Krugman Has His Backside Handed to Him

[Camtender]

Per ZH, must watch:

For 15 minutes of both education and entertainment - this is as good as it gets...

• Starting from around 35:00 the Spanish professor praises and criticizes in a thoughtful and gentle tone
• At around 39:00, he addresses the demand-side description of the world
• Krugman's less-than-happy response (which sparks quite a rowdy argument) begins around 48:20

http://www.zerohedge.com/news/ultima...gman-take-down

[raja]

Re: Krugman Has His Backside Handed to Him

Per ZH, must watch:

For 15 minutes of both education and entertainment - this is as good as it gets...

• Starting from around 35:00 the Spanish professor praises and criticizes in a thoughtful and gentle tone
• At around 39:00, he addresses the demand-side description of the world
• Krugman's less-than-happy response (which sparks quite a rowdy argument) begins around 48:20

http://www.zerohedge.com/news/ultima...gman-take-down

On the contrary, I thought Krugman did a good job of taking down the Spanish professor.

For example, PK said that the discussion shouldn't be about credentials. The prof vehemently said he didn't attack PK, but here's a quote "Often Nobel prize winners are tempted to pontificate on matters that are outside the specialty in which they have excelled," noting "the mantle of authority whereby what ever they say - whether sensible or not - is accepted with resignation from some and enthusiasm by others."

Then PK went on the point out a few of the proven failures of his critics' predictions.

So actually PK was the one who did the take down.

The problem with PK is that he doesn't realize that there is no "solution". Whatever is tried will fail. It's unfixable. So, pointing out the failures of his opponents in no way proves PK is right.

[littleshark]

Re: Krugman Has His Backside Handed to Him

Krugman belives what he believes, and will defend it. He by no means had his backside handed to him. This is another example of a sensational headline. I actually enjoyed listening to this....I always like to hear the arguments of people I disagree with, as frustrating as it may be.

[c1ue]

Re: Krugman Has His Backside Handed to Him

Krugman talks a good talk - as might be expected from a public academic.

Unfortunately being personable and well spoken doesn't cover up his obvious economic theory idiocy.

[Penguin]

Re: Krugman Has His Backside Handed to Him

The problem with PK is that he doesn't realize that there is no "solution". Whatever is tried will fail. It's unfixable. So, pointing out the failures of his opponents in no way proves PK is right.

Have to believe this is part of it... another part is that he mistakes temporary fixes for permanent corrections.

EJ and some of the more learned members here may take me down a notch but I have to say that as long as there is such a voracious appetite for Treasury bonds you could probably patch together something that looks like an organic recovery. IF you were willing to go the 'debt on steroids' route which he advocates.

As far as 'demand side' economics goes, isn't that what this site puts forth?

We engage in the specifics but in the end isn't that the backbone of itulip economics? The demand side is decimated because of debt? The demand side has been saddled with future taxes to pay for current deficits so long that the future is now arriving? The demand side is crippled by an economy that has shifted from produce/consume economics which provide middle class jobs and valuable goods to a FIRE based economy that is based on rentier economics?

I may be wrong.

Will

[EJ]

Re: Krugman Has His Backside Handed to Him

Have to believe this is part of it... another part is that he mistakes temporary fixes for permanent corrections.

EJ and some of the more learned members here may take me down a notch but I have to say that as long as there is such a voracious appetite for Treasury bonds you could probably patch together something that looks like an organic recovery. IF you were willing to go the 'debt on steroids' route which he advocates.

As far as 'demand side' economics goes, isn't that what this site puts forth?

We engage in the specifics but in the end isn't that the backbone of itulip economics? The demand side is decimated because of debt? The demand side has been saddled with future taxes to pay for current deficits so long that the future is now arriving? The demand side is crippled by an economy that has shifted from produce/consume economics which provide middle class jobs and valuable goods to a FIRE based economy that is based on rentier economics?

I may be wrong.

Will

Consider the following two charts. How can anyone look at the first and argue that the long term solution is more public sector debt, or that more public debt for a period is not the inevitable result of the collapse of a 30-year credit bubble?

One does not have to argue the question of how much household debt is too much as if the answer is unknowable.

We got the answer in 2009. The answer is about 100% of GDP.

Household debt as a percent of GDP (blue line above) has been declining non-stop ever since. And as Janet Yellen told me, if household debt is shrinking, government debt will rise to compensate, as a result of increases in unemployment benefits and other government outlays.

We had an economy that over 30 years became structured around accelerating private sector credit expansion. It took more and more debt to produce a dollar of GDP growth, from one to two to finally around 4.7. Then it blew up with the household debt portion of private debt around 100% of GDP.

Then the government had to step in to prevent the economy from collapsing into a second Great Depression. The data show this as clearly as a wet umbrella tells you it's been raining.

So what exactly are these guys arguing about?

The only worthwhile topic for debate is this: How do we get the economy back on track to grow without ever-increased leverage, such as at a steady 45% of GDP as from the mid 1960s to the early 1980s? How do we do it without sending the economy into a deflationary depression by failing to compensate with fiscal policy for private sector debt deflation or into an inflationary government debt and currency crisis if deficit spending causes the nation to exceed its sovereign credit limit?

Tick, tock. Tick, tock. We don't have forever to answer the question. Debates like the one between these two economists have been going on for three years now. A further waste of time.

[Penguin]

Re: Krugman Has His Backside Handed to Him

... The only worthwhile topic for debate is this: How do we get the economy back on track to grow without ever-increased leverage, such as at a steady 45% of GDP as from the mid 1960s to the early 1980s? How do we do it without sending the economy into a deflationary depression by failing to compensate with fiscal policy for private sector debt deflation or into an inflationary government debt and currency crisis if deficit spending causes the nation to exceed its sovereign credit limit?

Tick, tock. Tick, tock. We don't have forever to answer the question. Debates like the one between these two economists have been going on for three years now. A further waste of time.

Thanks EJ, I appreciate you jumping in to clarify your position. It is one of the things I most love about itulip.

The questions I quoted you on get to the very nub of the problem. And the fact that we have yet to hear them put forth by policy makers tells us more about what the future holds in store for us than all the arguments that Krugman and the rest of the economics profession litter the ether with.

My own opinion is that a long term viable economy will most certainly not have huge and chronic trade deficits. I agree with everything you have posted here and 95% of what you have posted elsewhere. But to me this one issue also gets to the root of the woes in the US economy. There has been a symbiotic relationship between the trade deficit and the fiscal deficit. I firmly believe balancing the budget, voluntarily or otherwise, without addressing the trade deficit is just asking to reduce the standard of living in this nation to 3rd world status.

Will

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

The problem with PK is that he doesn't realize that there is no "solution". Whatever is tried will fail. It's unfixable. So, pointing out the failures of his opponents in no way proves PK is right.

There is an easy technical solution. If by no solution you mean because of a crock filled moat of corrupt politics then, well, we agree.

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

Thanks EJ, I appreciate you jumping in to clarify your position. It is one of the things I most love about itulip.

The questions I quoted you on get to the very nub of the problem. And the fact that we have yet to hear them put forth by policy makers tells us more about what the future holds in store for us than all the arguments that Krugman and the rest of the economics profession litter the ether with.

My own opinion is that a long term viable economy will most certainly not have huge and chronic trade deficits. I agree with everything you have posted here and 95% of what you have posted elsewhere. But to me this one issue also gets to the root of the woes in the US economy. There has been a symbiotic relationship between the trade deficit and the fiscal deficit. I firmly believe balancing the budget, voluntarily or otherwise, without addressing the trade deficit is just asking to reduce the standard of living in this nation to 3rd world status.

Will

So long as the world wants dollars and it functions as a reserve currency, chronic trade deficits are inevitable. Its simply impossible to have it otherwise. The US must go further into debt to provide global liquidity.

[Penguin]

Re: Krugman Has His Backside Handed to Him

So long as the world wants dollars and it functions as a reserve currency, chronic trade deficits are inevitable. Its simply impossible to have it likewise. The US must go further into debt to provide global liquidity.

No doubt, which is one of the reasons I snicker every time I hear someone imply that the Chinese are going to jump headfirst into battle for the dubious honor of having custody of the world's reserve currency. They most certainly wish to take away the ability of the US to float around the globe involving itself in every conflict that seems to pop up. They would no doubt love to dip their mitts into some of the seigniorage that our financial industry thrives on... but in my estimation they are not foolish enough to want the reserve currency and the decimated industrial base that it entails. Not yet anyway.

I believe the US has about reached the end of the line along this path. But what comes next? I'll volunteer to be the first to admit I don't know. EJ has put forth some interesting possibilities. I've read some others elsewhere. We all seem to be stumped. But I still say that we will never have a long term stable system running these kinds of trade deficits. It just won't work. All the balance sheet repair in the world will not bring back the middle class if there aren't middle class employment opportunities available. As of now we have spent the last several decades using trade policy as a way to eliminate them.

Will

[c1ue]

Re: Krugman Has His Backside Handed to Him

EJ has put forth some interesting possibilities. I've read some others elsewhere. We all seem to be stumped. But I still say that we will never have a long term stable system running these kinds of trade deficits. It just won't work. All the balance sheet repair in the world will not bring back the middle class if there aren't middle class employment opportunities available. As of now we have spent the last several decades using trade policy as a way to eliminate them.

My view is that the trade deficits are a symptom, not the cause.

The cause is poor American wage competitiveness driven by high costs of living, which in turn are induced by FIRE (Finance, Insurance, Real estate, and Education).

High housing costs due to asset inflation promulgated by banksters, high insurance costs due to an incredibly expensive health care system, finance levering up corporate debt and thus levering down employment, and student loans/college cost inflation putting yet more bankster leechs on the PC (production/consumption) economy's back.

TECI is one path towards growth and is worthwhile, but it is unclear how it resolves the FIRE problem. A 100% inflation will prune down the asset inflation/debt problem somewhat, but will not fix the forces which set that dynamic into motion, nor will it fix a dysfunctional political system distorted by ever more masses of campaign contributions.

[Penguin]

Re: Krugman Has His Backside Handed to Him

I can go along with most of that as well c1ue. I, like you, believe that the high cost of living has done a lot to keep the trade deficit going.

But (and you knew there would be one) as long as the reserve currency is splayed out in full display waiting to be pegged to, either officially or unofficially, there is no realistic way for a trade deficit to correct itself in this system short of tariffs. And let's not forget that this was only a theoretical construct to begin with. No one had any experience with an entire planet filled with fully floating currencies and unimpeded capital flows. But after the sell job for all these free trade agreements we didn't even bother to enforce the rules that we were told were important. And in the case of the Chinese we waived the rules entirely!

I guess what I'm saying is that I acknowledge the importance of the high cost of living but I haven't thrown out my Triffin to make room for it. I still think the entire concept of a 'worldwide reserve currency' owned by one sovereign is flawed at the outset and doomed to failure.

Will

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

My view is that the trade deficits are a symptom, not the cause.

The cause is poor American wage competitiveness driven by high costs of living, which in turn are induced by FIRE (Finance, Insurance, Real estate, and Education).

I disagree on this. We can print notes and get stuff for it. So we don't need as many workers and thus less of a middle class. Its a financial form of Dutch disease. It is not the only cause, or perhaps not even a leading cause, but it is more than a symptom. It literally saps any international demand for American product.

High housing costs due to asset inflation promulgated by banksters, high insurance costs due to an incredibly expensive health care system, finance levering up corporate debt and thus levering down employment, and student loans/college cost inflation putting yet more bankster leechs on the PC (production/consumption) economy's back.

No doubt here. Normally its a monkey on the back that siphons the surplus from capital and labor. Once it got into ponzi mode, it began to levitate like a Tibetan monk. They did not even run into the limitation of market demand set by wage to housing ratios(you know, like 20% down). So instead of land rents following and robbing wage earners, it has scorched the earth where worthless land is now better that good land held off the market at speculative prices.

Watch and weep at something Henry George predicted. Only valuable land can become worth less than nothing in a financial feudal system. People move out of perfectly good houses to here:

http://www.time.com/time/nation/arti...105597,00.html

TECI is one path towards growth and is worthwhile, but it is unclear how it resolves the FIRE problem. A 100% inflation will prune down the asset inflation/debt problem somewhat, but will not fix the forces which set that dynamic into motion, nor will it fix a dysfunctional political system distorted by ever more masses of campaign contributions.

We should not owe the 1% what we "owe" . We have too many debt and rent instruments like national debt and land values. Gold is at least a blessing in this regard since it tends to store value harmlessly unlike the necessities of life. What should have happened were defaults, but I would have had no problem with increasing the deficit with progressive tax relieve. Why we would "collect revenue" for a paper based social security systems instead of a pay as you go system is beyond stupid. Show me the canned food , otherwise its just credit starvation.


For you viewing pleasure. Here is an ancient observation of Dutch disease. Our reserve currency will tend to create oligarchy like Thebes and Sparta, unlike Athens where the wealth is in the people. Economic rents, like a reserve currency, allow for wealth creation to be had without work, and thus a natural limit on individual power is now bypassed. Are people still expecting tribal and mineral rich states to become healthy democracies? The United States was a homogeneous state with even distribution of land. Now that we are multicultural with consolidated economic rents, there is no basis for it. Japan on the other hand was like Athens with only her Yen as the curse that helped to curtail it.

http://classics.mit.edu/Thucydides/p...r.1.first.html

For instance, it is evident that the country now called Hellas had in ancient times no settled population; on the contrary, migrations were of frequent occurrence, the several tribes readily abandoning their homes under the pressure of superior numbers. Without commerce, without freedom of communication either by land or sea, cultivating no more of their territory than the exigencies of life required, destitute of capital, never planting their land (for they could not tell when an invader might not come and take it all away, and when he did come they had no walls to stop him), thinking that the necessities of daily sustenance could be supplied at one place as well as another, they cared little for shifting their habitation, and consequently neither built large cities nor attained to any other form of greatness. The richest soils were always most subject to this change of masters; such as the district now called Thessaly, Boeotia, most of the Peloponnese, Arcadia excepted, and the most fertile parts of the rest of Hellas. The goodness of the land favoured the aggrandizement of particular individuals, and thus created faction which proved a fertile source of ruin. It also invited invasion. Accordingly Attica, from the poverty of its soil enjoying from a very remote period freedom from faction, never changed its inhabitants. And here is no inconsiderable exemplification of my assertion that the migrations were the cause of there being no correspondent growth in other parts. The most powerful victims of war or faction from the rest of Hellas took refuge with the Athenians as a safe retreat; and at an early period, becoming naturalized, swelled the already large population of the city to such a height that Attica became at last too small to hold them, and they had to send out colonies to Ionia.

[c1ue]

Re: Krugman Has His Backside Handed to Him

But (and you knew there would be one) as long as the reserve currency is splayed out in full display waiting to be pegged to, either officially or unofficially, there is no realistic way for a trade deficit to correct itself in this system short of tariffs. And let's not forget that this was only a theoretical construct to begin with. No one had any experience with an entire planet filled with fully floating currencies and unimpeded capital flows. But after the sell job for all these free trade agreements we didn't even bother to enforce the rules that we were told were important. And in the case of the Chinese we waived the rules entirely!

I'd note that Germany has the euro, is the effective controller of the ECB, and has both trade surpluses and reined in its FIRE-men quite well.

Obviously not an exact parallel, but the concept that it is impossible to control FIRE must be reconciled with Germany's state now. Germany also has a far more progressive/socialist support network, and had the added bonus of integrating East Germany not so long ago.

I disagree on this. We can print notes and get stuff for it. So we don't need as many workers and thus less of a middle class. Its a financial form of Dutch disease. It is not the only cause, or perhaps not even a leading cause, but it is more than a symptom. It literally saps any international demand for American product.

I guess I'm not quite sure what you mean by this. If America was a command economy like the Soviet Union, this would be true but I fail to see how the ability to print money in any way causes American companies to not want to export.

The trade numbers also clearly show that while the US has a large trade deficit, ultimately the US exports a very, very great deal. It is just that we import more.

Without commerce, without freedom of communication either by land or sea, cultivating no more of their territory than the exigencies of life required, destitute of capital, never planting their land (for they could not tell when an invader might not come and take it all away, and when he did come they had no walls to stop him), thinking that the necessities of daily sustenance could be supplied at one place as well as another, they cared little for shifting their habitation, and consequently neither built large cities nor attained to any other form of greatness. The richest soils were always most subject to this change of masters; such as the district now called Thessaly, Boeotia, most of the Peloponnese, Arcadia excepted, and the most fertile parts of the rest of Hellas.

Maybe I'm reading this wrong, but almost every single point noted above is not applicable to the US.

Military weakness? no
Commerce? no
land/sea communication? no
food production/export? no

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

I guess I'm not quite sure what you mean by this. If America was a command economy like the Soviet Union, this would be true but I fail to see how the ability to print money in any way causes American companies to not want to export.

The trade numbers also clearly show that while the US has a large trade deficit, ultimately the US exports a very, very great deal. It is just that we import more.

American companies might want to export but you can't see that they are more likely to use the currency elsewhere when its a carry trade currency? When I float a dollar overseas, it is less likely to come back as a demand for American product. You did not see Triffin's point? Our debt is an export product with little need of being redeemed by labor.

Maybe I'm reading this wrong, but almost every single point noted above is not applicable to the US.

Military weakness? no
Commerce? no
land/sea communication? no
food production/export? no

You are applying it too broadly. I was comparing the wealth of Athens to the wealth of the Peloponnese. When ever you have resource wealth, it may become very concentrated because all it takes is for someone to stake a claim. In a place like Athens, the only wealth resource came from human labor and artisans who will counter balance the aristocrats much more so. Wall Street does not need to involve main street for its wealth. All it needs is the reserve currency. If you notice, resource poor countries tend to have much less disparity in income.

American labor was in a much better condition to negotiate

"If," says Wakefield, "all the members of the society are supposed to possess equal portions of capital...no man would have a motive for accumulating more capital than he could use with his own hands. This is to some extent the case in new American settlements, where a passion for owning land prevents the existence of a class of labourers for hire."*75 So long, therefore, as the labourer can accumulate for himself—and this he can do so long as he remains possessor of his means of production—capitalist accumulation and the capitalistic mode of production are impossible. "

-Das Kapital

I believe now Michael Hudson sees public employment in serving this role.


But again, in a country with the world's reserve currency, there is much less need for American industry. We will have a wealthy financial class on the one side and lumpenproles on the other.