The problem I see with claiming that the model is wrong is that, well... the model isn't wrong. Sure, maybe one day our economic policies will shift away from capitalism, but we are a capitalistic nation (though with some unfortunate socialistic leanings IMHO). The reason why economists can apply practically the same methods to the 21st century as they did the 20th is that there is no real difference in the fundament…
What If Your Model Is Wrong?
11–16 of 16 posts
Re: What If Your Model Is Wrong?
#12The problem I see with claiming that the model is wrong is that, well... the model isn't wrong. Sure, maybe one day our economic policies will shift away from capitalism, but we are a capitalistic nation (though with some unfortunate socialistic leanings IMHO). The reason why economists can apply practically the same methods to the 21st century as they did the 20th is that there is no real difference in the fundament…
Krugman and other macroeconomists do not generally dispute those commonly-held microeconomic assumptions. Where they differ, and what the original article is referring to when he says "Keynes vs. Friedman", are in the macroeconomic models. Macro is tricky because 1) we cannot ethically run controlled experiments on the economy, and 2) there are way too many parameters one could include. Macro is a useful but very approximate science; no serious economist would tell you that these models are without flaws.
Re: What If Your Model Is Wrong?
#13Earlier quoted context omitted.
Government debt is typically paid back at some point. What makes you think it won't be this time?
http://en.wikipedia.org/wiki/United_States_public_debt Also, who are we taking a loan from? China already owns most of America; now the Federal Reserve is just printing more money to make it look like the government can spend the money - but the reality is, it is just a redistribution of wealth from those who hold cash (middle class, and rich people can invest in other assets) to whoever the government mandates "need…
Linking to a Wikipedia article does not in any way answer my question.
You've presented a possible reason why borrowing money to bail out corporations could be harmful, but you haven't demonstrated that it's worse than the alternative. Sure, bailouts are bad. So are depressions.
Re: What If Your Model Is Wrong?
#14Earlier quoted context omitted.
http://en.wikipedia.org/wiki/United_States_public_debt Also, who are we taking a loan from? China already owns most of America; now the Federal Reserve is just printing more money to make it look like the government can spend the money - but the reality is, it is just a redistribution of wealth from those who hold cash (middle class, and rich people can invest in other assets) to whoever the government mandates "need…
Linking to a Wikipedia article does not in any way answer my question. You've presented a possible reason why borrowing money to bail out corporations could be harmful, but you haven't demonstrated that it's worse than the alternative. Sure, bailouts are bad. So are depressions.
Quote: Government debt is typically paid back at some point. What makes you think it won't be this time?
Answer: As of November 19, 2008, the total U.S. federal debt was $10.6 trillion.[2], with about $37,316 per capita (that is, per U.S. resident). The October 3rd, 2008 bailout bill (H.R.1424), section 122, raised the U.S. debt ceiling from $10 trillion to $11.3 trillion. Of this amount, debt held by the public was roughly $6.3 trillion.[3] In 2007, the public debt was 36.8 percent of GDP [4], with a total debt of 65.5 percent of GDP.[5] The CIA ranked the total percentage as 27th in the world.[6]
36.8% of our GDP. Okay. How are we paying that off if every year the deficit only grows?
In addition, you said depressions are bad but they happen. And yes they're market failures and natural periods of economic purge.
But bailouts are different - they basically stop that market failure that should have happened to happen. A bailout is a subsidy. Then companies that shouldn't be able to compete continue to do so, and that leaves room for more problems in the future.
Re: What If Your Model Is Wrong?
#15I think economic models are largely independent of the environment. Saying "these are 20th century models applied to 21st century economics" is a bit like saying "these are 20th century physics applied to a 21st century world" - yeah, but physics hasn't really changed that much.
Put differently: 21st century/internet has not changed the wiring of the economy, only the parameters. So the old models (if they are good) still apply, just stick different parameters in there. A parameter being something like "cost for finding a matching product for my needs".
Re: What If Your Model Is Wrong?
#16Earlier quoted context omitted.
Linking to a Wikipedia article does not in any way answer my question. You've presented a possible reason why borrowing money to bail out corporations could be harmful, but you haven't demonstrated that it's worse than the alternative. Sure, bailouts are bad. So are depressions.
Quote: Government debt is typically paid back at some point. What makes you think it won't be this time? Answer: As of November 19, 2008, the total U.S. federal debt was $10.6 trillion.[2], with about $37,316 per capita (that is, per U.S. resident). The October 3rd, 2008 bailout bill (H.R.1424), section 122, raised the U.S. debt ceiling from $10 trillion to $11.3 trillion. Of this amount, debt held by the public was…
How are we paying that off if every year the deficit only grows? You can effectively pay back the loans even with a deficit.
36.8% of GDP payed back at 1% per year would be (Interest - inflation - 1%) = ~.03 * 36.8 = 1.14% of GDP. Which is bad but below the average annual increase in GDP over the last 30 years. The deficit would increase every year, the debt would increase every year, but debut as a percentage of GDP would decrease.
One of the failings of democracy's is it's so easy for people in office to pay for current spending by increasing debt and then pass the buck to the next administration. The real story about the deficit is graphing as a percentage of GDP over time, doing so tells a different story than you might expect. http://zfacts.com/p/318.html
PS: A little blast from the past http://usgovinfo.about.com/library/weekly/aa101500b.htm