the main problem with "austerity" isn't the theoretical question of the spending levels, it is the political&social issue that practical "austerity" means that during bad times poor people must pay for the well connected and rich people's exuberance of the good times. "Sorry, we have to reduce your pensions and salaries to pay back the loans we spent on our luxury BMWs."
Paul Krugman: The austerity delusion
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Re: Paul Krugman: The austerity delusion
#22What Krugman and his ilk fail to address is capital misallocation. Placing capital into its most productive use is the definition of a well functioning market.
We tolerate market distortion for greater social good: safety regulations, environmental regulation, labor laws, etc.
Unfortunately, with QE1,2,twist,3 and ZIRP, we are now well past properly functioning capital markets.
At a gross scale, every single investment in the world now is actually a bet on central bankers keeping interest rates suppressed, liquidity flowing, and money printers running.
The trillions of dollars of distortion that capital markets have experienced since 2008 has fundamentally altered the investment landscape. And not for the better.
Krugman crowing about austerity is laughable. Of course, government spending is just another form of capital distortion. Sure, try some more. It'll be another drop in the bucket. It will not move the needle in a sustainable fashion.
Global demand is being vacuumed up by economies through competitive currency devaluation. Deficit spending (Krugman's argument) generates new demand in the hopes of creating jobs and nurturing the economy.
Unfortunately, since 2008, our global financial system is so radically distorted that a burst of demand isn't about to lift anybody out of long-term economic doldrums.
At the root of the problem is massive capital misallocation that has been baked in the cake. Global supply is so large due to QE and ZIRP that economies worldwide cannot support their investments.
Instead of market forces washing out the misallocated capital, we've entered into a global extend-and-pretend scheme. How and when this ends is anyone's guess.
Krugman doesn't get it.
Re: Paul Krugman: The austerity delusion
#23The big Keynesian idea is that somehow gov't can allocate capital better than private businesses. But that patently cannot be true. (I never could understand how Keynesian economics is different from socialism.)
Re: Paul Krugman: The austerity delusion
#24If all you care about is the short-term, then forget about austerity. Juice things up a bit. Throw some borrowed money at it. Alleviate some economic misery. But long-term, living within your means leads to greater stability, a market where prices reflect reality, and people that save are rewarded. This is a far greater payoff in exchange for some potential short-term pain. The worst part is that many governments cla…
Given the authoritative way in which you say: [L]iving within your means leads to greater stability, a market where prices reflect reality, and people that save are rewarded. I'm guessing you can back this up with a few modern examples of where austerity programs have been successful, right?
How about in the U.S. in the past couple years[1]?
[1] http://www.forbes.com/sites/johngoodman/2015/01/13/voodoo-ec...
Re: Paul Krugman: The austerity delusion
#25The problem with austerity as I see it is that it is a losing strategy if any other player doesn't adhere to it. Example - Economy A starts QE, Economy B sticks to austerity. Economy A gets super cheap money they have to invest somewhere, Economy B is short on money due to austerity. Economy A with the money out of thin air buys most of the industrial assets of Economy B. Economy B wants to change the course by rejecting austerity and starting QE. But the first mover advantage is gone, Economy A's stocks are already inflated so Economy B can't gain anything by trying to do the same as Economy A, buying Economy A's industrial assets, causing downfall of its trading currency.
Re: Paul Krugman: The austerity delusion
#26What about Japan? They tried to buy economic growth (dubbed Abenomics) and failed horribly. The economy is worse and government debt is higher than ever. Models that can't explain some weird edge cases are ok. But what happened in Japan is the exact opposite of what Mr. Krugman tries to convince people.
Japan's economy is growing, albeit slowly.
Re: Paul Krugman: The austerity delusion
#27Earlier quoted context omitted.
Think about it from a business perspective. What makes you more money? Cutting costs, or increasing revenues? And what is a more sustainable practice to increase revenues: price gouging, or increasing volume/sales? Now replace these business terms with economic terms. Cutting costs = austerity. Price gouging = raising taxes. What you want is more people working, more people paying taxes, but keeping taxes at a low en…
"Think about it from a business perspective. What makes you more money? Cutting costs, or increasing revenues? And what is a more sustainable practice to increase revenues: price gouging, or increasing volume?" That assumes you want to run the country/government like a business. I think that's a fairly large assumption.
> That assumes you want to run the country/government like a business. I think that's a fairly large assumption.
The main difference between running a country and a business, is values and also means. Countries value certain qualitative indicators more than a typical business would (quality of life, crime, safety, etc...), and countries have more means to balance the books (things like printing money, ownership of resources, etc...).
Talking about money at small-business scale is more about simplifying the concepts, but to a certain degree, it applies.
Re: Paul Krugman: The austerity delusion
#28[deleted]
Former Enron adviser Paul Krugman.
Re: Paul Krugman: The austerity delusion
#29Paul Krugman in 2002: "To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." Somehow every op-ed this guy writes gets treated as the word of god. It is important to remember that while he does have a Nobel prize, he has also said a lot of profoundly dumb stuff. I am not saying that Au…
Not god. Just former Enron adviser Paul Krugman.
Re: Paul Krugman: The austerity delusion
#30Paul Krugman in 2002: "To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." Somehow every op-ed this guy writes gets treated as the word of god. It is important to remember that while he does have a Nobel prize, he has also said a lot of profoundly dumb stuff. I am not saying that Au…
Let's see what Krugman says about this:
> One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble — in fact, the bubble is my fault! The claim seems to be based on this piece.
> Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.
http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the...
Aside from that, Krugman does not, in fact, prescribe increasing the government's share of economic growth in all circumstances, so you're wrong anyway.