And how does Krugman know that this piece of legislation would have been the magic bullet? Because some bloggers said it would. Yes, a bunch of Keynesians claim that a law that did not passed was the Answer to the Great Secret, but now we never will know if this act -- THIS act -- would have set the world aright.
This is the kind of stuff that stuns me. I was taught by some very good economists not be be a cheerleader for politicians, and certainly not to be someone who repeats political talking points and pretends that they really are economic truths. At least Alan Blinder is paid to be a partisan shill, and spews his propaganda on Obama's payroll.
At the same time, Ben Bernanke is trying to rev up the inflation engines in hopes that he can give Obama at least a small boost before the election to make it seem as though the economy is better off than it really is. Gee, maybe it is a Princeton thing; academic economists as nothing but shills for politicians, paid and unpaid.
[Update]: In his latest column, Krugman repeats his tired canard that it was Goldstein's "obstructionism" that is responsible for the current downturn. Along the way, he gives some very curious economic analysis:
There were good reasons for these positive assessments. Although you’d never know it from political debate, worldwide experience since the financial crisis struck in 2008 has overwhelmingly confirmed the proposition that fiscal policy “works,” that temporary increases in spending boost employment in a depressed economy (and that spending cuts increase unemployment). The Jobs Act would have been just what the doctor ordered.Wow! We were almost there, almost to prosperity! Goldstein destroyed the recovery again! However, Krugman is not through "proving" that Goldstein was the evil force behind this depression. He writes:
The most important consequence of that stonewalling, I’d argue, has been the failure to extend much-needed aid to state and local governments. Lacking that aid, these governments have been forced to lay off hundreds of thousands of schoolteachers and other workers, and those layoffs are a major reason the job numbers have been disappointing. Since bottoming out a year after Mr. Obama took office, private-sector employment has risen by 4.6 million; but government employment, which normally rises more or less in line with population growth, has instead fallen by 571,000.Now, I can see a politician writing this, but an economist really has some explaining to do in order to successfully claim that government jobs will lead a recovery. First, however, Krugman does more of his aggregate tricks when he tries to essentially claim that private sector employment pretty much has recovered.
Here is the problem: the kinds of jobs that disappeared versus the kinds of jobs that have grown in number in the past four years are not the same. It is clear that the private sector is not as robust as it was before the downturn, and the lack of tax revenues being generated is the main reason that employment is lagging in state and local government jobs.
Krugman, however, wants us to believe state and local government jobs are the source of economic growth. That literally is impossible. These are not wealth-creating jobs, for the most part; instead, they consume wealth. The lack of growth in those jobs is proof that the private sector still is not producing enough to fund levels of government to where they were four years ago.
Like most Keynesians, Krugman has the cart before the horse. He wants us to believe that government is a net wealth creator when it is not. Furthermore, he wants us to believe that government can inflate the economy into prosperity, which is an illusion, but a convenient illusion.
"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot." Henry Morgenthau, Jr. U.S. Secretary of the Treasury
1934-1945 on the results of the New Deal.
There is no doubt will be hearing the same thing around 2017 or so. And Krugman will argue it is so, because we didn't spend enough.
TheRightRadical: And Krugman will argue it is so, because we didn't spend enough.
Many economists, including Krugman made the point near the beginning of the recession that a $0.8 trillion stimulus would be too small to correct for the drop in private demand.
Henry Morgenthau, Jr: We are spending more than we have ever spent before and it does not work.
Morgenthau advocated increased taxes, especially on the rich.
..."too small to correct for the drop in private demand"
Why should it be "corrected?"
8th request. What do you do for a living?
Mike: Why should it be "corrected?"
Because demand collapsed in the aftermath of the recession. But that wasn't the point. It was the implication that Krugman and other economists would be making this argument only later, when they have been making the argument all along.
“Because demand collapsed in the aftermath of the recession.”
That’s not a justification in addition to not being the point.
A recession is a cure to a problem, not a problem.
Are you going to continue to evade a 9th request? What do you do for a living?
Mike: A recession is a cure to a problem, not a problem.
A severe recession, especially one that is caused by a financial panic, is a serious problem. Not only do people suffer, but it can lead to long term structural damage.
Your cause and effect is flawed.
Who shall define severe? Who is wiser than the market to define the “solution?” etc? You see the problem?
The suffering and damage was a foregone conclusion due to the real cause. Your intervention actions only change the class of people who suffer and the duration as well as the character of the damage.
10th Request. What do you do for a living? Are you embarrassed by the answer? Afraid of blowback?
Spare me the tired answer you used to evade before. The longer you don’t answer the less credible you become.
Mike: Who shall define severe?
In this case, the financial system went into shock, causing a collapse in the global economy.
Like a fever, a mild fever helps fight infection, and a couple of aspirins are usually sufficient to provide relief and to control the worst effects. A severe fever, on the other hand, can cause organ failure and even death. The financial meltdown was the equivalent of a heart attack, and your prescription is to do nothing but let the patient die. Builds character.
Mike: The suffering and damage was a foregone conclusion due to the real cause.
The cause was a bubble in the shadow markets due to excessive demand for mortgage-backed securities.
Some damage was inevitable once the collapse occurred, but it can be been mitigated.
“Like a fever …”
Statement of the obvious in an attempt to use a medical anology. You didn’t answer the question of what omnipotent one defines these terms so that their “wisdom” can be triggered and thrust upon us.
“ The cause was a bubble in the shadow markets …”
Nope. Your still in the shallow end of the pool. Go deeper.
11th Request. What do you do for a living? Seriously. You’re pathetic.
Mike: You didn’t answer the question of what omnipotent one defines these terms so that their “wisdom” can be triggered and thrust upon us.
Plurium interrogationum. No one is omnipotent, but that doesn't mean we can't know anything, or that democratic institutions can't help ameliorate the worst aspects of the business cycle.
Zachriel: The cause was a bubble in the shadow markets …”
M: Is not!
“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower.” — Alan Greenspan.
“No one is omnipotent”
Master of the obvious. Yet your philosophy suspends that reality in advocating the “wisdom” of elite central planners to make decisions in lieu market place. Fascinating.
My “Nope” comment was designed to get you to THINK. I’m not here to spoon feed you. Your posts indicate a dearth of basic critical thinking skills on the subject matter.
Quoting Alan Greenspan… really? That’s your authority? Let’s have the drunk driver provide expert testimony on the real cause of the accident. (hint… the driver always thinks it’s the other guy)
This will now be 12, count them 12, a dozen requests to have you state what you do for a living. Are you going to continue to evade?
Mike: Master of the obvious.
Yet, YOU were the one who framed the loaded question.
Mike: Yet your philosophy suspends that reality in advocating the “wisdom” of elite central planners to make decisions in lieu market place.
Not at all. You do understand that Keynesianism is a market-based theory?
Mike: Quoting Alan Greenspan… really? That’s your authority?
While an appeal to authority is not always the strongest argument, it is certainly stronger than the argument you presented, which was, if we remember correctly, "Nope".
Mike: My “Nope” comment was designed to get you to THINK.
Be happy to think about your responses — once you provide something to think about. Meanwhile, you should comment for the benefit of those reading the thread. If you have a point, make it.
“You do understand that Keynesianism is a market-based theory?”
Well sure if you want to redefine the concept of “market-based.” But that would be consistent with the Statist approach to redefining things to suite their ideology.
“…once you provide something to think about.”
Ok think about this. After a dozen requests to state what you do for a living you refuse to answer. It’s a harmless question to help provide context of your posts. Yet you evade and rationalize away a request to answer a simple question, thus I can only conclude you are not credible. Nothing you post here is credible. You are intellectually dishonest and seek only to further an ideology rather than discover understanding and solutions of what plagues our economy.
Perhaps you are on Kurgman’s staff and that’s why you don’t answer
"The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower.” — Alan Greenspan." - AG
I'm always amazed at Greensspan's lack of understanding of the importance of interest rates in financial market place. When rates are low and the risk premium is removed, investment firms reach for whatever yield they can get and peddle their dressed up products as if they were magic bullets; but if rates were more determined by market participants than some governing body that works for Goldman and JP Morgan, risk would be distributed more evenly amongst other financial products. Opportunities would have been available elsewhere and not concentraded in CMOs, CDOs, etc.
Maybe I should dress up that simple, sound logic in some calculus and linear algebra, just to provide it some mathematical legitimacy, and then the DeLong's and Krugman's of the world would listen.
Mike: Well sure if you want to redefine the concept of “market-based.”
It doesn't require a redefinition. "A market economy (or free-market economy) is an economy in which decisions regarding investment, production and distribution are based on supply and demand and the prices of goods and services are determined in a free price system."
Of course, all modern systems are mixed systems, but countercyclical policy doesn't preclude robust markets.
Concur. What you can never get through the Statist head is when you manipulate interest rates; you distort EVERYTHING in the marketplace, creating massive inefficacy and mispricing of assets.
Take Zac for instance, (please take him), he will never accept that his arguments are flawed because his premise is flawed. In response, people like him play word games, deflect, obfuscate, deal in ambiguities and create straw men. They provide entertainment value to some extent but add nothing of substance. In a way I feel sorry for them. Must be a bitch to begin to realize your entire intellectual premise was built on a fraud.
Plus, he won’t even answer a simple question.
Mike: when you manipulate interest rates; you distort EVERYTHING in the marketplace
That is correct. The more precise term is skew.
“The more precise term is skew”
You were probably a malcontent teenager that had to have the last word on everything.
Except of course answers to simple questions
Yes, seriously. Skew leaves the relative relationships unaltered.
You proved my point.
You are such an Ahole. You wanted to skimp on paying the draftees, but money is no object when pouring them down political ratholes.
Like I said on the other part of the blog when I flamed you on every point. You're in a swamped boat and you're too lazy, and too stupid to bail. You freakin' lightweight. ESAD!!!!!
The Greenspan Quote: The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower.
From the Fannie Mae website: We stand behind mortgage lenders – local and national banks, thrifts, credit unions, and other financial institutions in all 50 states – to securitize or buy the mortgage loans they originate, enabling them to replenish their funds so they can lend to other homeowners.
Oh I get it, "stand behind mortgage lenders" means like a shadow standing behind, a shadow market that interferes with the real market. But, ummm, wasn't that a government invention? Isn't Fannie Mae propped up by government subsidy even today? So actually we can just say that government interfered in the market.
Tel: Oh I get it, "stand behind mortgage lenders" means like a shadow standing behind, a shadow market that interferes with the real market.
Except that the subprime mortgages securities at the center of the problem originated on Wall Street, not GSEs. They were late to the run-up, and played catch-up. They were the greater fools.
Try reading what Greenspan said.
"Except that the subprime mortgages securities at the center of the problem originated on Wall Street, not GSEs. They were late to the run-up, and played catch-up. They were the greater fools." - Zach
Zach - this is where you are out of your depth. I traded agaency mortgages (pass-throughs, as we call them) from the years 2004 to 2006 for the 2nd largest bank in the U.S., and the primary determination of what to invest in was determined by 2 things - GSE purchases of mortgage product (expanading their book of business) and demand from Asia, mostly China, both of which are state directed enitities. And please, let's not quibble about the GSE being a private enterprise...they are an arm of the government no matter how you slice it.
As to my previous point, the Investment Banks were essentially sucking on the teat of the GSEs, and as long as the cheap money flowed, the GSEs did whatever we wanted. Inflate the bubble, big bonuses were paid due to the cheap money subsidy (there was no "real" investment, just a gamble on when the spigot would shut), and when it pops, lay off the little people.
Publius: I traded agaency mortgages (pass-throughs, as we call them) from the years 2004 to 2006 for the 2nd largest bank in the U.S.
JP Morgan was #2 in 2005. Is that correct?
that is correct....shhhhh.
Publius: this is where you are out of your depth. I traded agaency mortgages (pass-throughs, as we call them) from the years 2004 to 2006 for the 2nd largest bank in the U.S., and the primary determination of what to invest in was determined by 2 things - GSE purchases of mortgage product (expanading their book of business) and demand from Asia, mostly China, both of which are state directed enitities.
It's a very odd appeal to authority, considering JP Morgan is on the hook for billions in toxic securities, including both GSE and private sector securities. They are currently being sued by the FDIC, certainly not a position they would want to be in.
As the market heated up, the GSEs were late to the party, but then tried to catch up. Even the time period you mention supports that. Wells Fargo also dumped increasing numbers of subprime mortgages on GSEs near the end.
In any case, GSEs only account for a portion of private mortgage-backed securities, which were the root of the problem.
And defaults of GSE loans tend towards the later years, showing that their mix only became toxic in later years of the bubble.
GSEs certainly threw fuel on the fire. They were the greater fools.
The Financial Crisis Inquiry Commission: "We concluded that excess liquidity, by itself, did not need to cause a crisis, and that Fannie Mae and Freddie Mac contributed to the crisis but were not a primary cause. We determined that government housing policies were not a significant factor in the crisis."
"It's a very odd appeal to authority, considering JP Morgan is on the hook for billions in toxic securities, including both GSE and private sector securities. They are currently being sued by the FDIC, certainly not a position they would want to be in." - Z
Z, I think you purposely miss my point. We did it because we were encouraged by the GSEs....just another form of subsidies for the wealthy. That's one of he main thrusts of the Austrian critique. The government wanted banks to get more involved in the Sub Prime business to appease low-income minorities, so it had the GSEs wrap more debt starting in the late 90s and really ramped it up in the first half of the decade. It was legal and came with the governements seal of approval.
And the GSEs could insure and buy more debt because of the implicit (which was really always explicit) guarantee that there was not credit risk. rates were always lower for FNMA and FREDDIE because the govt would always back it up. Wall Street shares the blame..yes..but the ROOT cause was the Federal Gevernment.
Publius: I think you purposely miss my point.
Not at all. Your point was that GSEs were the primary source of funds for the bubble in sub-prime loans. We pointed out that GSEs only accounted for a portion of mortgage-backed securities, and that defaults of GSE loans tended towards the later years, showing that their mix only became toxic in later years of the bubble.
There was a race to the bottom. While GSEs were limited in their ability to directly finance sub-prime, private lenders rushed to fill the seemingly insatiable demand for mortgage-backed securities. Here's a look at the history.
Notice that from 2003-5, GSEs *lost* market share to private securitizers as subprime came to dominate the market, then played catchup from 2005-7 as the overall size of the market collapsed. They were the greater fools.
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