Paul Krugman vs Ron Paul

[Gosso]

Here is a good interview with Paul Krugman conducted by Rolling Stone Magazine: "Paul Krugman on How to Fix the Economy - and Why It's Easier Than You Think"

I used to believe in simply allowing the free market to move through the business cycle of boom and bust, but now I'm not so sure.  I cannot believe I'm going to say this, but Krugman (and Moda  ) are starting to win me over.

I think government spending can help to relieve some of the pain of unemployment.  Of course cutting taxes (or sending people checks) would also help jump start the economy.

I think we can all agree that the private sector is where growth should come from, but when it is hurting it makes sense that the government should step up and fill the void for a short period, and possibly even rebuild confidence. 

In my mind I am starting to see the monetary system as secondary to maximizing the productive capacity of the economy.  The monetary system is there to simply keep score of how much production is created.  When the monetary system is placed before production then that is how we fall into depressions.

[murphy_p_t]

What is Krugman's record on forecasting economic turns in the past?

[moda0306]

Gosso,

The thing that helps clear some of the air is that there is a difference between believing gov't should do X or Y, but not A & B... and believing that gov't should enact counter-cyclical spending (and, tax cuts, I'd add) vs ignore recessions.  I just see no evidence that, with all else being equal, in a balance-sheet recession, resorting to austerity on either the tax or spending side is appropriate.  If all the gov't does is send out stimulus checks, cut taxes, and move infrastructure projects from 2010-2013 back to 2009, within reason, then you're not really talking about stark philosophical differences between what gov't should do with most people so much as what the effects are of trying to offset a recession by bumping it forward.

murphy,

I believe he avidly agreed there was a housing bubble, but by no means with the veracity of the Schiffster.  However, I think he's called the fact that both inflation & interest rates would stay pretty low as long as the economy was depressed, though I will give the Austrians the benifit of the doubt and assume that there's still more time for the dollar to collapse.

I don't think he called the tech bubble, but I could be wrong... other than that I can't really think of much... oh, except I believe he did consider the "gold standardesque" nature of the Euro a problem way back when it was enacted.

[murphy_p_t]

i think the video at http://freedomkeys.com/window.htm contributes to this conversation

[murphy_p_t]

According to this article, Krugman *advocated* that a housing bubble be created.

http://blog.aynrandcenter.org/paul-krug ... ck-record/

I don't know if he still thinks that was good policy.


This article presents a different view on PK, for your consideration.
http://www.foxnews.com/opinion/2012/04/ ... rediction/

I found the part about his critique of German policy to be insightful.

[Gosso]

i think the video at http://freedomkeys.com/window.htm contributes to this conversation

That was a good video.  But it seems the key is spending the money now.  The baker was forced to spend the money now to repair his window, rather than leave the money in his bank account for 20 years until it was needed during his retirement.  I think everyone can agree that it is better to not break the window, but it did force him to spend the money now, which in turn stimulated the economy.  There is no guarantee that he would have spent that money at the tailors.

When you look at this on a larger scale, such as an entire population deciding that it is better to save than spend the money now, then the entire economy basically stagnates or shrinks. 

I have been thinking more and more that saving money or hoarding wealth is not a good thing.  Sure the bank can lend your savings to other people and businesses, but they need a reason to borrow the money in the first place.  If no one is buying widgets and fancy meals, then what is the point of a business borrowing money to finance the startup costs.

[Gosso]

According to this article, Krugman *advocated* that a housing bubble be created.

http://blog.aynrandcenter.org/paul-krug ... ck-record/

I don't know if he still thinks that was good policy.


This article presents a different view on PK, for your consideration.
http://www.foxnews.com/opinion/2012/04/ ... rediction/

I found the part about his critique of German policy to be insightful.

Could you please point me towards someone that can accurately predict the future.  I will gladly purchase their newsletter.

Krugman has likely said some dumb things in the past, and I don't pretend to believe that he has all the answers, but his general theory is making more sense to me.  That is difficult for me to type, since I used to be a hardcore Marc Faber fanboy, and would always rejoice when we would poke fun at Krugman.  But unfortunately (or fortunately) we are not even close to the hyperinflation that Faber and his ilk have predicted.

[craigr]

Economists are the *worst* people to listen to on anything relating to the economy. IMO. A Nobel prize winner is likely the worst of all.

Going back and assigning these simplistic economic analyses to post WWII prosperity in America is fruitless and likely wrong. We are never going to have those conditions again. And, aside from re-bombing all of Europe, burning down much of Japan's major cities, killing millions of people, re-implementing Roosevelt's New Deal policies, re-creating the Soviet Union and a whole list of *much more significant events* than jerking around the money supply, we will never know.

I just say again that thinking that it was the brilliance of economic stimulus with wartime spending that "saved" the US economy is very likely to be wrong in the face of far more significant events that took place. To me, Krugman just sounds like a crank.

[murphy_p_t]

According to this article, Krugman *advocated* that a housing bubble be created.

http://blog.aynrandcenter.org/paul-krug ... ck-record/

I don't know if he still thinks that was good policy.


This article presents a different view on PK, for your consideration.
http://www.foxnews.com/opinion/2012/04/ ... rediction/

I found the part about his critique of German policy to be insightful.

Could you please point me towards someone that can accurately predict the future.  I will gladly purchase their newsletter.

Krugman has likely said some dumb things in the past, and I don't pretend to believe that he has all the answers, but his general theory is making more sense to me.  That is difficult for me to type, since I used to be a hardcore Marc Faber fanboy, and would always rejoice when we would poke fun at Krugman.  But unfortunately (or fortunately) we are not even close to the hyperinflation that Faber and his ilk have predicted.

Gosso,

if you have been following Marc Faber for more than a few years, you probably bought lots of gold and silver and maybe farmland ....and are now very wealthy!?

if krugman were just selling a newsletter, he would cause much less damage to the US. Unfortunately, he advocates ideas...and when they are implemented (like having the Fed create the housing bubble)....the consequences of the housing bubble have been and continue to be devastating for millions of people.

[Gosso]

Regarding post WWII prosperity, I'm thinking that it was not a monetary phenomena, but rather a result of massive confidence and a release of pent-up demand.  When millions of soldiers returned from overseas, they were highly confident ("we won the war", "the world is now safe", "the future is bright"), and immediately released six years of pent up demand into the economy.  They got married, started families, bought homes and cars, started businesses, etc.  The velocity of money must have been ridiculous. And with money flowing like wine, it was easy and justifiable to start a new business, and everyone saw an increase in their standard of living.

Gosso,

if you have been following Marc Faber for more than a few years, you probably bought lots of gold and silver and maybe farmland ....and are now very wealthy!?

if krugman were just selling a newsletter, he would cause much less damage to the US. Unfortunately, he advocates ideas...and when they are implemented (like having the Fed create the housing bubble)....the consequences of the housing bubble have been and continue to be devastating for millions of people.

Faber has been right about a lot of things, but maybe for the wrong reasons.  He did pick the bottom of the stock market in March 2009, but also told us to sell far to early.  I haven't been following him lately.

As for Krugman, well, I'm not up to speed on all of his arguments, but based on my new understanding of MMR/MMT, it seems Krugman is the closest mainstream guy to it.  I agree with him regarding austerity being horrible during recession, and that the deficit is currently not a big deal (and may never be, as long as inflation is controlled).  As for the rest of his liberal/socialist ideals, I cannot say I have strong opinion either way, those arguments do not interest me.  I normally lean towards libertarianism, but I have started to question that as well.  I have more thinking to do.

[moda0306]

Gosso,

Under my "modified Quantity of Money" that includes treasury bonds (as they are money-like financial assets), I see the balance sheet repair as being a big part of it too.  The national pride was probably huge, to be sure, but people actually felt like they had a nice pot of savings to spend.  That didn't exist for most of the pre-war period after the depression.

I tend to think peoples' balance sheets are the most important thing to focus on in balance sheet recessions in terms of what's driving their behavior.

I also feel that people should be judged more on their analysis than their predictions.  I think libertarianism philosophy via HB is very interesting stuff, and expands my mind, even if a lot of libertarians get macroeconomic predictions wrong (let's say for now this is hypothetical, to avoid an argument ).

Meanwhile, Schiff called the housing crisis greatly, but it's his arrogant and almost anti-analytical presentation, I fell, does little to expand ones mind.

I'll add that if you can combine both predictions and intellectual, mind-opening thought, as you can in a man like Harry Browne, it tends to exponentially improve your opinion of someone.  I think Warren Mosler and John Bogle are two other men who combine predictions, sound analysis, instruction and humility to really put together a great person.

[Gosso]

Gosso,

Under my "modified Quantity of Money" that includes treasury bonds (as they are money-like financial assets), I see the balance sheet repair as being a big part of it too.  The national pride was probably huge, to be sure, but people actually felt like they had a nice pot of savings to spend.  That didn't exist for most of the pre-war period after the depression.

I tend to think peoples' balance sheets are the most important thing to focus on in balance sheet recessions in terms of what's driving their behavior.

I also feel that people should be judged more on their analysis than their predictions.  I think libertarianism philosophy via HB is very interesting stuff, and expands my mind, even if a lot of libertarians get macroeconomic predictions wrong (let's say for now this is hypothetical, to avoid an argument ).

Meanwhile, Schiff called the housing crisis greatly, but it's his arrogant and almost anti-analytical presentation, I fell, does little to expand ones mind.

I'll add that if you can combine both predictions and intellectual, mind-opening thought, as you can in a man like Harry Browne, it tends to exponentially improve your opinion of someone.  I think Warren Mosler and John Bogle are two other men who combine predictions, sound analysis, instruction and humility to really put together a great person.

Hmmm...I am never sure which is more important, vertical or horizontal money.  It seems you are making the case that the creation of vertical money (government spending during the war) provided the base for the boom.  You could be right.  I'm not sure if horizontal money (bank credit) can make up for a limited supply of vertical money.

As for Shiff, I was a fan of his during his call of the housing bubble, yet all the gold junior mining companies that I had invested in tanked right along with everything else.

[melveyr]

Gosso,

Under my "modified Quantity of Money" that includes treasury bonds (as they are money-like financial assets), I see the balance sheet repair as being a big part of it too.  The national pride was probably huge, to be sure, but people actually felt like they had a nice pot of savings to spend.  That didn't exist for most of the pre-war period after the depression.

I tend to think peoples' balance sheets are the most important thing to focus on in balance sheet recessions in terms of what's driving their behavior.

I also feel that people should be judged more on their analysis than their predictions.  I think libertarianism philosophy via HB is very interesting stuff, and expands my mind, even if a lot of libertarians get macroeconomic predictions wrong (let's say for now this is hypothetical, to avoid an argument ).

Meanwhile, Schiff called the housing crisis greatly, but it's his arrogant and almost anti-analytical presentation, I fell, does little to expand ones mind.

I'll add that if you can combine both predictions and intellectual, mind-opening thought, as you can in a man like Harry Browne, it tends to exponentially improve your opinion of someone.  I think Warren Mosler and John Bogle are two other men who combine predictions, sound analysis, instruction and humility to really put together a great person.

Hmmm...I am never sure which is more important, vertical or horizontal money.  It seems you are making the case that the creation of vertical money (government spending during the war) provided the base for the boom.  You could be right.  I'm not sure if horizontal money (bank credit) can make up for a limited supply of vertical money.

As for Shiff, I was a fan of his during his call of the housing bubble, yet all the gold junior mining companies that I had invested in tanked right along with everything else.

Schiff gave the correct diagnosis, and then the absolutely worst prescription. He was recommending commodities and foreign stocks when he should have been recommending Treasuries. It's funny because this disconnect shows that he has NO idea what he is talking about. The diagnosis is the hardest part, so the fact that he totally botched the prescription shows that he is entirely incompetent and probably just got lucky. Anyone who has had the PP for a couple of months would have known that Treasuries would be the winner if we were headed for a financial collapse.

[moda0306]

Gosso,

This vertical vs horizontal debate is one being had now in MMT/MMR circles.  Basically, to put it as simply as possible, horizontal money is built on in investment, but investment is built on a combination of things not the least of which is stable, adequate demand... if aggregate demand is at 70% of productive capacity, aggregate investment won't occur until a new, painfully-achieved equilibrium is in place, and attempts to push on the string of horizontal money will not work.  There's simply no reason to invest if the demand isn't there.  It takes more vertical money to get demand to a place where horizontal money is now back in play again.  In the depression, it's not like we were idiotic, lazy, and didn't want what our economy had to offer... we simply had a monetized economy in an economic Mexican standoff.

I'd add the caveat that if an economy had been producing all the wrong products and services to begin with, and people realized they wanted different products & services, there'd be structural issues outside a simple lack of aggregate demand, and to be honest I think if you look at the nature of consumerism it's hard to argue this isn't at least part of the picture.

Vertical money tends to be the oil that lubricates the contractual system, while horizontal money is much more interlinked into the real investment into the economy (almost literally... think of all the guaranteed & collateralized loans out there).  Neither functions well without the other.  Without a good horizontal money system, malinvestment would run rampant... without a responsive vertical component, the system will lock up as Investment-tied-money becomes self-fulfillingly less valuable and people get into hoard mode (a term I don't like, other than the fact it illustrates that panic, not fundamentals, are sometimes involved).

[MachineGhost]

What makes Krugman's argument about World War II so daft is that he believes spending a bunch of money on things that do not necessarily add value can ever do anything positive.  If it did, we could make ourselves wealthier by selecting an American city, evacuating it, and then carpet-bombing it into oblivion.  Think of the glorious spending such a reconstruction would bring!

I'm no fan of Krugman, who I view as the Economicus Boobus, but I think his operating premise is that enabling productivity, whether it be by the grace of government or private investors, does stimulate economic activity.  The morality of the transaction is a separate issue.

MG

[MachineGhost]

I used to believe in simply allowing the free market to move through the business cycle of boom and bust, but now I'm not so sure.  I cannot believe I'm going to say this, but Krugman (and Moda  ) are starting to win me over.

To paraphrase Friedman, "We are all MMRers now". 

MG

[moda0306]

MG takes one for both teams... I think the funcionality of a productive economy and the morals about personal liberty, in many ways, are two different issues... though they eventually converge (ie, North Korea is both very unfree and nonproductive).

[murphy_p_t]

http://whiskeyandgunpowder.com/how-to-d ... t=My+Yahoo


i share this article because it puts into words my *feelings* about this discussion...especially this MMT/MMR/Mosler ideas...I *feel* like the devotion to Mosler I observe here is like he is the leader of a gnostic cult...

I put *feel* in stars becuase I have not delved into the deepest readings of his work which were referenced in another thread...although I admit what I have read seems to have some internal consistency. However, I remain highly *skeptical* of buying this gnosis...as it seems like a "free lunch".

[MachineGhost]

http://whiskeyandgunpowder.com/how-to-d ... t=My+Yahoo

i share this article because it puts into words my *feelings* about this discussion...especially this MMT/MMR/Mosler ideas...I *feel* like the devotion to Mosler I observe here is like he is the leader of a gnostic cult...

I put *feel* in stars becuase I have not delved into the deepest readings of his work which were referenced in another thread...although I admit what I have read seems to have some internal consistency. However, I remain highly *skeptical* of buying this gnosis...as it seems like a "free lunch".

MMR just happens to explain how the monetary system works without involving conspiracy theories.  That is a remarkable accomplishment.  Up until the point of MMR, the topic was generally regarded as kooky and not taken seriously.  MMR isn't anything to "believe in", its operational reality.  MMT is the prescriptive side where you will see all the social-engineering types come out of the woodwork.  But, those people have always existed with their evilly-inclined machinations, with or without MMR.  So there's not an automatic prescription for socialism just because of MMR.  But, its definitely a slippery slope in terms of the path of least resistance.

In practical terms, I don't really see all that much difference between MMR and Riegel's Valun.  The former is operated by illegitimate government, the latter is operated by voluntary society.  Either way, an institution controls the creation of credit and an institution controls the destruction of it, in response to demand.  This is far, far superior to a resource-constrained "gold standard" and we just cannot turn back the clock to repeat any number of failed monetary experiments.  There's nothing magical about gold that it needs to be used as medium-of-exchange as opposed to a store of value.

MG

[Gosso]

http://whiskeyandgunpowder.com/how-to-d ... t=My+Yahoo


i share this article because it puts into words my *feelings* about this discussion...especially this MMT/MMR/Mosler ideas...I *feel* like the devotion to Mosler I observe here is like he is the leader of a gnostic cult...

I put *feel* in stars becuase I have not delved into the deepest readings of his work which were referenced in another thread...although I admit what I have read seems to have some internal consistency. However, I remain highly *skeptical* of buying this gnosis...as it seems like a "free lunch".

Just please don't begin burning MMRer's at the stake. 

Maybe an analogy will help (this might not even even be correct, but it's the way I see things):

Imagine two separate baseball games, the first uses a gold standard to keep score, while the second game uses MMR to keep score.  After the third inning the gold standard game runs out of gold pieces to keep score, which means the game stops and the players just stand there without advancing the game.  While the MMR game continues on without a hitch, since it is quite easy to print new points, as long as the players are still producing points.

In the first game the gold standard is more important than the actual production from the game, while in the second game the production takes priority over the score keeping.

So MMR is not providing a "free lunch" but rather allowing the game to continue.

[TBV]

Paper money already competed against gold during the 1800s. Fiat Greenbacks — first issued by President Lincoln — were extremely popular in the mid-west while they were in circulation. Many farmers were vehemently opposed to a gold standard at the time. Creditors preferred deflationary gold and debtors preferred their inflationary fiat and "free silver." If you owed debts to a bank, you actually wanted some level of controlled inflation — which made your debts easier to pay off over time. Bankers in the large cities were obviously opposed to fiat money, since loans would be paid back with depreciated money.[/i]

This is an oft-repeated assertion, but not  necessarily the whole story. There is a tendency to generalize from the experience of the late 19th century.  In the process, we end up ignoring the legacy of Thomas Jefferson and Andrew Jackson, strong supporters both of farmers AND hard currency.  Rural distrust of big-city bankers did not emanate from bankers' insistence on hard currency, but the exact opposite.  As Ron Paul pointed out in "The Case for Gold", the decades before the civil war witnessed the pyramiding of bank assets which allowed distant banks to expand their notes in circulation with little chance of speedy redemption.  This currency debasement bred a deep distrust of banks among the rural population which persisted into the 20th century.  To say that this was because banks (and by inference, Republicans) opposed monetary expansion fails to explain why banks would oppose the very thing (credit) that keeps them in business.  It also fails to explain the highly inflationary Greenback phenomenon, which was the brainchild of Republicans.  It also fails to account for the powerful non-farm economic interests which benefited from government-induced easy credit during the Civil War and afterward, i.e. the railroads, banks and heavy industry.  Nor does it explain the championing of the gold standard by Democrat Grover Cleveland.

Opposition to banks did not always signify support for "cheap money".  And indebtedness was not always highly correlated with support for free silver.  I've read that urban mortgage debt in the last quarter of the 19th century was more significant than farm indebtedness, and that agricultural debt was often very short-term (as in 2-3 years).  Yet urban support for silver currency was weak.  Support for silver was most common in the west and the south, but not always among farmers.  One cannot argue, for example, that farmers in silver-rich Nevada (to the extent there were any) were a significant base of support.  And a major backer of cheap money in California was the Southern Pacific Railroad monopoly, which delayed for decades paying back its mountain of government-supported debt.

We may be projecting post-Depression Keynesian biases onto 19th century players who had a different agenda.  Late 19th century populists were fighting against rampant urbanization, the loss of pastoral independence, the concentration of economic power, and (for some) the social impact of black emancipation.  Not all of this was about money.  But the part that was involved people who, after all, were advocating for an alternate specie-backed currency, not nebulous Federal Reserve Notes dispensed from helicopters.  They wanted to be free of the machinations of the eastern banking elite and politically-connected crony capitalists.  For many, silver was a means to that end.  But those involved didn't fit into a nice tight rich vs poor, gold vs easy money narrative.  If somehow tele-ported to the present, I have no doubt that many free-silver populists would be sporting Ron Paul "End the Fed" bumper stickers.

[murphy_p_t]

http://whiskeyandgunpowder.com/how-to-d ... t=My+Yahoo


i share this article because it puts into words my *feelings* about this discussion...especially this MMT/MMR/Mosler ideas...I *feel* like the devotion to Mosler I observe here is like he is the leader of a gnostic cult...

I put *feel* in stars becuase I have not delved into the deepest readings of his work which were referenced in another thread...although I admit what I have read seems to have some internal consistency. However, I remain highly *skeptical* of buying this gnosis...as it seems like a "free lunch".

Just please don't begin burning MMRer's at the stake. 

Maybe an analogy will help (this might not even even be correct, but it's the way I see things):

Imagine two separate baseball games, the first uses a gold standard to keep score, while the second game uses MMR to keep score.  After the third inning the gold standard game runs out of gold pieces to keep score, which means the game stops and the players just stand there without advancing the game.  While the MMR game continues on without a hitch, since it is quite easy to print new points, as long as the players are still producing points.

In the first game the gold standard is more important than the actual production from the game, while in the second game the production takes priority over the score keeping.

So MMR is not providing a "free lunch" but rather allowing the game to continue.

Gosso,

My view is that your analogy is not very helpful. I say this because it suggests that the amount of gold a nation possesses limits the amount of economic activity. The analogy might apply usefully if the idea was that only gold coins were circulating...as there is only a finite amount amount of metal coins that could be produced. However, I think this misrepresents the nature of a gold-backed currency (gold standard). Paper money circulates, just as it did prior to FDR's confiscation of gold...paper money is convertible for a determined amount of metal. For the system to work well...that exchange rate must be determined properly.

ps...I think your analogy is more helpful if it were applied to international trade in that the gold is useful to affect a balance of trade.

[Gosso]

Murphy,

I may have over simplified things. 

I need to work on my analogy skills...I'm no where near MT's level.

[MediumTex]

I need to work on my analogy skills...I'm no where near MT's level.

Forgive me for the gratuitous digression, but this one might be of some interest:

I was thinking this morning how for many people going to church is sort of like an adult version of going to sit on Santa's lap except Christmas only comes once every 70-80 years, and the only thing on everyone's list is a pleasant experience of immortality.

The "naughty and nice" list for adults is also a much more angst-ridden experience, and you might think of preachers as Santa's elves, helping people to divine Santa's will, playing to the desperate desire of churchgoers to be told that Santa has given a definite "thumbs-up" to the whole congregation, which would make the Christmas Eve of life so much easier to enjoy.  Unfortunately, it's always uncertain whether there will be any presents under the tree on Christmas morning....or even if you will wake up at all. 

As an adult, I remember being on the receiving end of Santa's generosity, and I enjoyed that stage of life very much.  I am still involved in the Santa industry, though I am now farther up the supply chain.  I still enjoy the Santa experience very much, though I am happy that I was allowed to move past the childhood experience of Santa, because as my mind has expanded I'm not sure I would have been able to maintain those beliefs, no matter how much I wanted to.

It seems to me that humanity is undergoing a similar change when it comes to religion that roughly tracks the experiencs of a child as he grows up and develops a more nuanced understanding of Santa.

I still very much believe in the idea of Santa, and I think that understanding the core truths embedded in the Santa narrative is really the key, rather than becoming overly preoccupied with the mechanics of the naughty and nice list...or at least that's what I told Santa the last time I sat on his lap. 

[escafandro]

I would like to understand what is behind the media blackout of Ron Paul?
What media would lose if he were elected president?