There are some things that Krugman is not saying, however, and I think they bear mentioning. First, we forget that the banks in Europe, plus the European Central Bank, were all-too-anxious to lend billions to Greece even when it was obvious that the Greek government was irresponsible and that Greece has some of the worst government employee unions in the world.
(I know, I know. Public employee unions are great because they encourage spending, and everyone knows that spending creates prosperity, so the unions in Greece simply were spreading wealth.)
Yet, the average Greek must face a grim future because the banks need to be saved. Yes, the bankers of the world most fear a series of world-wide runs, and so the Greeks must pay back the loans, or at least pay back a lot of the loans.
By the way, one of the features of "austerity" programs is raising taxes and tax rates. Not that Krugman mentions this point; all he says is that it is bad that governments are spending less, and that the road to prosperity is paved with government paper.
I am among those who believe that default is best, and that Greece would be wise to leave the euro. Now, where I believe Krugman is wrong is when he thinks that Greece, if it went back to the Drachma, could inflate itself into recovery. He does seem to believe that the USA definitely could do that:
...the main point is that America does have an alternative: we have our own currency, and we can borrow long-term at historically low interest rates, so we don’t need to enter a downward spiral of austerity and economic contraction.Yes, the USA can borrow and print itself into economic recovery and beyond. Or so says Paul Krugman.
23 comments:
I thought that the Greek default was a done thing. There's no longer any question about it, the CDS have been triggered.
Of course, how badly the remaining uninsured creditors get burnt remains to be seen, but no doubt it will be bad.
As for Greece leaving the Euro, my guess is that the other European nations will offer them some small subsidy to pay the Greeks to stay in. Not enough to make the Greeks happy, just enough to keep them obedient.
Ahhhh, Krugman believes in Greek mythology (as well as Roman, etc...)
In the progressive mind - the dark and strange place that it is - there are never any consequences of actions.
To think that people this pathetic are taken seriously makes me sick!
If you could inflate into recovery, then Zimbabwe would have been the wealthiest nation on the planet.
Tel you said “…CDS have been triggered.”
We’ll see. The devil is in the details and the operation of the actual mechanics. The MSM downplays the issue by citing the "net" CDS figure. The net figure means nothing if a counter party on one side fails. Also the ultimate amount paid is net after auction of the defaulted bonds. Thus the higher the price obtained at auction the lower the CDS payout.
Anybody want to bet there will be some back door straw man bidding by central bankers to reduce the CDS obligation by the banks that wrote the paper without the corresponding assets? Another form of bank bailout.
And where does it stop? Does anyone think Ireland etc won’t want to revisit their deal? Here comes global QE on steroids.
It would be nice to see Krugman put his money where his mouth is. How much of his personal and retirement money has been invested in the bonds of countries disdaining calls for austerity, or attempting to solve their problems by raising taxes rather than cutting down on government spending? What about our loyal poster Lord Keynes - does he have any bonds of European or other countries running huge deficits? I would guess no. Krugman urges Germany to give more money to Greece, but doesn't want to give the Greek government his own money I'll bet.
At least the US does have a printing press, so the odds are good that if you lend the US government money, at maturity you will be given back something called dollars. What they will be able to buy at that time is the big unknown.
Perhaps it should be mentioned that the 19th century USA borrowed and spent itself into prosperity; both the government and the private sector borrowed. So it is not "obvious" that borrowing and spending is a ridiculous thing to do. The lack of a central bank, and the extent and purpose of government borrowing may make a difference, of course. But I get the impression on this blog that debt, in itself, in all forms and everywhere, is the culprit. Have I got the wrong impression?
"Yes, the USA can borrow and print itself into economic recovery and beyond."
It's the "beyond" that scares me.
Rick T ... does he have any bonds of ... countries running huge deficits?
Lots of pension funds hold US treasury bonds, a country running a huge deficit. The demand for US treasuries is high, and the interest rate is low, seemingly contrary to Austrian predictions, (if there is such a thing as an Austrian prediction).
There seems to be a big lag today between writing a comment and having it posted, so perhaps someone else has answered Macroman. He asks "But I get the impression on this blog that debt, in itself, in all forms and everywhere, is the culprit. Have I got the wrong impression?"
You certainly do have the wrong impression. In the USA in the 19th century there was indeed a lot of debt. Individuals and businesses saw opportunities to produce products and services that were of genuine value to consumers or other businesses. They borrowed much of the capital needed to get into those businesses, and the operating profits they earned allowed them over time to pay off the debt and then own the business without having to share any future operating profits with creditors. As is always the case, not every business idea was a good one, and entrepreneurs who came up with bad ones were wiped out and their creditors suffered severe losses. That is a good thing; in the long run we want those who back good ideas to benefit and those with bad ideas to lose money, so as to transfer money into the hands of those who have proven that they are better at anticipating which needs in society most need filling, since in capitalism (as opposed to our present crony capitalism) it is only by doing so that one can make a profit and pay off debts.
Also, in the USA at the time, there were large, capital intensive infrastructure projects of great economic value to the society as a whole that the governments took on with borrowed money. The savings that, e.g., the farmers in western NY state had transporting their food to eastern markets through the Eire Canal and better roads allowed them to pay the fees to do so and still come out ahead, and those fees were used to pay down the debt used to build it. Having the governments do projects such as these allowed them to get done somewhat sooner than if they had stayed out of the way and let private companies handle it, while at the same time causing more bad projects to get financed because the pols were corrupt and not betting their own money.
What allowed some of these projects to generate the income to pay back all their debts and others to fail was the merit of the projects themselves, and the nature of the US in the 1800s was that there were many such projects available that lowered the cost of transport and manufacture, and thus paid for themselves. With a much more developed infrastructure now in place, most such expenditures no longer pay their own way today.
What both private and government debt financed capital improvements had (and still have) in common is that in the good ones the debts are "self-liquidating", in that the business or project provides value and thus generates the profits or fees that eventually pay off the debt.
When the government borrows money to give big raises to its employees, or give big pensions to young retirees, or build expensive bridges to islands no one wants to go to, there is no economic value that brings in any income to pay off those debts. Sure, you could raise taxes on government employees and early retirees, and heavily tax the contractors and workers who built the useless bridges; that would help pay for the programs but take away the purported justification.
The point is that Keynesians such as Krugman never consider whether money spent provides something of economic value. Nothing wrong with debt in projects that generate the extra income to pay off the debt, but borrowing to spend on things that don't pay for the debt is just consumption, which makes us poorer over time.
The private sector risks its own money and is more likely to invest in profitable lines of production. And before you drag out some private sector boondoggle - this assumes no interest rate manipulation
The public sector risks other people's money, lending to entities that are unable to get loans in the private sector. And before you drag out the dead horse of 'only the gov't can fund things on such a massive scale', Apple has more cash than the U.S. Gov't and could fund any project it wanted if the ROI was good
Debt loaned from a pool of capital that comes from forgone consumption (i.e. resources that actually exist) is 'good' and sustainable.
Debt created from the issue of paper notes (i.e. not backed by resources that actually exist) is 'bad' and leads to the business cycle.
jason h: And before you drag out the dead horse of 'only the gov't can fund things on such a massive scale', Apple has more cash than the U.S. Gov't and could fund any project it wanted if the ROI was good
Apply simply doesn't have the budget for huge projects, such as planetary exploration which stretch over generations and with uncertain returns.
Rick T: Thanks. I agree with probably 90-95% of what you say. I expect you will get some flak for saying that the government did in the past fund some good infrastructure projects.
budget for huge projects, such as planetary exploration which stretch over generations and with uncertain returns.
Read: The market has determined that this effort does not match consumer preferences and is thus a waste of precious resources.
NASA really should not be you're goto example, as 'planetary exploration' was about developing ICMBs - where you don't have to rely on a bomber pilot who may just hesitate about incinerating hundreds of thousand of innocents.
NASA really should not be you're goto example
There were some positive "spin-offs" as well as evil ones. The computer gaming industry, GPS, communication satellites, new materials, and the military gave us the internet.
jason h: NASA really should not be you're goto example, as 'planetary exploration' was about developing ICMBs - where you don't have to rely on a bomber pilot who may just hesitate about incinerating hundreds of thousand of innocents.
This was your stated objection:
jason h: And before you drag out the dead horse of 'only the gov't can fund things on such a massive scale', Apple has more cash than the U.S. Gov't and could fund any project it wanted if the ROI was good
Which is misleading, because the investment may be too large, adn the return on investment may be too far in the future for a corporation to sustain investment.
As you yourself pointed out, large ballistic missiles were developed by governments for military purposes. This led, after WWII, to a space race as a proxy for the Cold War. This led to the spinoffs that macroman just mentioned.
Continuing space exploration is well beyond the capability of corporations. Manned exploration is even getting beyond the financial means of any single country, even one as rich as the United States.
Continuing space exploration is well beyond the capability of corporations. Manned exploration is even getting beyond the financial means of any single country, even one as rich as the United States.
Again...the market has determined that these efforts do not match consumer preferences and are a waste of precious resources.
As has been addressed before, assuming the 'spin offs' would not have happened without gov't involvement is false.
One can't point to a canal that is 'good' for some people and say it is morally acceptable to tax everyone to pay for it.
The morally acceptable part also becomes quite bizarre when one considers that the number of nuclear missiles (designed to complete annihilate foreign peoples) far outnumber the number of 'good' spinoffs like World of Warcraft.
jason h assuming the 'spin offs' would not have happened without gov't involvement is false.
I think you are guessing, claiming knowledge nobody has.
jason h: Again...the market has determined that these efforts do not match consumer preferences and are a waste of precious resources.
Markets are myopic.
jason h: One can't point to a canal that is 'good' for some people and say it is morally acceptable to tax everyone to pay for it.
Most people don't share your delicate sensibilities, but think that people can work together democratically to do everything from self-defense to street lights to space exploration.
But there's no argument against someone's personal morality, delicate or otherwise. It is what it is.
jason h the market has determined that these [exploration] efforts do not match consumer preferences and are a waste of precious resources.
The market also determined that Christopher Columbus's journey did not match consumer preferences. Queen Isabella stepped in and made a big difference to the people of South America. It is quite difficult to work out what would have happened without Queen Isabella, and whether it would have been better or worse.
Zachriel:
jason h: Again...the market has determined that these efforts do not match consumer preferences and are a waste of precious resources.
Markets are myopic.
Markets are a process, they are not a thinking entity.
Individuals in voluntary cooperation are as far sighted as they deem the far future to be important in their lives. Some are more forward looking than others.
Blanket statements like "markets are myopic" require a standard, and also an explanation.
Since you're claiming markets are myopic, which really means freedom in trade leads to myopia, then the only plausible standard for minimal myopia has to be non-markets, i.e. command economies, i.e. totalitarian systems. Only when people are ordered around all day long will they be minimally myopic. But that is silly. Prisoners and slaves tend to be the most myopic people because their property rights are least secure in their circumstances.
Economic freedom based on respect and protection of property rights breeds maximum far sighted thinking and planning.
Yet you believe that those who rule in totalitarian regimes are the least myopic people in the world? Please. You're just engaging in nothing but state worship.
jason h: One can't point to a canal that is 'good' for some people and say it is morally acceptable to tax everyone to pay for it.
Most people don't share your delicate sensibilities, but think that people can work together democratically to do everything from self-defense to street lights to space exploration.
Fallacy ad populum.
But there's no argument against someone's personal morality, delicate or otherwise. It is what it is.
And yet you wish to eradicate it by force anyway. YOU have the "delicate" sensibilities, so delicate that you can't even handle others having different (yet peaceful) sensibilities than you.
jason h:
The market also determined that Christopher Columbus's journey did not match consumer preferences.
A person who is the product of rape can still legitimately argue against rape, despite the fact that a social practise of no rape would have made their life impossible.
Major F: A person who is the product of rape can still legitimately argue against rape, despite the fact that a social practise of no rape would have made their life impossible.
MF. You sure have a weird way of arguing that sounds more and more like Anderson in disguise.
The point of my Christopher Columbus example (and South America in case you think I was referring to North America) was to say that we don't know if things would have been better if the state had not stepped in, contrary to an apparent axiom of Austrian economics that things are always worse if the State steps in.
This "axiom" is an assertion, a statement of faith in an uncertain world, an assumption of knowledge not available to us. I think it can be shown to be wrong in certain situations (though I agree that generally the free market is a good thing).
The point of my Christopher Columbus example (and South America in case you think I was referring to North America) was to say that we don't know if things would have been better if the state had not stepped in, contrary to an apparent axiom of Austrian economics that things are always worse if the State steps in.
But things WERE in fact worse for people back when Columbus was financed by taxation. The people worse off were the people who were threatened with violence to pay for it.
This "axiom" is an assertion, a statement of faith in an uncertain world, an assumption of knowledge not available to us.
No, it is not a statement of "faith." It is logically necessary.
Just because you have not bothered to read the philosophical foundations of rationalist philosophy, of property rights, and of the market, it doesn't entitle you to accuse others of espousing a faith.
I fully accept that YOUR chosen axioms are faith based, because I know for a fact that you have never engaged in any epistemological analysis or study.
But things WERE in fact worse for people back when Columbus was financed by taxation. The people worse off were the people who were threatened with violence to pay for it.
So now you are talking about the Spanish people. And you claim to know that the Spanish people didn't get a net benefit from Columbus's journey.
Would it make any difference if the Spanish people at the time had a different scale of relative values than you do?
Post a Comment