tag:blogger.com,1999:blog-6276561747841568697.post7464409405567748697..comments2024-03-27T05:23:48.855-04:00Comments on Krugman-in-Wonderland: Booms and "Trickle-Down" SpendingWilliam L. Andersonhttp://www.blogger.com/profile/01802990642236807359noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-6276561747841568697.post-61489720659913051472013-01-09T05:57:34.108-05:002013-01-09T05:57:34.108-05:00Prof Anderson, I've checked with Rothbard'...Prof Anderson, I've checked with Rothbard's book <i>"The Case Against the Fed"</i> and he claims that delayed payments are not inflationary. However, his examples only include briefly delayed payments (e.g. a few months).<br /><br />Right now, for example, the Australian electrical goods store "Harvey Norman" is offering 50 months no deposit interest free payment schemes (there are catches, as usual, a few loan fees, etc) because business is slow and they are anxious to keep some products moving. They probably also hope to catch some suckers who don't pay it out in the allotted time and they get hit with full credit card interest.<br /><br />I've seen a few of these schemes (even for big ticket items like cars). Now that's unpaid debt sitting around for four years. I think it's backed by GE Money, so the retailer must be getting something upfront (not sure how they split it).<br /><br />I heard (grapevine style) that with the Australian auto dealers, when the big credit squeeze came around in 2009, Toyota just shipped cars on account to their dealers, because people were having trouble covering their stock and the factory was absolutely not going to shut down production, not under any circumstances.<br /><br />It can't be just Toyota either, because you search on "General Motors Channel Stuffing" and the rumers are out there. I can't believe all those GM dealers can afford to cover such a lot of inventory (not in this economic climate) so I would reckon a lot of that is on account... and we are talking about non-trival amounts of money for non-trival times here.<br /><br />Normally you have a simple exchange, so money goes one way, and good goes in the opposite direction. We are seeing rubber-banding where the movement of goods is getting detached from the movement of money. Do you see what I'm getting at here? What would Rothbard do?Telhttp://lnx-bsp.net/noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-48504182170509912402013-01-08T06:40:40.050-05:002013-01-08T06:40:40.050-05:00Tel, you are on a roll! Great insights!
My commen...Tel, you are on a roll! Great insights!<br /><br />My comment regarding saving or the situation that Keynesians call the "Paradox of Thrift" was that to an ordinary person, this might make sense, but the so-called paradox is not correct. Savings not only mean that funds are available for present capital spending, but current savings also mean future consumption. In fact, if entrepreneurs are able to engage in capital development that comes about via "natural" rates of interest, then there will be more to consume in the future.<br /><br />Of course, that is anathema to a Keynesian, who believes that every penny must be spent NOW or the economy will implode -- unless government "spends to the rescue."William L. Andersonhttps://www.blogger.com/profile/01802990642236807359noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-86894139791277942822013-01-07T21:59:32.423-05:002013-01-07T21:59:32.423-05:00Krugman: So what can be done? A smaller financial ...<b>Krugman:</b> <i>So what can be done? A smaller financial shock, like the dot-com bust at the end of the 1990s, can be met by cutting interest rates. But the crisis of 2008 was far bigger, and even cutting rates all the way to zero wasn’t nearly enough.</i><br /><br />So Krugman admits that interest rates are not an observable market indicator, but are instead something that is imposed by the central planning department.<br /><br />Next week he will tell you the opposite.Telhttp://lnx-bsp.net/noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-84732691392529584932013-01-07T20:10:26.957-05:002013-01-07T20:10:26.957-05:00Oops!! That was Chapter 16 of The General Blah Bla...Oops!! That was Chapter 16 of The General Blah Blah Blah.Balanoreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-65548230235643355182013-01-07T20:08:03.358-05:002013-01-07T20:08:03.358-05:00"...an economy is not like a household. A fam..."...an economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall — and unemployment will soar."<br /><br />You gave too much credence to this piece of utter nonsense by saying <br /><br />"This is something that intuitively sounds right, but is based upon a principle founded upon a belief that mutually-agreeable exchange and individual action that can be harmful economy-wide, and that if a lot of people decide, for example, to save more money, that is what creates unemployment."<br /><br />That it is fundamentally wrong is obvious if one understands the simple point explained by Rothbard in Fig 41 of MESPM. There is such a thing as a certain level of saving in any economy that produces goods for consumption in the distant future. There is an income in that economy too but the only meaningful concept of income there too is the GROSS INCOME to ALL factor owners and ALL Capitalists. The concept of income that Krugman uses is NET INCOME. Focusing on net income to claim that there is a circular flow of income is sheer idiocy. Krugman is just showing us what an economic ignoramus and imbecile he is.<br /><br />The Krugman statement is also based on the fallacious notion at the beginning of Chapter 17 of The General Blah Blah Blah that saving is not deferred consumption. Can you believe this???? That idiot (I mean JMK) actually said that savings is not deferred consumption!!!! Given this, the only way to classify it is as utter rubbish.Balanoreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-12383722524498325342013-01-07T17:54:28.354-05:002013-01-07T17:54:28.354-05:00Krugman is a construction flagman on the road to s...Krugman is a construction flagman on the road to serfdomMikenoreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-8401330129238582002013-01-07T17:01:11.825-05:002013-01-07T17:01:11.825-05:00Krugman: But in the economy as a whole, spending a...<b>Krugman:</b> <i>But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall — and unemployment will soar.</i><br /><br />If you look at a graph of US private debt to GDP ratio, it goes up approximately exponentially since the 1950's. How is that possible if spending and earning go together? Where did all the extra debt come from?<br /><br />The answer that Krugman is not telling you is that spending and earning only go together <b>eventually</b> but they don't go together <b> instantaneously</b>. If I accept some service from you and say, "Hey I'll pay you for that later," then I have consumed the service, but I have not produced anything in return (yet), I have merely issued a promise of future production.<br /><br />There is no limit to the number of promises that can be made. It is not physically constrained, only constrained by the credulity of people who are willing to accept a promise as payment. Promises are not a physical variable, they don't need to obey any conservation laws.<br /><br /><b>Eventually though</b> the promise is either fulfilled or broken. Those are the two options. While more promises are fulfilled than are being made, the aggregate debt goes down. The other alternative is a write-off in which case the promise is never fulfilled, and the ledger never properly balances (i.e. someone loses) but the debt also goes down.Telhttp://lnx-bsp.net/noreply@blogger.comtag:blogger.com,1999:blog-6276561747841568697.post-3031713400018264752013-01-07T13:38:52.160-05:002013-01-07T13:38:52.160-05:00Another excellent column Dr. Anderson. This is th...Another excellent column Dr. Anderson. This is the kind of commentary that cements your reputation as the anti-Krugman (and that is a good thing).Anonymousnoreply@blogger.com