WOW! As per this guys logic, US should be focused on reducing the deficit right now rather than growth and jobs. With one of the deepest recession we ever faced hardly over and unemployment still so high, not sure how more jobs could have been created without help from govt stimulus(since consumer spending is down and so is pvt sector profits as well as hiring). With the kind of hole we were in and still are in, the biggest worry should be jobs and growth which are not going to come back just simply by waiting on consumer spending to pick up by itself(consumers are not going to spend, if there are no jobs).
Your analysis of the situation is incomplete because it does not consider the source of the resources used in the government stimulus. The resources need to come from someplace in economy. For the stimulus to be a net positive, the government's allocation of resources must be more efficient than where the resources were taken from.
The resources used in the stimulus come from someplace in the economy. The resources do not magically appear out of thin air when the Fed buys government debt.
It is not obvious that the bulk of the resources come from the idled workers. Resources are needed to pay the workers. Resources are needed to buy the steel, concreate and other materials used in the projects.
>It is not obvious that the bulk of the resources come from the idled workers. Resources are needed to pay the workers.
The resources are the idled workers. Yes, commodity-type resources are used as well, but there is for example a lot of idled equipment out there as well.
Yep. One of the causes of the global depression of the late 1920s is that governments did not intervene sufficiently forcefully when money supply seized up, and by the time they figured out what was going on it was too late.
The Bush/Obama stimulus prevented a collapse of the global banking system although reasonable people are arguing that the stimulus didn't go far enough (since we still have 12% unemployment in many parts of the country).
If your opinion is that the deficit is the root of all evil, you probably feel that way because you have a bunch of cash in the bank. Regardless, the time to fight deficits is when you have money to fight it with (as happened under the Clinton administration).
It is easy to understand. Government spending comes out of the economy via taxes and inflation. Taxes reduce company and personal profits reducing budgets for the next year, and thus reducing spending on purchases or expansion that would create jobs. Inflation raises costs, having the same effect.
Meanwhile, the government spending is often in non-productive sectors of the economy, such as increasing government jobs at all levels of government, which going forward add an additional spending burden on the economy.
Very little of the investment is even in areas targeted at building jobs. Hiring a bunch of people to build a bridge or highway does not create permanent jobs, and the positive impact of that highway or bridge is spread over many years, while the job hit from the spending starts immediately. Most government "innovation" efforts are misguided, poorly allocated or poorly managed, and rarely produce any substantive industry creation or economic growth. This is to be expected since politicians do not understand business very well, and have an incentive to feather their own nests or build their own political empires & burocratic fiefdoms. Thus the incentive is towards having more cushy government jobs to hand out as favors, and more employees under them... not to produce anything beneficial to society or the economy.
Further, it is not in government interest, really, to have a robust economy, because it is the damage done to the economy-- by government-- that lets government rationalize the power grab to have more control over the economy. Thus government "profits" by doing damage to the economy. The 2008 collapse is the result of government policies- clintons "you must loan to people who can't repay the loans" housing problem, the moral hazard of fannie mae and freddie mac, and bushs "we're gonna set interest rates below inflation"... stoked by constant economic pronouncements from everyone from the president to the fed chairman to Paul Krugman that there was no housing bubble and that if there was it would be good for the economy (the latter a position krugman took in one of his articles.)
This is the setup statement for why everything that follows in your post is wrong. If everything were simple and easy to understand we would have a straightforward, generally agreed upon solution. Instead, we have a complex multivariate macroeconomic system which we cannot control or isolate, meaning that reactions like these, as a whole, have about as much scientific backing as voodoo.
I'm really getting tired of these pop-economic articles on Hacker News. They never really inspire great debate, nothing gets settled, and everyone hits their own straw man.
It might be that there is a simple and straightforward model, but there are incentives for politicians, academics and other actors in the system to reject this model. For example, politicians will prefer models that defer pain to the future over models that take the pain now. If the simple and straightforward model says that we should take the pain now, then politicians will prefer a different model.
Actually, economics is not that complicated, and not that hard to figure out, or to influence. The reason there's so much effort to pretend like it is complicated is because it is profitable for those in government to do so, to cover up the effects of their actions.
The idea that the crises in 2008 was unexpected, or that the bailouts were necessary is absurd, and had been refuted decades before. But it is part of the act government goes thru to keep people controlled. I knew there would be a housing bubble in late 2000, before it really got started. I knew this because I was told this by economists and hit made perfect sense. And all these bubbles, being creations of government, result in the same kind of government response. The effect of that response, having seen it so many times before, is quite predictable. We've not seen the effect of the bailouts of 2008, and the bailout that just happened for credit unions... but I expect we'll see it by 2012. And when it happens, they will all be on TV saying "this could never have been predicted!" Just like they were in 2008.
I suggest you read "Economics in One Lesson" by Henry Hazlitt, or if you're unwilling even though it is a short book, simply familiarize yourself with Bastiat's Parable of the Broken Window
The theory of economics is easy to understand -- in this you are right. Whether or not the theory has anything to do with actual processes has not been established with any surety outside the field itself.
"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...
Maybe It's because English is not my native language... But I fail to see how Krugman in this article said that policy-makers should go out and create a 2007 recession or put mildly - that he advocated the policy that happened round that time and resulted in following years. To me it seems more like he is describing the mechanics of situation, eg: If you want the car to go faster - step on the right pedal. This sentence doesn't imply that going faster is actually good or desired.
Also as little as I have read Krugman - he (to me at least) came across as very on-point about the issues. I nowhere see the "Hawk" that everyone tries to paint.
This is why I'm going on a "read all Krugman's columns since 2000" one of these days - since I really want to understand flaw not in his but in my logic - since I fail to see Krugman as someone who cheered the disaster we are in.
The Krugman detractors seem to be of the opinion that Krugman is clueless, not that he advocated a recession or cheered on the disaster.
In this article, Krugman says that consumers need to spend more and that a housing bubble is one way to increase consumer spending. Perhaps he was not advocating a housing bubble, but he clearly didn't see a housing bubble as the terrible thing that it turned out to be. If he thought the policy was bad, he wouldn't have offered it as a solution.
Specifically, he does not understand monetary economics on a fundamental level. He could be called a Keynsian, but this would be an insult to Mr. Keynes. (Who only advocated inflation as a short term measure, not as a way of life, and who warned against the results if it were not reversed.)
So, in short, both John Maynard Keynes, and the Austrian School of Economics would say Krugman is clueless about monetary policy.
I think he is not actually clueless. He is a silver tongued liar employed by the government to spread misinformation and make those who think that they are well educated buy into nonsense so that they support unlimited government spending.
IT would take a very long time to read all the krugman articles, and he doesn't write in a very straightforward manner anyway.
However, you can save a bunch of time, and get counter arguments to krugman along with citations of his articles relevant to the bailout at Mises's bailout reader: http://mises.org/daily/3128
Thank you a lot - I'm certainly willing to educate myself on the issue.
I'd just like to state that I'm in no way a Krugman supporter - It wouldn't make sense anyway - since I'm not living in the US and it would be utterly insane to support someone if you don't even understand the context he is operating in. But on the limited exposure I had to his work (columns mostly) - I wasn't able to see the nearly unanimous point that most of the people here seem to hold. Thank you again.
EDIT: I went through all the linked articles - and only one mentions Paul Krugman: http://mises.org/journals/scholar/Thornton13.pdf. I guess I will still have to go through whole Krugman portfolio to figure out who the idiot is here...
Well, thanks for the link. It took some extreme creative interpretation to get the intent and motivation of the writer. Whenever I read opinions like those stated by lzw I make an attempt to understand the social and economic situation the writer is coming from. Quite often one can then understand the forces that twist the logic.
JanezStupar above, pretty much points out that what I was mentioning. Intent is being read into Krugman's article that does not actually appear in the article, The commentators view seems be colored by previously held beliefs.
