Krugman's latest creation, "Kick That Can," is more of the same. The Evil Republicans want to downsize spending, ostensibly to reduce it to the size where it can be drowned in a bathtub, and then throw the economy into depression where there will be poverty, starvation and, of course, weeping and gnashing of teeth:
While it’s true that we will eventually need some combination of revenue increases and spending cuts to rein in the growth of U.S. government debt, now is very much not the time to act. Given the state we’re in, it would be irresponsible and destructive not to kick that can down the road.He adds:
Start with a basic point: Slashing government spending destroys jobs and causes the economy to shrink.
This really isn’t a debatable proposition at this point. The contractionary effects of fiscal austerity have been demonstrated by study after study and overwhelmingly confirmed by recent experience — for example, by the severe and continuing slump in Ireland, which was for a while touted as a shining example of responsible policy, or by the way the Cameron government’s turn to austerity derailed recovery in Britain.
But aren’t we facing a fiscal crisis? No, not at all. The federal government can borrow more cheaply than at almost any point in history, and medium-term forecasts, like the 10-year projections released Tuesday by the Congressional Budget Office, are distinctly not alarming. Yes, there’s a long-term fiscal problem, but it’s not urgent that we resolve that long-term problem right now. The alleged fiscal crisis exists only in the minds of Beltway insiders.
In other words, it really does not matter that the debts the U.S. Government has accumulated -- especially in the current downturn -- cannot and will not be repaid. After all, the government can print whatever it wants or have the Fed buy and hold all its debts and if bondholders are paid back with dollars worth a tenth of what they were when the bondholders purchased those bonds, well, it is good for exports!
The Keynesian paradigm always points to a non-existent future in which a rush of present spending will produce magical "traction" for the economy, the product of Krugman's Inflation Fairy. Unfortunately, Krugman refuses to admit that what he touts as new spending, or "stimulus," actually is nothing more than a thinly-disguised wealth transfer. Yes, we can transfer spend ourselves into prosperity.
We don't need to "kick the can" down the road; we need to kick the Keynesian habit.
With Krugman, the time to fix spending is perpetually somewhere over the horizon.
The ability for Government to borrow cheaply is what is getting us in trouble. Homebuyers had the ability to borrow cheaply beyond their means to repay in 2005, how did that turn out?
I did not a single word about production anywhere in this Krugman piece. Oh well! On with the QE so the economy doesn't become even worse. Fight the power of deflation!
"Start with a basic point: Slashing government spending destroys jobs and causes the economy to shrink."
This is just as much Abba Lerner as it is Keynes or Krugman. All wealth is a creation of the state. If there was no state, there would be no medium of exchange, humankind would regress to a state of barter. Many people believe and even advocate this. They have lots of credit cards, big mortgages, and a car purchased with a small amount down and a hefty monthly payment. They don't carry bills or even change around in their wallets, fiat money is a dream come true for them. If they died in 2007, they'll have left this vale of tears convinced everything was working just fine.
As I understand it, Keynesians claim that government spending is not mere transfer of wealth because of the Keynesian multiplier. In this view, each dollar spent by the government --whether borrowed, printed or taxed -- creates more than one dollar of economic activity.
Thus to refute the Keynesians one needs to demonstrate that the Keynesian multiplier is actually less than one. As the government spends, the multiplayer may initially be greater than one, but eventually it goes to less one -- the long-term average being less than one.
BTW, I follow and love your work, Professor Anderson!
BTW, the MMTers are now advocating just passing out tons of free money to average people because, as we all know, the economic lacks "traction" and giving them free funny money will provide "traction".
It's pointless to argue with these people. All we can hope for is that average people some day wake up to what nitwits the Keynesians actually are.
The last post should have read:
...the economy lacks "traction"....
I don't know if you all agree, but it appears to me that the Keynesians and "progressives" are getting more bold and thus insane in their proposals as time goes on. I think they recognize that no one but us will challenge what they say and they think we can be safely ignored.
PC: Many people believe and even advocate this. They have lots of credit cards, big mortgages, and a car purchased with a small amount down and a hefty monthly payment.
But such behaviour is equally well explained by a belief that big inflation is coming which will wipe the debtor's slate clean. People take out ridiculous loans in the belief they will be bailed out by money printing.
Given the level of money printing that has been happening, you can't help thinking this isn't entirely irrational.
Bob: ... the MMTers are now advocating just passing out tons of free money to average people...
That's from Steve Keen! Without attribution either, those dirty plagiarists.
There's an Austrian Economics logic to this which should be considered: typical inflationists dump money into the chosen circle of politically connected individuals, thus creating Cantillon effects, distorting the price system and favouring the early recipients of money.
Steve Keen is also an inflationist who wants to dump money into the economy on a per capita basis, which creates a type of reverse-Cantillon effect, thus disadvantaging the politically connected (relatively speaking) and partially cancelling out the unfair funny-money gains of the past.
In other words, they are onto the scam and rather than ending it, they have decided to co-opt the scam for their own purposes. Quite logical when you think about it. When Rome burns, best strategy is to fight fire with fire (maybe :-)
The Minsky-ites are so pathetic in so many ways. Due to their refusal/inability to ever engage even basic Austrian concepts and analysis, such analysis must never be allowed to be applied by them to any fact situation. Thus, their “Minsky moment” is really nothing but an Austrian boom/bust cycle but with the obvious evidentiary fact of fiat money price distortions with malinvestments based upon those distortions meticulously absent from their analysis and brains. Check out this bit of garbage from da man himself:
The financial instability hypothesis has both empirical and theoretical aspects. The readily observed empirical aspect is that, from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system's reactions to a movement of the economy amplify the movement--inflation feeds upon inflation and debt-deflation feeds upon debt-deflation. Government interventions aimed to contain the deterioration seem to have been inept in some of the historical crises. These historical episodes are evidence supporting the view that the economy does not always conform to the classic precepts of Smith and Walras: they implied that the economy can best be understood by assuming that it is constantly an equilibrium seeking and sustaining system.
Oh dear! What can we do about those darn “capitalist economies”?
" Thus, their “Minsky moment” is really nothing but an Austrian boom/bust cycle but with the obvious evidentiary fact of fiat money price distortions with malinvestments... etc.
No, it isn't, bob roddis.
The classical ABCT does not invoke asset bubbles as a destabilising element in market systems, nor does it say anything about the dangers of debt deflation.
Rather, its mad prescription of liquidationism completely ignores debt deflation and the way the latter process can cause economic catastrophe.
LK, you miserable obfuscating liar. I fail to see the relevance of what exactly was the subject of the “classic” ABCT and I don’t care who thought it up. Martians might have brought down tablets containing the “classic” ABCT, Venusians the socialist calculation problem while giant insects from Alpha Centauri might have figured out that funny money dilution causes a boom/bust cycle with asset bubbles. I understood in 1973 that the lessons of “The Theory of Money and Credit” could be applied to all three situations. It wasn’t until I was so unfortunately introduced to your screeds that I realized that someone could be so utterly dishonest regarding this subject matter.
Since you are unable to understand or engage the concept of economic calculation, you invariably try to change the subject into something about what the “classic” socialist calculation debate concerned and/or what the “classic” ABCT concerned. According to you, if a new analysis (for example, funny money causing housing bubbles – to the extent that is actually a new analysis) does not exactly fit into those earlier categories, the new analysis is somehow defective, even though you haven’t a clue as to what the analysis is or how to apply it. Those stupid distinctions you make are NOT RELEVANT TO THE ISSUES AT HAND because the same basic analysis is applied by Austrians to all three situations. In fact, Austrians employ those same principles to analyze EVERYTHING in economics. Of course, you never apply them, even in your hysterical anti-Austrian screeds, because you don’t understand them, which, by itself, is truly astonishing. Hell, your claiming that these are allegedly disparate concepts only reinforces the fact that you don’t understand the concepts AND you are a miserable liar.
Further, the issue of who first applied the concept of economic calculation to asset bubbles is irrelevant to the issue of why Minsky-ites do not apply it all or why the basic concepts and analysis of the Austrian School are ALWAYS Kryptonite to Keynesians. Who first thought up an analysis is irrelevant to whether it is correct or not.
Finally, your constant references to Rothbardian analysis as “utopian” is just another pathetic attempt to change the subject. Basic Rothbardian and libertarian analysis begins with basic English Common Law concepts of protections for property, persons and their contracts. These concepts are not controversial and they are easily understood. They are taught in first year law school. It is quite a simple matter to apply them to historical facts to determine whether a particular transaction was voluntary or coerced or concerned fraud and/or misrepresentation. The fact that there will never be a situation where everybody obeys the rules and does not violate them does not convert the analysis into something “utopian”. You pull that stupid stunt only because you cannot and will not engage our analysis.
"Since you are unable to understand or engage the concept of economic calculation,"...
Oh, so is this what you mean by alleged "economic (mis)calculation" problems in a Keynesian economy?:
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).
(2) distortions of prices away from their equilibrium values (as postulated by (4) below) by government spending, deficit spending, central bank fiat money creation, price controls, subsidies etc.
(3) distortions of prices away from their equilibrium values (as postulated by (4) below) by government interventions allegedly leading to Cantillon effects
(4) in general, obstructions to flexible wages and prices and therefore to a price vector that will clear all markets (with flexible wages clearing the labour market), as in this quotation of Hayek:
“The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured.” (Hayek 1975: 6–7)
According to you, this quote had "nothing whatsoever" to do with Walrasian GE.
If "yes", your statement that I do not understand what you mean by "economic (mis)calculation" is false.
If "no", then presumably these things have nothing to with what Austrians complain about when they talk of alleged "economic calculation problems"!
Having been over and over the fact that LK does not understand and cannot apply Austrian concepts, there is also this:
Bob Murphy - Heh this is actually funny. I had always assumed Roddis was being unfair when accusing LK–who has read a ton of Hayek–of not knowing the Austrian concept of economic calculation. But, based on LK’s angry retort, turns out Roddis was right.
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