Krugman - Debt Reduction = Increased Spending

[Chomsky]

Re: Krugman - Debt Reduction = Increased Spending

Right - I get that and thought that was the entire purpose of the Fed's actions. I meant a real jubilee - where debts are explcitly wiped off the books in a single swoop and people recognize it's happening in real time.

I'd put big money on a debt jubilee, as such, never happening.

[ASH]

Re: Krugman - Debt Reduction = Increased Spending

I'd put big money on a debt jubilee, as such, never happening.

To my way of thinking, the opportunity to discharge debt in a bankruptcy is pretty close to a perpetual debt jubilee. Yes, it wipes out most of the bankrupt individual's assets, but it stops claims on future income.

[Chomsky]

Re: Krugman - Debt Reduction = Increased Spending

To my way of thinking, the opportunity to discharge debt in a bankruptcy is pretty close to a perpetual debt jubilee. Yes, it wipes out most of the bankrupt individual's assets, but it stops claims on future income.

Yes. To me, though, a "jubilee" means some sort of mass bankruptcy by fiat for all debtors -- and with the government owned by FIRE, that ain't happening.

[c1ue]

Re: Krugman - Debt Reduction = Increased Spending

Please pick which one you disagree with:

(1) one person's debt is another person's asset;
(2) decreasing a debt must decrease an asset.

Sorry, but trying to frame the question in bankster terms is worthless.

For one thing, you assume that all debts CAN be repaid.

For another thing, you assume that debt assumed generates positive growth.

What Dr. Michael Hudson has repeated over and over again is quite simple - but apparently you still don't get it:

If debt is allowed to grow without impediment/periodic resetting, then it can NEVER be repaid.

The purpose of government regulation is to prevent debt from attaining this asymptotic compound interest state.

As we have clearly already surpassed the compound interest point of no return, his 'solutions' are ludicrous.

Let's say Fed creates $10 to pay Debtor to make Widget. Fed has Widget and Debtor has $10. Debtor can pay off $10 of his debt, and Saver has $10 in cash in place of $10 in loans. But the money supply was increased, which is the inflation remedy mentioned by Krugman. Why not simply print $100 for Debtor to wipe away his debts?

What if Saver wants to buy the Widget to capture the growth? Well, then Saver is willing to spend his money -- which Krugman pointed out is the problem, because it's not happening.

Sorry, Krugman didn't take jack diddly into account.

Krugman plays with his economic models like the mathematician he is.

He fails to take into account that FIRE bubbles increase cost of labor(residential rent) and commercial rents, as well as capital costs.

It is precisely these costs which make offshoring/outsourcing a slam dunk.

Furthermore Dr. Hudson points out quite correctly that while not all capital formation via Fed QE is necessarily evil, it is absolutely evil with the vast majority of said capital goes not to the nation hosted by the Fed, but to China and the outsourcers.

Lastly Krugman again demonstrates his stupidity - even ignoring the above - by again failing to understand the difference between generating debt and generating growth.

One does not automatically mean the other.

The wonkish policies for achieving sustainable intelligent growth do not arise spontaneously from an outpouring of capital created via debt.

I'm not sure I follow this. If you're saying that investments that create productive assets do not require a sacrifice on anyone's part because productivity gains grow the pie so to speak and so allow the vig to be paid off safely without resorting to a ponzi-like system of ever-increasing, progressively more unsustainable debt then I get it. In such a situation the rentier is really an investor and the whole thing works. Is this what you mean?

No, what I've said is that throwing money at the problem solves nothing.

Krugman's only solution to date is for the government to spend more.

But the HOW of the spending matters as much, if not more, than the HOW MUCH.

Dr. Hudson on the other hand gives an example of how such spending could be more productively used:

Were the government to spend $1T creating a high speed rail network between all the major cities in the US, then to increase the property taxes in the immediate areas near the HST sites to offset ALL property value increases due to this improvement, then over time the $1T would be offset by the increased taxes - with the economic development of the HST network being the bonus.

The difference between this scenario and the present? A real time counter example:

The Fed creates a $1T real estate bubble (It was actually more like $10T). The corresponding increases in labor costs encourages manufacturers to move their factories to China. The 80% reduction in payrolls plus lower offshore taxes result in 100% loss of revenues from where the American factory used to sit, and an infinite increase in tax revenues where the American factory now sits (in China). The Chinese workers in this new factory - while exploited - see an increase of average monthly income from $100 to $500.

Another real time example:

A bureaucrat administering the ARRA receives an application for improving a road in California. It links 2 states: Nevada and California. It is near an 'urban center'.

He stamps it approved.

Work then starts on improving highway 89 - which links highway 50 before it goes into Lake Tahoe with the Nevada intrastate 395 near Topaz Lake(population: 2,351), going through Alpine Village(population: 129).

Skiers in the region rejoice.

A third example:

San Francisco has finally decided to build its new Trans-Bay Terminal.

Despite several years of record city deficits, work has begun on the new Terminal. In the meantime, this is built for the price of $18M - with ARRA money:



I reiterate: Krugman = moron

[Munger]

Re: Krugman - Debt Reduction = Increased Spending

Sorry, but trying to frame the question in bankster terms is worthless.

For one thing, you assume that all debts CAN be repaid.

For another thing, you assume that debt assumed generates positive growth.

What Dr. Michael Hudson has repeated over and over again is quite simple - but apparently you still don't get it:

If debt is allowed to grow without impediment/periodic resetting, then it can NEVER be repaid.

The purpose of government regulation is to prevent debt from attaining this asymptotic compound interest state.

I really think we are on the same page here, c1ue. I fail see how this limited point conflicts with Dr. Hudson's analysis: debtors cannot pay of their debts unless savers take a hit -- whether this occurs through inflation, jubilee, or increased spending from savers.

As we have clearly already surpassed the compound interest point of no return, his 'solutions' are ludicrous.

His solutions included debt jubilee and/or inflation ... as he's been saying for years now (has it really been that long?).

Sorry, Krugman didn't take jack diddly into account.

Agree to disagree.

Lastly Krugman again demonstrates his stupidity - even ignoring the above - by again failing to understand the difference between generating debt and generating growth.

One does not automatically mean the other.

This is what bothers me -- Krugman is clearly not stupid. To argue he doesn't understand debt and growth is deluded. He is merely stating that the slump will go on unless the debt burden is reduced. He may not fully agree with Dr. Hudson as to how this must happen, but they are largely on the same page.

[c1ue]

Re: Krugman - Debt Reduction = Increased Spending

This is what bothers me -- Krugman is clearly not stupid. To argue he doesn't understand debt and growth is deluded. He is merely stating that the slump will go on unless the debt burden is reduced. He may not fully agree with Dr. Hudson as to how this must happen, but they are largely on the same page.

Is he stupid in the sense of IQ < 100?

No.

However, he is stupid to the ways of the world.

Unlike Dr. Hudson, Krugman has always been only an academic.

And if all Krugman were doing was academia, I would have no problem with him.

However, Krugman - between his NY Times column and his mouth - has long since overstepped from Science into Advocacy.

He is exactly the Monday Morning Quarterback, the Rear Echelon MotherF****R, the Ivory Tower Professor.

And therefore deserves every last iota of venom I muster.

To say that Dr. Hudson and Krugman are on the same page is a mortal insult to the former.

Dr. Hudson fights the FIRE interests; Krugman is a chief pawn.

Indeed, he is the very epitome of the term "useful idiot"

[Munger]

Re: Krugman - Debt Reduction = Increased Spending

To say that Dr. Hudson and Krugman are on the same page is a mortal insult to the former.

Dr. Hudson fights the FIRE interests; Krugman is a chief pawn.

Indeed, he is the very epitome of the term "useful idiot"

Again, I have to disagree. I will grant you that Krugman does not have the venom for FIRE that Dr. Hudson does (and that I do, for that matter). However, Krugman has long advocated inflation or debt relief as a remedy to our problems -- just as he was advocating it back in the 90s for Japan. He also advocated Swedish-style bank takeovers instead of the no-strings-attached bailouts. Granted, he did state that bailouts were better than nothing, but this was long-after he had made his preferences known for takeovers known and it became apparent that it was not going to happen.

Again, I'm just not seeing it. There are definitely true FIRE economists out there. Krugman is not one. He is not anti-FIRE, like Dr. Hudson. But he has stated the income inequality is a problem, that bankers are paid too much, that our smartest people should go into other fields, that takeovers were preferred, that inflation is a solution, etc. Not pure anti-FIRE, but definitely not pro-FIRE.

[Ghent12]

Re: Krugman - Debt Reduction = Increased Spending

Again, I have to disagree. I will grant you that Krugman does not have the venom for FIRE that Dr. Hudson does (and that I do, for that matter). However, Krugman has long advocated inflation or debt relief as a remedy to our problems -- just as he was advocating it back in the 90s for Japan.

Question: although it would relieve debt, how can substantial inflation be good for the world's largest net importer? Is that not an outright embracing of real, effective austerity?

[ASH]

Re: Krugman - Debt Reduction = Increased Spending

Yes. To me, though, a "jubilee" means some sort of mass bankruptcy by fiat for all debtors -- and with the government owned by FIRE, that ain't happening.

Fair enough -- I think that's closest to the historical meaning of the word. Sometimes, though, it seems like proponents of a society-wide jubilee talk about it like it is the only way to wipe the slate clean: that debt forgiveness is some sort of radical idea from the distant past, and only by a society-wide jubilee can we free up enough cash flow to get growth going again. In fact, it doesn't make much sense to forgive the debts of those who can pay them (other than folks like a free lunch), and the individual nature of bankruptcy is more efficient.

[Munger]

Re: Krugman - Debt Reduction = Increased Spending

Question: although it would relieve debt, how can substantial inflation be good for the world's largest net importer? Is that not an outright embracing of real, effective austerity?

It would be a net benefit, in that it would increase the competitiveness of our exports, thereby helping the deficit, trade balance, unemployment, etc. Of course, this is a naive view, not taking into account the things that we can no longer produce ourselves. But, it's going to have to happen -- we cannot buy all of our goods from China forever. It would have been nice to have the currencies establish their relative values organically while the massive deficits were occurring. But since we are where we are, might as well do it now.

[c1ue]

Re: Krugman - Debt Reduction = Increased Spending

Again, I'm just not seeing it. There are definitely true FIRE economists out there. Krugman is not one. He is not anti-FIRE, like Dr. Hudson. But he has stated the income inequality is a problem, that bankers are paid too much, that our smartest people should go into other fields, that takeovers were preferred, that inflation is a solution, etc. Not pure anti-FIRE, but definitely not pro-FIRE.

Simply because Krugman isn't as obvious as say, David Lereah, does not absolve him of his (lack of) actions.

Krugman saying too big to fail banks are bad, yet simultaneously advocating inflation targeting and massive stimulus packages, might be understandable if he WERE stupid.

Since he is not, then again he is either willfully blind to the consequences of his advocated actions or is ideologically blind.

From my point of view, whichever is irrelevant.

And again, were he a pure academic, that would be fine.

As a public advocate, his ludicrous notions and failure to understand the place of growth in the mix fully justifies my view of him.

Your opinion, of course, is your own.

[Ghent12]

Re: Krugman - Debt Reduction = Increased Spending

It would be a net benefit, in that it would increase the competitiveness of our exports, thereby helping the deficit, trade balance, unemployment, etc. Of course, this is a naive view, not taking into account the things that we can no longer produce ourselves. But, it's going to have to happen -- we cannot buy all of our goods from China forever. It would have been nice to have the currencies establish their relative values organically while the massive deficits were occurring. But since we are where we are, might as well do it now.

How can it be a net benefit when our net current account balance of trade is the largest ever negative value in the history of the world? That doesn't make any sense. If our currency is devalued, then it helps our exports proportionally the same amount it hurts our ability to import, and right now that means massive pain in the ability to import.

I agree that we cannot buy everything from China forever, but I don't think that intentionally impoverishing all Americans is the correct solution from either an economic or moral perspective.

[ThePythonicCow]

Re: Krugman - Debt Reduction = Increased Spending

I agree that we cannot buy everything from China forever, but I don't think that intentionally impoverishing all Americans is the correct solution from either an economic or moral perspective.

True.

However ...

While it may not be good for us peons economically, what's good for the goose is not necessarily good for the farmer.

As to the moral perspective ... it's been rumored that the special version of the Excel Spreadsheet program used by Harvard MBA's lacks an "is_this_moral()" function.

[flintlock]

Re: Krugman - Debt Reduction = Increased Spending

No, you need to ask a Canadian, French or German manufacturing business how socialised medicine helps them compete against American manufacturers.

Oh yeah, thats why the Soviet Union won the cold war.

My comment was about Chomsky singing the praises of Soviet Russia, not about socialized medicine.

[Munger]

Re: Krugman - Debt Reduction = Increased Spending

My comment was about Chomsky singing the praises of Soviet Russia, not about socialized medicine.

Chomsky wasn't praising Soviet Russia; he was using it as an example to demonstrate why the questioner's attribution of rising living standards to capitalism was spurious. He did the same with slavery. He was hardly advocating slavery.