose to hide the fraud and prolong the pain. This destroyed the very trust required to perform day-to-day business. Everybody became a turtle hiding in its shell and productivity stopped.

It is the stoppage of productivity, not monetary units, that kept unemployment high and productivity low. If productivity simply wasn't lowered, but instead the prices of goods lowered to where they sold, then there would have been no First Great Depression.

People buy things when the prices are lowered. Take plasma and lcd tvs for example. Think of all the smartphones, tablets, and other electronics that are selling lot hotcakes because they became much more affordable. Lower consumer prices do not cause a depression. If anything, they alleviate the effects of a depression.

uomo_senza_nome says

What you're doing is called "Ad Hominem", a classic logical fallacy.

Exactly. Ad Hominem arguments indicate that the writer has no legitimate counter-argument to make, yet doesn't want others to realize that the opponent's position is correct.

An Ad Hominem is a general category of fallacies in which a claim or argument is rejected on the basis of some irrelevant fact about the author of or the person presenting the claim or argument. Typically, this fallacy involves two steps. First, an attack against the character of person making the claim, her circumstances, or her actions is made (or the character, circumstances, or actions of the person reporting the claim). Second, this attack is taken to be evidence against the claim or argument the person in question is making (or presenting). This type of "argument" has the following form:

1. Person A makes claim X.
2. Person B makes an attack on person A.
3. Therefore A's claim is false.

The reason why an Ad Hominem (of any kind) is a fallacy is that the character, circumstances, or actions of a person do not (in most cases) have a bearing on the truth or falsity of the claim being made (or the quality of the argument being made).

http://www.nizkor.org/features/fallacies/ad-hominem.html
By the way, will people please brush up on all the argument fallacies so they stop using them. http://www.nizkor.org/features/fallacies

tatupu70 says

Determining what caused the bust is important, but Keynesian economics is telling you what to do now.

Keynesian economics proposes the answers to both the cause and the fix for a depression. It is wrong on both of them.

Unfortunately when people present logical and factual arguments against Keynesian economics and alternative approaches, the supports refuse to listen to the arguments and misinterpret. Keynesian economics has become a sort of religion whose dogma isn't questionable to most people. And that's a bad thing.

tatupu70 says

lack of demand is the issue that must be solved

There is no lack of demand. People are just as materialistic and greedy as they were ten years ago. Everyone wants a 6000 sq.ft. house, five 90" plasma televisions, a Lamborghini, a Ferrari, and a vacation home in Hawaii.

People will buy stuff if it's affordable. If you keep productivity up and you don't cook the books. Make no mistake. Either the fraudulent behavior in the financial industry is dealt with through criminal prosecutions and the public accounting made accurate so everyone knows what and where the loses are, or we will continue this depression for another 10 years as the fraud slowly dissipates.

It's better to fix the problem right away than to keep hiding the severity of the problem. Realizing losses over long periods maximizes those loses because it prevents people from being productive and employed.

tatupu70 says

The income inequality is another cause.

Income inequality is a serious problem, but that problem has nothing to do with Keynesian vs. Austrian philosophy.

tatupu70 says

Keynes advocted for governments to run surpluses during the good times so that there would be rainy day funds available for use during bad times.

Our government is Keynesian and it hasn't done that. And saving for a raining day is a good idea, but Austrian economics promotes that as well. The big difference between Keynesian and Austrian economics is that Keynesian doesn't give a rats ass what you spend the money on or where you get it from, and Austrian economics does.

The money should come from honest taxation, not by covertly taxing only responsible savers. And the money should be spent on things that will return wealth to society in the long-run, things that are useful to society. Austrian economics does not say that government should never spend on public works projects. It says it should spend only on useful public works projects not useless (giant penis statues) or destructive (warfare) projects. Keynesian says it's all good.

Our war on terror has spent 25% of the resources on the war on terror as it spent on WWII. According to Keynesian economics, if we spend four times as much on military operations killing brown people, we'll get out of this depression. Paul Krugman, who is a very intelligent person despite having a blind spot for Keynesian economics, actually believes this. However, since Krugman like I am, is a peace promoter, he won't say make war against brown people. Instead, he'll say make war against green people. But the economic principle is the same regardless of the ethical difference.

http://www.nhMAV9VLvHA

Do you really think that misspending trillions of dollars on preventing an alien attack that isn't going to happen since the aliens don't even exist is going to solve the depression? A massive mal-investment is the solution to the massive mal-investments that caused the depression? This is like trying to save a drowning person by throwing buckets of water on him. It is simply ridiculous. Yet, that is what Keynesians promote.

Austrian economics says that money is far better spent on investing in infrastructure that will return wealth to society and paying for that investment through honest means, not parasitically stealing from savers via inflation.

And debt is bad. Sometimes it makes sense to take on debt in order to invest in something that will have good long-term returns like a house or a college degree. But debt is still bad and should be minimized and paid back as quickly as possible. Debt is not money, but our currency is based on it. That's a really bad thing.

uomo_senza_nome says

Stagnant wages is also a problem

Of course stagnant wages are only a problem because of inflation. Without inflation, stagnant wages would not lower the quality of life or cause households to go into debt. Inflation not only taxes a person's life savings while letting the ultra-rich go untouched, they also harm anyone living on wages or a fixed income source like social security, pensions, IRAs, and 401Ks. Inflation makes your grandmother eat dog food.

http://www.BfOWWuTyZ7c

uomo_senza_nome says

I read a statement somewhere that the present day policy makers are more Keynesian than Keynes.

Agreed. And this is actually a very typical phenomenon with humans. A human H proposes a philosophy P. Over time the followers of P change it to become more and more extreme to the point where H wouldn't even recognize it.

bgamall4 says

No, the cause of the bust is hot money getting out of the bubble it caused.

So, if hot money stayed in the bubble it would have never burst? Ponzi schemes mathematically cannot continue forever.

And even if the housing bubble magically did continue forever, it would be extremely bad because money spent on housing cannot be spent on infrastructure, education, vacations, electronics, concerts, restaurants, furniture, cars, home solar panels, maid service, or anything else. Money spent on housing starves the 99% of the economy that isn't housing and mortgage financing.

A bubble that didn’t burst would be the worst possible thing for an economy. It would starve us all. The bubble is the problem.

tatupu70 says

No--not really. If I said Dan was a Patriots fan, therefore his views on economics are crap--that would be an Ad Hominem attack. What I did was simply point out his strawman arguments.

Actually, what you said was

Actually it's amazing how ridiculously you distort and misrepresent Keynesian theories. You are very good at presenting strawmen though.

And that is most certainly an Ad Hominem attack. Perhaps you use them so often, it has become an overlooked habit.

A real counter-argument would state what the Straw Man argument was by identifying person A, person B, position X, and position Y. For details, remember the defnition of the Straw Man argument.

The Straw Man fallacy is committed when a person simply ignores a person's actual position and substitutes a distorted, exaggerated or misrepresented version of that position. This sort of "reasoning" has the following pattern:

1. Person A has position X.
2. Person B presents position Y (which is a distorted version of X).
3. Person B attacks position Y.
4. Therefore X is false/incorrect/flawed.

You have done none of the above except identifying me as person B.

Would you like to try again?

Of course a smart person would realize that I never intentionally misinterpret any person's argument since I believe the analysis, not the conclusion, is what is important. If you understand that, you'll understand everything I say and believe. It's really an easy concept, but many people just don't seem capable of understanding it.

tatupu70 says

If I said Dan was a Patriots fan, therefore his views on economics are crap

Normally, I'd make a smart-ass remark in reply, but since I know nothing about sports, I'll refrain.

The Krugman video also reminded me that Krugman is for inflation. I say if the government wants to print more money, it should give all the newly printed money to savers in proportion to the percent of their income that they saved. We can make the top 1% ineligible for this handout.

Once I get my share of the newly printed money, I'll stimulate the economy by going to the local strip joint and letting them handle my stimulus package.