Paul Krugman: The austerity delusion • Hacker News Board

Re: Paul Krugman: The austerity delusion

#61

Post by sjg007 » Wed, Apr 29, 2015, 6:40 PM UTC

dageshi wrote: post #14

jhugg wrote: post #10

Earlier quoted context omitted.

The proper time for austerity is when things are good. When things are bad, juice it up, especially if you can borrow at rates that are negative when inflation adjusted. The problem with austerity now to make the long term better is that it's not a zero sum game. Austerity lowers GDP growth, which can offset any move toward solvency. You spend less and surprise, you also take in less. Eventually you recover, but poor…

Had the government in the UK run a surplus prior to the financial crisis I suspect the case for a larger Keynesian response from the UK public would have been better received. That is afterall what Keynes originally proposed. Modern Keynesians have disproved it's necessity and yet... public opinion ultimately drives policy, perhaps Keynes requirement of running a surplus in the good times in order to run a deficit in…

The UK will have a big problem in 10 years when there are still no jobs for young adults.

Re: Paul Krugman: The austerity delusion

#62

Post by jhulla » Wed, Apr 29, 2015, 6:40 PM UTC

Amezarak wrote: post #43

jhulla wrote: post #22

What 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 investme…

> 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. So while Krugman offers data and concrete, falsifiable predictions that generally prove correct - for example, that hyperinflation will not be a problem, that QE won't move the economic needle much (but is better than nothing), that interest rates will remai…

First, the market is made up of all of us seeing similar data and coming to our own conclusions based on our interpretations and self-interest.

Second, the market didn't just crash in 2008, it melted down. There were fears of simultaneous runs on global banks with catastrophic consequences. Bernanke/Geithner/Paulson orchestrated government backstops on money market funds, on Fannie/Freddie debt, on shotgun-marriages between banks, on defusing the credit default swap nightmare constructed by AIG and its counter parties. ZIRP and QE were brought in to juice spirits in the hopes of rescuing growth.

2008-2009 was the end of the financial world as we knew it going back to Paul Volcker. It was nightmare. It was a catastrophic end that many and been predicting for some time. Some saw the writing on the wall by 2005 and were positioning their investments accordingly. Read about the thoughts of Ray Dalio, Stan Druckenmiller, or Jeremy Grantham.

Since 2008-2009, we're now in a whole new regime. Perpetual QE + ZIRP is not in ur economic textbooks and I do not believe our models can tell us what is coming.

We had an opportunity when things were stable in 2010 to find a sustainable path forward. Instead, worldwide, we've just taken regular hits of QE.

Re: Paul Krugman: The austerity delusion

#63

Post by MaysonL » Wed, Apr 29, 2015, 6:42 PM UTC

mudil wrote: post #29

anm89 wrote: post #20

Paul 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.

So what? See: http://www.pkarchive.org/personal/EnronFAQ.html

Re: Paul Krugman: The austerity delusion

#64

Post by douglasisshiny » Wed, Apr 29, 2015, 6:42 PM UTC

nostromo wrote: post #12

Interest rates are 0% and our economy isn't growing (Q1 '15). I find that scary. I'm seeing the results of Krugman's philosophy on the ground: Asset prices are way up. Housing in my city is almost as expensive as it was before the '08 crash. For those of us that are lucky enough to own stocks and a house -- three cheers for Krugman, 0% interest rates, and QE! But the asset economy is outpacing the real economy. Wages…

Q1 '15 is being considered a blip for many reasons (weather, west coast port strike, the strong dollar [1], big hits in the energy markets and markets affected by energy, etc.). Many economists expect a bounce back, much like last year.

1. Remember when people, counter to what Krugman said, said the dollar was going to experience hyperinflation?

Re: Paul Krugman: The austerity delusion

#65

Post by Amezarak » Wed, Apr 29, 2015, 6:44 PM UTC

Mikeb85 wrote: post #47

Amezarak wrote: post #36

Earlier quoted context omitted.

> We’ll never know who is right, though. Most of the world has been following the recommendations of this “economist” for decades. No, they haven't. No country has passed the kind of budget-busting stimulus packages Krugman has said was necessary. The closest any country came was the US, which passed a stimulus package less than half the size of his recommendations and that consisted largely of tax breaks instead of…

> I've noticed there's a bizarre phenomenon surrounding Krugman where people just refuse to read what he says and instead put all kinds of nonsense into his mouth. It's because he writes like a Nobel award winning economist. Meaning a dry writing style, and advanced concepts. Most people hated economics in school (either because they don't understand it, or found it boring - it's basically math that most people see n…

See, though, I don't think that's at all the case. Krugman isn't a dry writer at all, at least when it comes to his blog posts and political and economic commentary. To be sure, you find most of the more detail analyses on his blog (since the kind of posts he marks as "wonkish" would not be very popular in his column), but there's usually a lot of color to them and they're pretty accessible even to the layman. His blog (which leads you down a rabbit trail to other blogs written by all kinds of other economists) is what actually spurred my interest in economics. If anything, he gets in trouble for being too colorful.

I disagree with Krugman almost totally politically, but I find his blog worthwhile reading and it's just stunning to see how many people have no understanding whatsoever of what he says and believes. There's a whole cottage industry involved in setting up straw-krugmen and knocking them down.

Re: Paul Krugman: The austerity delusion

#66

Post by adventured » Wed, Apr 29, 2015, 6:48 PM UTC

Amezarak wrote: post #52

adventured wrote: post #44

Earlier quoted context omitted.

To get that growth, Japan massively debased the Yen, chopping down the Japanese standard of living and reduced the real value of all of that debt Japanese citizens are expecting to be paid back by the government. If you have to significantly harm your currency to get growth, what you're getting is not actual growth, merely an illusion.

In what sense do you mean Japan has "debased" the yen? Inflation has been virtually nonexistent. A weaker yen promotes exports; obviously not something that is automatically bad for the economy. It's absolutely not true that having a weaker currency means growth is illusory.

If you reduce the value of your currency by 25%, and get 3% GDP growth in the process, you have to adjust the baseline lower and what you've actually got is a drastic reduction in real economic value.

The Japanese government has been aggressively devaluing the Yen, because they're bankrupt and can no longer afford to pay even the interest on their debt without either using printing or new debt issuance. They're stuck in a downward spiral. Japanese savings have collapsed to zero, so the Japanese people can no longer afford to fund continued government debt expansion as they were before. That has left the Japanese government with no other options but currency debasement, ie devaluing the real worth of outstanding Yen based debt (which is mostly held by Japanese citizens, which is then ultimately a slashing of their wealth).

Japan has suffered zero deflation over the last 25 years. That's why Japan is one of the most expensive places on earth to live in most every respect. If they had suffered 25 years of deflation, their prices would have gone down accordingly.

Their long-term price index shows zero deflation.

http://i.imgur.com/Cvwj26A.png

The notion they've been stuck in deflation is keynesian economists confusing what deflation is. Under keynesian economics, if a bubble is inflated, and then bursts, taking down real estate prices, they call those falling prices deflation - when in fact it is not. This is one of the many obvious flaws at the heart of keynesian economics, which has helped lead the globe into its current perpetual stimulus addiction path.

Re: Paul Krugman: The austerity delusion

#67

Post by Amezarak » Wed, Apr 29, 2015, 6:51 PM UTC

jhulla wrote: post #62

Amezarak wrote: post #43

Earlier quoted context omitted.

> 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. So while Krugman offers data and concrete, falsifiable predictions that generally prove correct - for example, that hyperinflation will not be a problem, that QE won't move the economic needle much (but is better than nothing), that interest rates will remai…

First, the market is made up of all of us seeing similar data and coming to our own conclusions based on our interpretations and self-interest. Second, the market didn't just crash in 2008, it melted down. There were fears of simultaneous runs on global banks with catastrophic consequences. Bernanke/Geithner/Paulson orchestrated government backstops on money market funds, on Fannie/Freddie debt, on shotgun-marriages…

> Perpetual QE + ZIRP is not in ur economic textbooks and I do not believe our models can tell us what is coming.

That very situation is what Krugman did a lot of his academic work on. So far it's played out mostly like what he and other mainstream economists predicted. You can always say "until it doesn't", but that's the nature of life. We have to go with what we know.

It's not as if Krugman wants QE + ZIRP; he'd rather get out of it ASAP with his actual policy prescription (fiscal policy), but he's had to settle for QE/ZIRP.

> Yet there are many economists, myself included, who regard this view [that QE will be effective and give us a strong recovery] as highly unrealistic, yet support more aggressive Fed action all the same. Why? First, because it might help and is unlikely to do harm. Second, because the alternative — fiscal policy — may be of proven effectiveness, but is also completely blocked by politics. So the Fed’s efforts are all we have.

http://krugman.blogs.nytimes.com/2013/07/27/miltons-paradise...

Re: Paul Krugman: The austerity delusion

#68

Post by ancap » Wed, Apr 29, 2015, 6:51 PM UTC

Nimitz14 wrote: post #60

mdemare wrote: post #48

Earlier quoted context omitted.

QE is definitely not the opposite of austerity. Fiscal stimulus is. QE means that the central bank buy up bonds. The hope is that this lowers interest rates on bonds, making it less attractive for banks to hoard bonds instead of lending money to companies wanting to invest.

You're right, but I think you would yourself admit you're being pedantic, the great divide between policies in the US and EU was QE (until recently). It was wrong of the previous poster to paint the US as a country following austerity that was successful.

No, it was not wrong. I am simply using the definition of austerity that Krugman commonly uses (see my above post). UK has used QE since 2009[1], BTW, but only government expenditures goes into Krugman's definition.

[1] http://www.bbc.com/news/business-24614016

Re: Paul Krugman: The austerity delusion

#69

Post by jhulla » Wed, Apr 29, 2015, 6:53 PM UTC

vasilipupkin wrote: post #46

jhulla wrote: post #22

What 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 investme…

this point is valid, conditional on the assumption that current GDP level is fixed. Then, govt spending is just money that is taken away from private sector. The point though is that, under certain conditions, govt spending can raise the level of GDP. Those conditions, specifically, refers to times when private sector for reasons of essentially, risk aversion, is under investing. I am not saying that Krugman is 100%…

I actually agree that government spending can boost GDP. Where Krugman doesn't get it is that we've already distorted markets so much since 2008-2009 that a burst of government generated demand will not move the needle in a sustainable fashion. A $1 trillion government program will just get drained into rising asset prices - leaving incomes and the majority of individuals in largely the same spot as they started financially.

Krugman is fighting an old war.

Our current economy is not encumbered by too little demand - but by too much supply from past capital misallocation.

Our addiction to QE has made problem far worse. Asset markets are exploding in price higher due to central bank intervention while incomes are not.

Re: Paul Krugman: The austerity delusion

#70

Post by mdemare » Wed, Apr 29, 2015, 6:58 PM UTC

Nimitz14 wrote: post #60

mdemare wrote: post #48

Earlier quoted context omitted.

QE is definitely not the opposite of austerity. Fiscal stimulus is. QE means that the central bank buy up bonds. The hope is that this lowers interest rates on bonds, making it less attractive for banks to hoard bonds instead of lending money to companies wanting to invest.

You're right, but I think you would yourself admit you're being pedantic, the great divide between policies in the US and EU was QE (until recently). It was wrong of the previous poster to paint the US as a country following austerity that was successful.

I see a lot of people in this thread claiming that massive QE equals fiscal profligacy, that it means that the Keynesians have gotten exactly what they want.

I see QE more as a band-aid, used because fiscal stimulus is politically unattainable, since Keynesians are out of power nearly everywhere. Hence my comment - it was not meant as a nickpick.