Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The Third Depression

nytimes.com

Post reply on HN
Print view View original

11–20 of 119 posts

Re: The Third Depression

#11

Post by yequalsx »

lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

It is definitely true that borrowing money is quite cheap for the U.S. right now. Long term rates are low. The question is how much long term borrowing we can do now without causing structural problems to the economy. After WWII our debt was quite high as a percent of GDP. High tax rates on the wealthy lowered the debt steadily until the Reagan administration. WWII was a massive government spending spree that got us out of the depression.

It is definitely incorrect to say that more stimulus necessarily must lead to hyperinflation or other things predicted by the Austrian view of economics. WWII is a counterexample. This does not mean that more stimulus must necessarily make the economy better. Spending money paying for millions to go to college for free (essentially), as in the GI Bill after WWII had a tremendous benefit to the country. There are wise expenditures and unwise expenditures.

The fact right now is that millions are out of work and even more or underemployed. People are suffering. It is sound and humane to take steps to help such people. During bad economic times it is generally wise to make major structural investments in society. During good economic times it is wise for government to pull back.

The borrowing right now is only a problem if there is not enough future discipline by our leaders. They will need to raise taxes on the wealthy in the future to pay for the mess we need to get out of today.

Re: The Third Depression

#12

Post by lionhearted »

arijo wrote: post #8
lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

Would you care to explain why printing money is a bad solution for the current scenario? And since economics is not a science who decides what is good economics? And what about criminalizing speculation against sovereign debt - that is the root cause of what is happening in europe right now.

> Would you care to explain why printing money is a bad solution for the current scenario?

Sure, housing was overpriced for a few different reasons. There's quite a few causes of it, you probably know a lot of them. But - it was definitely overpriced (in a "bubble").

Now, we're having what's called a "correction" - a correction is where housing prices come back into line with where they'd in a more sensible environment. This is where stupid and reckless people get burned, and people who were sensible and saved their money now buy at the correct market prices.

Krugman is saying we should print money, which strips the value of people holding cash via inflation. This transfers money from people holding cash to people holding debt (because during inflation, hard assets like housing increase in price relative to debt - mortgages). That takes money primarily from middle class people who were sensible and cautious, and distributes that money to a mix of middle class people who weren't sensible and to upper class people (who typically have significant debt and hard assets).

Krugman's basically saying - "whoa, whoa, whoa, we can't let this correction happen - instead, we should take money from people who didn't play in this mess and give it to people who did" - that is horrific.

> And since economics is not a science who decides what is good economics?

Economics can have falsifiable hypotheses, so it can be science at times. But you're right, I should have called Krugman's ideas reckless policy instead of economics. It's more policy than economics, yes.

Re: The Third Depression

#13

Post by kiba »

jswinghammer wrote: post #7

Considering that his Keynesianism has basically destroyed Japan's future (while at the same time he faults them for not borrowing enough) I'd hope he'd proceed with a bit more caution. The basic problem he has is that he doesn't really understand why we're here. When debt chases bad assets it's a disease that has to be cleared. He ignored some pretty serious depressions in his analysis as well. The panic of 1819 come…

Our fear of short term pain might be the worst part of the modern political system.

When people realize that they can vote themselves more money, they will. Government will then promise more than it can deliver and proceed to spend money like no tomorrow just like what happens to Greece and California.

But it's heresy to suggest that democratic institutions should be scrapped altogether. Everyone thinks democracy equal freedom, but it's really just majority rules.

Re: The Third Depression

#14

Post by Tuna-Fish »

cia_plant wrote: post #10
lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

I'm glad to finally find someone who knows exactly what caused the housing bubble and subsequent crash. Could you explain it to me? I find the whole matter very confusing myself, although I've read a lot about it. So: low interest rates caused the housing bubble. Could you explain how that happened exactly?

It's somewhat more complicated than that. However, the interest rates staying far too low for far too long was a necessary, but not sufficient part of the bubble. Or in other words, pulling the interest rates back up to sane amounts the second the economy recovered from the worst slump would have turned the loan market from a borrower's market to a debtor's one, and prevented the bubble.

Re: The Third Depression

#15

Post by varjag »

cia_plant wrote: post #10
lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

I'm glad to finally find someone who knows exactly what caused the housing bubble and subsequent crash. Could you explain it to me? I find the whole matter very confusing myself, although I've read a lot about it. So: low interest rates caused the housing bubble. Could you explain how that happened exactly?

The ever-lowering base interest rate made real estate acquisition (and refinancing) way more lucrative than traditional instruments like savings account. This outstanding stream of revenue turned the whole of financial industry with its powerful lobbying machine to twist as much out of it as it can, encouraging the stampede.

Re: The Third Depression

#16

Post by Retric »

fondue wrote: post #6
Retric wrote: post #4

I suspect the real problem is the evaporation of superficial jobs. We have become a nation devoted to our wants, but when things look bad people quickly cut back on such things. A tiny fraction of our population are "farmers" but with the over abundance of food produced and the only way to make money is to either suck on the governments subsidies or create specialty locally grown, free range, Organic etc goods. I thi…

What's a 'superficial job'?

Jobs that don't create long term value AND don't serve a basic human need. We need X farmers, but we have X + Y actual farmers the Y is are optional jobs that have limited long term economic value.

Re: The Third Depression

#17

Post by mark_l_watson »

lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

I agree with you. The most important area to save money: we have military bases and/or installations in about 3/4 of the countries on this planet. We need to stop that. We also need to allow state and local governments to go through bankruptcy to renegotiate pensions, etc. Harsh, but necessary.

The easy copout is printing money.

Re: The Third Depression

#18

Post by kiba »

yequalsx wrote: post #11
lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

It is definitely true that borrowing money is quite cheap for the U.S. right now. Long term rates are low. The question is how much long term borrowing we can do now without causing structural problems to the economy. After WWII our debt was quite high as a percent of GDP. High tax rates on the wealthy lowered the debt steadily until the Reagan administration. WWII was a massive government spending spree that got us…

WWII is a counterexample. This does not mean that more stimulus must necessarily make the economy better

Heard of the broken window fallacy?

In any case, the shift to war productions cause the population some misery. You got rationing of essential foodstuff and the like. You can't buy anything you like. There was almost certainly no R&D money spent on consumer research.

Never mind the fact that all the men went to wars! That's going to cause less employment. When a lot of men die, that make your employment statistics awfully good, doesn't it?

Spending money on education is all well and good, but what about the dead GIs that we can't bring back to life? How many Einsteins, Teslas, and Neumanns die in that war anyway? We probably lost some of them in that war.

Wars are just another case of digging holes and then filling it in again, except you're digging graves for dead soldiers, airmen, and sailors, and a whole perfectly good workforce too.

Re: The Third Depression

#19

Post by [deleted] »

cia_plant wrote: post #10
lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

I'm glad to finally find someone who knows exactly what caused the housing bubble and subsequent crash. Could you explain it to me? I find the whole matter very confusing myself, although I've read a lot about it. So: low interest rates caused the housing bubble. Could you explain how that happened exactly?

[deleted]

Re: The Third Depression

#20

Post by lionhearted »

cia_plant wrote: post #10
lionhearted wrote: post #2

I click the article. I see it's Krugman. Before I read further, I say, "Ah, Krugman. I bet his solution is to print money." > ...governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending. That's Krugman's answer for everything. Dot-com crash? Create more money: 2001 Krugman: “During phases of weak growth there are a…

I'm glad to finally find someone who knows exactly what caused the housing bubble and subsequent crash. Could you explain it to me? I find the whole matter very confusing myself, although I've read a lot about it. So: low interest rates caused the housing bubble. Could you explain how that happened exactly?

> I'm glad to finally find someone who knows exactly what caused the housing bubble and subsequent crash. Could you explain it to me? I find the whole matter very confusing myself, although I've read a lot about it.

Yeah, it is a complicated topic. What did you want to know specifically, what were your questions?

> So: low interest rates caused the housing bubble. Could you explain how that happened exactly?

Low interest rates were a big part of the problem - the price of money got below the cost of inflation. That means borrowing as much as you can is profitable. Let's say your interest rate is 4%, but the rate of inflation is 5%. That means that all things being equal, your rents on a commercial property are increasing faster than you're paying in interest! That doesn't seem like a big difference to a layman, but the gap between 4% and 5% is huge. That's 20% on your money.

In that kind of environment, it means if you borrow as much as you can, you turn bigger and bigger profits. This drives housing prices up. It also drives the stock market up. But the assets are artificially high because the money lending rates are artificially low, ie, set by the Federal Reserve. An arbitrage like this would be much less likely to happen over such a long period without the rates being set artificially low for political reasons, to make things look good when they weren't.

And then you know the rest of the story after that.

For the most straightforward, plain English explanations, I'd recommend Peter Schiff - he was correctly predicting the housing crash almost to the letter and getting mocked on news analysis programs for it. Here's a link to some of his clips from 2006 and 2007:

http://www.youtube.com/watch?v=2I0QN-FYkpw

He's got some free videos and wrote some books, check the clips above out - he's consistent with that message - and then check more of him out if you want to understand more.

If you have any specific questions, I'll try to answer to the best of my ability.

Post reply on HN