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Old 9th December 2012, 09:41 AM   #361
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Originally Posted by Caper View Post
There will always be poor people... Never been better to be poor.
Even if we grant that this is true so what? Some progress isn't a reason to stop progress. Some good is not a valid reason not to do more good.
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Old 9th December 2012, 09:46 AM   #362
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Originally Posted by Skeptic Ginger View Post
Assuming the chart is accurate (because I haven't seen this issue discussed enough), it is very revealing. Thanks for posting it.

But I have a tiny nitpik with your straw man version of the complaint: "Blaming capitalism in general seems somewhat fruitless." I certainly don't blame capitalism and I'm confident saying RandFan doesn't either.

The blame goes to under-regulated capitalism and the deterioration of democracy due to increasing impact of the corporatocracy.

Capitalism is clearly the superior economic system, on the global scale anyway. But when it is under-regulated the result is just what you see, wealth concentrates at the top until the bottom becomes so intolerable the social system collapses. History suggests you eventually get revolutions and/or wars when the imbalance reaches too extreme a point. It's uncertain if the past reflects the future.

A lot of that private dept is the result of under-regulated mortgages and the under-regulated banking system. It's not the result of capitalism per se.
Good post. I agree.

FWIW: The day I blame capitalism is the day I change my user name.
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Old 9th December 2012, 12:46 PM   #363
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The way that capitalism fails, and it does fail, is in aggregation of wealth to the point that the wealth can change the rules to favor the aggregators.

And that, ladies and gentlemen, is how it's failed over and over, and right where we are now, on the brink of having a third world government.

Any country that allows someone shouting back at a political candidate to be beat up and arrested is a third world country, though, so maybe we've already hit that point.
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Old 9th December 2012, 12:54 PM   #364
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Originally Posted by jj View Post
The way that capitalism fails, and it does fail, is in aggregation of wealth to the point that the wealth can change the rules to favor the aggregators.

And that, ladies and gentlemen, is how it's failed over and over, and right where we are now, on the brink of having a third world government.

Any country that allows someone shouting back at a political candidate to be beat up and arrested is a third world country, though, so maybe we've already hit that point.
The fault isn't with capitalism. The fault is with those who should be regulating the economy. Capitalism is simply an "economic system based on the private ownership of the means of production and the production of goods or services for profit"WP. Nothing about capitalism necessitates that it aggregate wealth (though that will naturally happen without oversight and regulation).
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Old 9th December 2012, 01:03 PM   #365
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Originally Posted by RandFan View Post
The fault isn't with capitalism. The fault is with those who should be regulating the economy. Capitalism is simply an "economic system based on the private ownership of the means of production and the production of goods or services for profit"WP. Nothing about capitalism necessitates that it aggregate wealth (though that will naturally happen without oversight and regulation).
Except that when the same thing happens over and over and over again, it suggests a flaw in the basic system, which is what happens.

Mind you, regulated capitalism is the best thing going, but the problem, which we see in spades right now, is how to keep the regulators from being swayed by things equivelent to bribes.

You know, like Norquist's PAC, etc.
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Old 9th December 2012, 01:13 PM   #366
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Originally Posted by jj View Post
Except that when the same thing happens over and over and over again, it suggests a flaw in the basic system, which is what happens.

Mind you, regulated capitalism is the best thing going, but the problem, which we see in spades right now, is how to keep the regulators from being swayed by things equivelent to bribes.

You know, like Norquist's PAC, etc.
I understand your argument but I don't personally find it compelling. IMO: The flaw is with humans and highly complex societies subject to chaos. If you are saying that capitalism is flawed because it cannot perfectly model human behavior then I suppose I could accept that but it strikes me as beside the point.

I respect your opinion. We can agree to disagree.
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Old 9th December 2012, 01:24 PM   #367
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Originally Posted by RandFan View Post
I understand your argument but I don't personally find it compelling. IMO: The flaw is with humans and highly complex societies subject to chaos. If you are saying that capitalism is flawed because it cannot perfectly model human behavior then I suppose I could accept that but it strikes me as beside the point.

I respect your opinion. We can agree to disagree.
Heh, nothing models human behavior aside from trying it and seeing what happens (well, not quite, really, but closer than psychologists want to admit)

My point is simple, the basics of capitalism can be subverted by capital.

Yes, I guess we'll agree to disagree. In any case, capitalism is a (*&(*& site better than communism, or fascism, or monarchy, or ...
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Old 9th December 2012, 01:37 PM   #368
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Originally Posted by RandFan View Post
Good post. I agree.

FWIW: The day I blame capitalism is the day I change my user name.
Then we really won't recognize you.
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Old 9th December 2012, 02:39 PM   #369
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Originally Posted by RandFan View Post
I understand your argument but I don't personally find it compelling. IMO: The flaw is with humans and highly complex societies subject to chaos. If you are saying that capitalism is flawed because it cannot perfectly model human behavior then I suppose I could accept that but it strikes me as beside the point.
Actually, I think it is exactly the point. An economic system is only a theoretical construct until it is applied to a society. If, when applied, it does not deal with the way individuals, groups and all type of corporations actually behave in the real world, then that theoretically constructed system itself is a failure. Well, maybe that's too harsh. Maybe mortally flawed is better.
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Old 9th December 2012, 03:10 PM   #370
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Originally Posted by SezMe View Post
Actually, I think it is exactly the point. An economic system is only a theoretical construct until it is applied to a society. If, when applied, it does not deal with the way individuals, groups and all type of corporations actually behave in the real world, then that theoretically constructed system itself is a failure. Well, maybe that's too harsh. Maybe mortally flawed is better.
Let me see if I understand you correctly. If a system is not perfect to accomodate human imperfections then we should blame the system for failures and not the people? I don't accept that. There is no system that perfectly accounts for such highly complex systems that are sensitive to initial conditions (see chaos theory).

If you show me a better system I'm happy to say that there is a better system. Some day most if not all of us will likely have cars that drive themselves. That current autombiles are incapable of accounting for human error is no reason to blame the car whe some guy kills someone in an accident due to human error.

ETA: Having thought about it some more I think I would blame bad systems like Communism or Statism for many of the excesses of those systems. I'm not as certain on this point.
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Old 9th December 2012, 03:51 PM   #371
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Originally Posted by RandFan View Post
Let me see if I understand you correctly. If a system is not perfect to accomodate human imperfections then we should blame the system for failures and not the people?
Well, one can "blame the people" for the demise of most any system, but to me, that's blaming the people for what the system failed to take into accout.

Quote:
There is no system that perfectly accounts for such highly complex systems that are sensitive to initial conditions (see chaos theory).
Now that's spot on, regardless.
Quote:

If you show me a better system I'm happy to say that there is a better system.
Yep, therein lies the problem, alright. If I had an answer for that, you'd have heard it already.
Quote:

ETA: Having thought about it some more I think I would blame bad systems like Communism or Statism for many of the excesses of those systems. I'm not as certain on this point.
Communism is a system that fails due to its religious belief that people will continue to do the right thing even when completely unrewarded.

Statism fails on so many counts I don't know where to start.

Laissez Faire Capitalism fails due to its religious belief that people will work for long-term welfare in the presence of short-term excess. In short, it's the same problem as Gresham's Law.

Regulated capitalism, with social responsiblity (You know, Eisenhower-like for starters, and then improve on it.) is the best I can come up with.

There are other derailments, like our demographic upset due to our unwillingness to allow people who want to work into this country (see ziggurat's dismissal of the obvious numbers in another thread for that), racism (which has a lot to do with the previous), xenophobia, etc, that throw clinkers into the woodwork, and that are in the present day exploited relentlessly by anti-patriots like Faux News, the Tea Party, and other anti-Science, anti-knowledge movements that seek to lead the uninformed into economic slavery.
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Old 9th December 2012, 04:43 PM   #372
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Originally Posted by jj View Post
Well, one can "blame the people" for the demise of most any system, but to me, that's blaming the people for what the system failed to take into accout.

Now that's spot on, regardless.

Yep, therein lies the problem, alright. If I had an answer for that, you'd have heard it already.

Communism is a system that fails due to its religious belief that people will continue to do the right thing even when completely unrewarded.

Statism fails on so many counts I don't know where to start.

Laissez Faire Capitalism fails due to its religious belief that people will work for long-term welfare in the presence of short-term excess. In short, it's the same problem as Gresham's Law.

Regulated capitalism, with social responsiblity (You know, Eisenhower-like for starters, and then improve on it.) is the best I can come up with.

There are other derailments, like our demographic upset due to our unwillingness to allow people who want to work into this country (see ziggurat's dismissal of the obvious numbers in another thread for that), racism (which has a lot to do with the previous), xenophobia, etc, that throw clinkers into the woodwork, and that are in the present day exploited relentlessly by anti-patriots like Faux News, the Tea Party, and other anti-Science, anti-knowledge movements that seek to lead the uninformed into economic slavery.
Thanks. Some good points.
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Old 9th December 2012, 08:05 PM   #373
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Originally Posted by RandFan View Post
Even if we grant that this is true so what? Some progress isn't a reason to stop progress. Some good is not a valid reason not to do more good.
Never said it was. I took the post as trying to attempt at using the poor as proof that capitalism was a "big fail". The system produced poor that have had it better then any group of poor in the worlds history... so much so that poor from other countries flock there.

Last edited by Caper; 9th December 2012 at 08:43 PM.
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Old 9th December 2012, 08:27 PM   #374
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Originally Posted by Caper View Post
Never said it was. I took the post as trying to attempt at using the poor as proof that capitalism was a "big fail". The system produced poor that have had it better then any group of poor in the worlds history... so much so that poor from other countries flock their Christmas trees.
Looks to me like you left off a couple of words that I have graciously added in.
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Old 9th December 2012, 08:38 PM   #375
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Originally Posted by RandFan View Post
Let me see if I understand you correctly. If a system is not perfect to accomodate human imperfections then we should blame the system for failures and not the people?
No, not what I'm saying. Most importantly, drop the word "perfect". No man-devised system is perfect so that is a bad metric to use.

Let me try other words. If some hypothetical systems fails in a real world application, it is not valid to say, "Ah, well, but it's a good system but those idiot people screwed it up." If a system is designed to be implemented in a real world setting, then it is NOT a good system if it does not take human foibles into consideration.

Going back to capitalism, a "pure" (I use quotes to recognize nothing is pure but I can't think of a better way to say it) capitalistic system fails because it does not account for human foibles like laziness, greed, incompetence. That does NOT imply we need to scrap the whole thing. It is the best so far. But it does need to be tempered with tools to deal with the problems of pure capitalism. The best and most obvious example is market externalities.

So, going back to the point that stated this side track, I think we can blame the system because it does not deal with real people. Ya just can't blame people for being ... well, people.
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Old 9th December 2012, 08:43 PM   #376
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Originally Posted by SezMe View Post
Looks to me like you left off a couple of words that I have graciously added in.
I can't spell anymore.
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Old 10th December 2012, 03:04 AM   #377
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Originally Posted by RandFan View Post
The fault isn't with capitalism.
Actually, I think it is. Capitalism remains the best system, but it has tendencies to shift wealth always to the same size. That's why we need social and legal systems in place, themselves imperfect, to balance it out.
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Old 10th December 2012, 09:56 AM   #378
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Originally Posted by Belz... View Post
Actually, I think it is. Capitalism remains the best system, but it has tendencies to shift wealth always to the same size. That's why we need social and legal systems in place, themselves imperfect, to balance it out.
Yes, “we need social and legal systems in place”, although it’s important to keep in mind that such systems aren’t merely technical in nature. They should be guarded like any other political interest. It is very much a political (and ideological) decision to decide how they ought to be set up … as much as there was a neoliberal ideological current that wanted away with a good deal of them (see the dismantling of banking regulation from 1980 onwards for example). Without such policies the financial sector would not have ballooned the way it did. And income inequality would probably not have grown to be as great as it is today either.

The rise in income inequality after 1980 coincides with the enormous growth of the financial sector. And since that kind of economic growth is debt-driven, it has meant that for example U.S. domestic debt has increase far beyond the need of productive capacity. Lending activities grew at higher rates than international trade and GDP. And now the size of the financial sector is actually endangering real economic growth prospects. Regarding private sector credit: A VOX paper suggests that 110 percent of GDP is a kind of threshold for when it starts to have a negative effects on real economic growth (and we’re way past it of course).

So the profit share has risen much more than the wage share. Moreover, the wage rate has remained stagnant and benefitted very little from the rise in productivity. The financial sector has taken more of the share of the total corporate profit than ever before; today it’s nearing 40 percent. Considering that the banks ought to merely be financial intermediaries, they sure take a large piece of the pie in the current economic system (from 1973-1985 the financial sector never earned more than 16 percent, according to IMF chief economist Simon Johnson). There’s not much left for ordinary workers (which kind of suits the neoliberal ideologues I suppose). But if we want stability again, then better get away with the financial sector overkill. Or more succinctly put (from another IMF paper, Kumhof & Rancičre 2010):
Originally Posted by IMF, Kumhof & Raničre
The key mechanism, reflected in a rapid growth in the size of the financial sector, is the recycling of part of the additional income gained by high income households back to the rest of the population by way of loans, thereby allowing the latter to sustain consumption levels, at least for a while. But without the prospect of a recovery in the incomes of poor and middle income households over a reasonable time horizon, the inevitable result is that loans keep growing, and therefore so does leverage and the probability of a major crisis that, in the real world, typically also has severe implications for the real economy. More importantly, unless loan defaults in a crisis are extremely large by historical standards, and unless the accompanying real contraction is very small, the effect on leverage and therefore on the probability of a further crisis is quite limited. By contrast, restoration of poor and middle income households’ bargaining power can be very effective, leading to the prospect of a sustained reduction in leverage that should reduce the probability of a further crisis.

Here’s also an interesting chart by Palma: Income share of the top 10% (excluding capital gains) and value of financial assets as percentage of GDP in the USA. The sudden divergence in 1987 is the so called “Black Monday”.

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Old 10th December 2012, 09:59 AM   #379
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Originally Posted by SezMe View Post
No, not what I'm saying. Most importantly, drop the word "perfect". No man-devised system is perfect so that is a bad metric to use.

Let me try other words. If some hypothetical systems fails in a real world application, it is not valid to say, "Ah, well, but it's a good system but those idiot people screwed it up." If a system is designed to be implemented in a real world setting, then it is NOT a good system if it does not take human foibles into consideration.

Going back to capitalism, a "pure" (I use quotes to recognize nothing is pure but I can't think of a better way to say it) capitalistic system fails because it does not account for human foibles like laziness, greed, incompetence. That does NOT imply we need to scrap the whole thing. It is the best so far. But it does need to be tempered with tools to deal with the problems of pure capitalism. The best and most obvious example is market externalities.

So, going back to the point that stated this side track, I think we can blame the system because it does not deal with real people. Ya just can't blame people for being ... well, people.
Thanks.
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Old 10th December 2012, 10:00 AM   #380
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Originally Posted by Belz... View Post
Actually, I think it is. Capitalism remains the best system, but it has tendencies to shift wealth always to the same size. That's why we need social and legal systems in place, themselves imperfect, to balance it out.
Agreed.
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Old 10th December 2012, 12:59 PM   #381
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That was a typo, by the way. "side", not "size".
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Old 10th December 2012, 01:03 PM   #382
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Originally Posted by Virus View Post
I reckon Krugman realized there's a better living to be made in demagoging to the easily duped and manipulated left.
I don't believe that is the case at all, if Krugman simply wished to make a lot of money it would be more lucrative for him to turn his academic credentials into cushy consulting jobs than to call everyone else names in The New York Times.

Much more likely is that he views it as the ends justifying the means. He has preferred policy goals and appears to not be above deceiving his readers to promote them. For example, he has told his readers that the Fed can do nothing to boost AD in a liquidity trap. This is laughably silly, does he really believe that there would be no effect if the Fed went on a spending spree tomorrow and bought $10 trillion in new assets? Of course not, he knows better. It is one thing for him to argue that he thinks fiscal stimulus works better than monetary stimulus, but his claims that monetary policy can do nothing are absurd, and he knows it, yet that is what he tells his readers.

Likewise, he likes to imply that fiscal stimulus can pay for itself without outright saying that it will. I suppose that it can in the sense that we know what the math would look like, but it is more likely that everyone reading this thread will win the lottery and be struck by lightning on the same day. For that to come true, a fiscal stimulus plan would have to be ~3 times more successful than any that has ever been enacted before. Even if the Obama Administrations overly optimistic projections had fully materialized the government would still only receive back less than thirty cents for every dollar spent.

The most alternatively amusing and sad part of this is that Paul Krugman the economist can often be cited to refute Paul Krugman the partisan commentator. It seems that just about every time he accuses others of not being able to pass introductory economic courses or not understanding textbook economics they are actually advocating mainstream positions that are found in textbooks. As Sumner points out here, some of the views he wishes to trash are ones he previously advocated. It is fine for him to change his mind but is he saying that he would have flunked freshman macro courses until his position shift in recent years?
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Old 10th December 2012, 01:06 PM   #383
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Originally Posted by Belz... View Post
That was a typo, by the way. "side", not "size".
That's what I thought, besides, "size" doesn't matter, right?
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Old 10th December 2012, 01:16 PM   #384
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Originally Posted by lupus_in_fabula View Post
Blaming capitalism in general seems somewhat fruitless. However, the current situation certainly looks like a political and economic fail. The debt-driven economic model seems rather broken.

Not only do high levels of private debt make the recovery from a recession painfully slow, it also makes the economic contraction more severe in the first place. (IMF survey regarding this here.) Public debt is a lesser evil but can certainly hinder recovery if much of it accumulated prior to a financial crisis (lesser ammunition to fight back).

There’s a nice paper out (by The National Bureau of Economic Research – Alan Taylor, here) showing that fiscal strains do not tend to result in financial crisis (Greece might be an exception to the rule here), whereas development of excess credit certainly does indicate a looming crisis ahead. It also validates Steve Keen’s assumptions on that point.

Here’s Keen’s illustrative chart:
http://cdn.debtdeflation.com/blogs/w...eDebtwatc1.png
The debt issue is cited by some as a justification to move from fiscal to monetary stimulus. If Uncle Sam hires me to dig a ditch and fill it back up or cuts me a tax rebate check and I use my windfall to pay down debt rather than consume goods and services, AD isn't boosted, there is just a debt transfer from me to the federal government. While most people won't use all of their new found money to pay down debt, they usually use some of it to do so and have been especially prone to doing so in the current economic environment. Fiscal policy doesn't have answers to address debt but monetary policy does.
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Old 11th December 2012, 04:56 AM   #385
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Originally Posted by respect View Post
The debt issue is cited by some as a justification to move from fiscal to monetary stimulus. If Uncle Sam hires me to dig a ditch and fill it back up or cuts me a tax rebate check and I use my windfall to pay down debt rather than consume goods and services, AD isn't boosted, there is just a debt transfer from me to the federal government. While most people won't use all of their new found money to pay down debt, they usually use some of it to do so and have been especially prone to doing so in the current economic environment. Fiscal policy doesn't have answers to address debt but monetary policy does.
Sure, although if you lose your job there’s not much you can do to reduce debt or increase spending after that, unless there’s foreclosure. So the whole debate regarding this kind of depends on what one wants to alleviate. Let’s not kid ourselves: many countries have a financial crisis and an unemployment crisis … plus, in some countries in the EU at least, a fiscal crisis as well.

Krugman is simply pointing out what many observers have come to understand during these past years; that traditional monetary policy is not as effective when already at a lower zero bound. He advocates, like most sensible economists do nowadays, that monetary policy and fiscal policy must work in tandem. We need both, and probably more of it. And if quantitavie easing cannot spur private demand on its own, combining it with fiscal policy is the best option we have. Austerity, on the other hand, is the worst you can do. Monetary policy alone, at least in the traditional sense, hasn’t been enough. This view is far more established today (2012) than perhaps immediately after the crisis started (in 2008-2009). See for instance J. Stiglitz (2012) in The Guardian: Adding liquidity is not enough – a fiscal stimulus is needed. Even some FED governors called for implementing both strategies (already in 2009):
Originally Posted by FED, D. L. Kohn
After reducing the traditional policy tool, the target for the overnight federal funds rate, to close to zero, the Fed has aggressively employed two complementary types of non-traditional tools—asset purchases and forward guidance on the policy rate—to provide additional stimulus through their effects on long term rates and various risk premia.

Congress and the White House should enact a fiscal program that starts with mild restraint, but credibly builds that restraint over time so as to put the nation's debt burden on a clearly sustainable course.
Btw, that risk premia talk is indicated in what Krugman calls for as “the Fed needs to start signaling its willingness to see more inflation before it raises rates.”

When it comes to the effectiveness of fiscal stimulus, three general points can be said with rather high certainty: (1) the opposite of it, austerity, does not work at all right now; (2) current research is almost overwhelmingly showing that it does work to some degree (although to what degree is dependent on a variety of country-specific factors); (3) fiscal and monetary stimulus does not directly address the underlying problem which has to do with private debt levels and reforming the whole banking sector, so as to avoid recurrent meltdowns like this one (but that does not mean fiscal policy doesn’t help the situation right now either).

Here are a few of the many studies that confirm fiscal stimulus working, both time- and cross-series studies: VOX (27 countries during the 1930s), Romer (policy in general), Baldacci et al (140 episodes of banking crisis during 1980-2012). Or if you like, Dylan Mathews list here: The Romney campaign says stimulus doesn’t work. Here are the studies they left out. And for the lazy one, here’s one sensible article: Sense and Nonsense About Fiscal Stimulus.

The thing with fiscal stimulus is that it works best in the short run. That is to say: preferably it needs to be implemented fast and with sufficient power (not a lackluster and watered down compromise, like the one in the U.S – Australia is perhaps a better example here, although they had a lesser crisis with more fiscal space to start with). Ideally, austerity should follow a large fiscal stimulus but it should be back-loaded, so as to introduce realism and confidence in the whole plan over time (reducing the hysteria over short term deficit but still signaling confidence in deficit consolidation in the long run). Now you just have short term hysteria in the U.S. it seems. Yet there’s no correlation between austerity and the change in the debt situation over the relatively near term (see UK for example). This also applies to some euro-countries already in a fiscal crisis, for which VOX, IMF and Eurostat has some nice figures to show.

Finally, fiscal policy matters when trying to alleviate unemployment, since studies show that prolonged unemployment tends to raise a country’s normal rate of unemployment. And no one is suggesting digging holes just to fill them as the fiscal policy here; although your use of that caricature kind of reveals the current political and ideological entrenchment about it. Another caricature would be “undoing with one hand what the other is doing”.
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Old 11th December 2012, 10:47 AM   #386
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Originally Posted by lupus_in_fabula View Post
Sure, although if you lose your job there’s not much you can do to reduce debt or increase spending after that, unless there’s foreclosure. So the whole debate regarding this kind of depends on what one wants to alleviate. Let’s not kid ourselves: many countries have a financial crisis and an unemployment crisis … plus, in some countries in the EU at least, a fiscal crisis as well.

Krugman is simply pointing out what many observers have come to understand during these past years; that traditional monetary policy is not as effective when already at a lower zero bound. He advocates, like most sensible economists do nowadays, that monetary policy and fiscal policy must work in tandem. We need both, and probably more of it. And if quantitavie easing cannot spur private demand on its own, combining it with fiscal policy is the best option we have. Austerity, on the other hand, is the worst you can do. Monetary policy alone, at least in the traditional sense, hasn’t been enough. This view is far more established today (2012) than perhaps immediately after the crisis started (in 2008-2009). See for instance J. Stiglitz (2012) in The Guardian: Adding liquidity is not enough – a fiscal stimulus is needed. Even some FED governors called for implementing both strategies (already in 2009):
I highlighted a few more words as they get at the issue. No one is talking about just lowering rates, what Keynesians usually mean by traditional policy. It is not fair to say that monetary policy hasn't been enough as a means of arguing against more. Central banks have not attempted to aggressively use the tools at their disposal. If they do fiscal stimulus cannot work.

That is what sensible researchers are talking about.

Krugman is talking about using half assed monetary policy and massive deficit funded public spending projects perpetually like Japan has been doing for decades and claiming that anyone who questions this is a doody head who can't pass macro 101. His ever expanding enemies stupid economists list is looking more and more like a simple list of mainstream macro economists. Who by the way, actually do relevant research, something Krugman does not. Getting a Nobel Prize for work in new trade theory and pretending that makes you an expert in all things macro and in a position to call the likes of Robert Lucas an idiot (Lucas is probably the most respected and influential macro economist alive today) is akin to an optometrist being recognized for good work and then calling all respected heart surgeons idiots for not doing whatever they want at all times.

Originally Posted by lupus_in_fabula View Post
Btw, that risk premia talk is indicated in what Krugman calls for as “the Fed needs to start signaling its willingness to see more inflation before it raises rates.”

When it comes to the effectiveness of fiscal stimulus, three general points can be said with rather high certainty: (1) the opposite of it, austerity, does not work at all right now; (2) current research is almost overwhelmingly showing that it does work to some degree (although to what degree is dependent on a variety of country-specific factors); (3) fiscal and monetary stimulus does not directly address the underlying problem which has to do with private debt levels and reforming the whole banking sector, so as to avoid recurrent meltdowns like this one (but that does not mean fiscal policy doesn’t help the situation right now either).

Here are a few of the many studies that confirm fiscal stimulus working, both time- and cross-series studies: VOX (27 countries during the 1930s), Romer (policy in general), Baldacci et al (140 episodes of banking crisis during 1980-2012). Or if you like, Dylan Mathews list here: The Romney campaign says stimulus doesn’t work. Here are the studies they left out. And for the lazy one, here’s one sensible article: Sense and Nonsense About Fiscal Stimulus.

The thing with fiscal stimulus is that it works best in the short run. That is to say: preferably it needs to be implemented fast and with sufficient power (not a lackluster and watered down compromise, like the one in the U.S – Australia is perhaps a better example here, although they had a lesser crisis with more fiscal space to start with). Ideally, austerity should follow a large fiscal stimulus but it should be back-loaded, so as to introduce realism and confidence in the whole plan over time (reducing the hysteria over short term deficit but still signaling confidence in deficit consolidation in the long run). Now you just have short term hysteria in the U.S. it seems. Yet there’s no correlation between austerity and the change in the debt situation over the relatively near term (see UK for example). This also applies to some euro-countries already in a fiscal crisis, for which VOX, IMF and Eurostat has some nice figures to show.

Finally, fiscal policy matters when trying to alleviate unemployment, since studies show that prolonged unemployment tends to raise a country’s normal rate of unemployment. And no one is suggesting digging holes just to fill them as the fiscal policy here; although your use of that caricature kind of reveals the current political and ideological entrenchment about it. Another caricature would be “undoing with one hand what the other is doing”.
It only works in the short run, if at all, which is nowhere near as clear as so many laymen seem to think. Various studies of past attempts at fiscal spending stimulus have generally found that they did not work, and even fans recognize that it has a very limited shelf life as it sets into motion various forces that undermine it. Even Krugman sort of conceded to Robert Barro (if Lucas isn't the most respected and influential macro economist alive today, it is Barro who will undoubtedly join Lucas and Krugman as a Nobel Prize winner before long) that WWII spending had a measurable fiscal multiplier of 0.8, but then naturally called Barro a blockhead for using it as an example. Other, more reasonable critics, suggested that looking at smaller examples would be more helpful as the spending may have started off as positive and declined due to diminishing returns. A valid line of argument, whereas calling Barro names, acknowledging that multiplier was less than 1 and telling your readers that the war spending saved the economy elsewhere is not.

The recent attempts at spending projects do appear to have had a positive multiplier effect, although a lot more research will be done on that in the coming years, and the positive effects were likely lower than their advocates estimated which is how that usually goes, but again, will need more study.

But no one is talking about fiscal policy or austerity so it is nonsense to keep bringing it up. And I'm a bit perplexed at how you can say that monetary policy can't address private debt, they won't do this because the side effects would be catastrophic, but the Fed could inflate away everyone's debt if it chose to do so. A more aggressive monetary focus would eradicate some debt and piss Ron Paul off as a bonus.

And I bring up the ditch digging caricature because Krugman tried to revive that long-dead argument from Keynes with his nonsense about staging a fake alien invasion. The sensible New Keynesians have long dropped such silliness for a reason, it is not clear why the old school ones want to bring it back up as it just makes them look foolish.

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Old 11th December 2012, 11:44 AM   #387
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To add a bit, the primary issue with Krugman is his mass layman audience. If he was just a crank writing nonsense at Princeton he wouldn't matter. The problem is that so many people think he represents mainstream economic thought which is not the case at all, he represents fringe views, many of which were discredited long ago. The New Keynesians have attempted to reconcile some of Keynes' macro vision with the much more testable and verifiable study of micro and participate in the mainstream as a result. Presumably they are heretics in Krugman's eyes for this. This is just a small sample of what mainstream economists think of Krugman and what he is doing, the general perception is that he relies way too much on insults and is not well versed enough in macro theory to add much insight:

From an interview with Robert Barro:

Do you read Paul Krugman's blog?

Just when he writes nasty individual comments that people forward.

Oh, well he wrote a series of posts saying he thought the World War II spending evidence was not good, for a variety of reasons, but I guess...

He said elsewhere that it was good and that it was what got us out of the depression. He just says whatever is convenient for his political argument. He doesn't behave like an economist. And the guy has never done any work in Keynesian macroeconomics, which I actually did. He has never even done any work on that. His work is in trade stuff. He did excellent work, but it has nothing to do with what he's writing about.

Here is David Andolfatto white knighting for Robert Lucas and questioning if Krugman (and DeLong) are capable of discussing the issues at hand.

And Stephen Williamson points out that the "bad guy club" keeps expanding here, the comments section is particularly amusing as several mainstream economists chime in.

This is hardly an exhaustive list, Krugman has really worn out his welcome with a lot of people and isn't adding anything to the discussion, just deceiving his readers routinely and name calling.
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Old 11th December 2012, 11:44 AM   #388
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Originally Posted by respect
And I'm a bit perplexed at how you can say that monetary policy can't address private debt, they won't do this because the side effects would be catastrophic, but the Fed could inflate away everyone's debt if it chose to do so.
Yeah ... I’m perplexed too, it should only read fiscal policy. My mistake! Although the term ‘directly’ implies that keeping people working will indirectly improve their chance of reducing their debt levels. I’m not sure how catastrophic a kind of debt jubilee actually would be. I think some guys at Boston are doing simulations of that, implying that it wouldn’t be as bad as though (but I could be mistaken there; I haven’t read the research, just heard vague mentions of it). Something like that could possibly be done in conjunction with a thorough restructuring of the banking sector, albeit that doesn’t seem to be happening anytime soon.
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Old 11th December 2012, 12:04 PM   #389
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Originally Posted by lupus_in_fabula View Post
Yeah ... I’m perplexed too, it should only read fiscal policy. My mistake! Although the term ‘directly’ implies that keeping people working will indirectly improve their chance of reducing their debt levels. I’m not sure how catastrophic a kind of debt jubilee actually would be. I think some guys at Boston are doing simulations of that, implying that it wouldn’t be as bad as though (but I could be mistaken there; I haven’t read the research, just heard vague mentions of it). Something like that could possibly be done in conjunction with a thorough restructuring of the banking sector, albeit that doesn’t seem to be happening anytime soon.
If keeping people working to pay down their debts requires government borrowing it is just a debt transfer. The traditional argument for spending rather than tax cutting is that unemployed people will spend more of their new income, people getting a tax cut will save more which just creates a debt transfer which does nothing to boost short term AD.
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Old 11th December 2012, 12:33 PM   #390
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Originally Posted by respect View Post
If keeping people working to pay down their debts requires government borrowing it is just a debt transfer. The traditional argument for spending rather than tax cutting is that unemployed people will spend more of their new income, people getting a tax cut will save more which just creates a debt transfer which does nothing to boost short term AD.

Um, this is not what the actual instances show. Good theory, bad verification, I'd say. It's much more complicated than your personal theory, here, and depends on why and what is cut, and for what reason.

Your argument appears to be nothing but an attempt to tar monetary policy as a transfer payment.
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Old 11th December 2012, 12:47 PM   #391
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Originally Posted by respect View Post
If keeping people working to pay down their debts requires government borrowing it is just a debt transfer. The traditional argument for spending rather than tax cutting is that unemployed people will spend more of their new income, people getting a tax cut will save more which just creates a debt transfer which does nothing to boost short term AD.
Again, ‘indirectly’ ... socially, and directly, it is more important to fight unemployment for other reasons than merely having them reducing debt? But they probably get to keep their home! It’s a social issue as well. It is also an argument for keeping people away from unemployment and from possibly becoming unemployable if they remain unemployed for a long time. There are examples where prolonged unemployment raises structural unemployment, especially in regards to young people.
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Old 11th December 2012, 12:56 PM   #392
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Originally Posted by jj View Post
Um, this is not what the actual instances show. Good theory, bad verification, I'd say. It's much more complicated than your personal theory, here, and depends on why and what is cut, and for what reason.

Your argument appears to be nothing but an attempt to tar monetary policy as a transfer payment.
LOL, you think my promotion of monetary policy is an attempt to tar it?

The only thing your nonsensical comment here shows is that you do not know the difference between fiscal and monetary policy.
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Old 11th December 2012, 01:02 PM   #393
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Originally Posted by lupus_in_fabula View Post
Again, ‘indirectly’ ... socially, and directly, it is more important to fight unemployment for other reasons than merely having them reducing debt? But they probably get to keep their home! It’s a social issue as well. It is also an argument for keeping people away from unemployment and from possibly becoming unemployable if they remain unemployed for a long time. There are examples where prolonged unemployment raises structural unemployment, especially in regards to young people.
Again, that is what is actually under discussion, but the shift has been towards a discussion about how central banks can best pursue those goals, namely how should they distribute money and what goals should they target? We are in the early stages of the advancement of market monetarism, I look forward to seeing the conclusions that are drawn down the road about it.
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Old 11th December 2012, 01:44 PM   #394
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Originally Posted by SezMe View Post
....
So, going back to the point that stated this side track, I think we can blame the system because it does not deal with real people. Ya just can't blame people for being ... well, people.
Why does a successful system, aka capitalism, have to be the only system and have to work for every situation?

That's where I think people get it wrong. The best economic system takes some from different strategies and applies them where they work best.

I don't want a private police force and I don't want capitalism to be the only economic model used to develop new medicine.

But we derive a lot of good from a system that lets inventors get rich.


What I'm not so sure about is how corporations fit into the picture (ENRON, for example, and the tobacco industry). And when the business model is to trick people into buying your product, (for example, all the fake cures on the market), and when success is based on the best marketing, not the best products.

Then there is the problem that the actual cost of a product is not built into the price. When companies shift the cost of pollution on to society, then the consumer is not paying the true price of the product.

There are so many things here that are not technically capitalism economics, they are more like side effects.
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Old 11th December 2012, 01:49 PM   #395
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Originally Posted by Belz... View Post
Originally Posted by RandFan
The fault isn't with capitalism.
Actually, I think it is.
Do you blame the system if it is not applied properly?

For example, two of the things I noted above:
The problem that the actual cost of a product is not built into the price. When companies shift the cost of pollution on to society, then the consumer is not paying the true price of the product.
And the problem when advertising is superior but the product is inferior.
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Old 11th December 2012, 01:53 PM   #396
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Originally Posted by Skeptic Ginger View Post
Do you blame the system if it is not applied properly?

For example, two of the things I noted above:
The problem that the actual cost of a product is not built into the price. When companies shift the cost of pollution on to society, then the consumer is not paying the true price of the product.
And the problem when advertising is superior but the product is inferior.
I think you make a good point. Much of the problem comes in the application of the system and the composition of they system. I've never seen any evidence that communism/statism/socialism like that practiced by the former Soviet Union and other nations to be effective at delivering the most good to the most people. Then again I've not seen any evidence that Laissez-faire capitalism is much better (perhaps more viable).
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Old 11th December 2012, 04:53 PM   #397
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Originally Posted by Skeptic Ginger View Post
Do you blame the system if it is not applied properly?
No, what I meant is that no system that relies entirely on people will be without flaws. Capitalism, while great, has inherent flaws that require mixing it up with other systems. Look at socialism. It looks great on paper until you add the crucial element that makes it fail: humans.
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Old 11th December 2012, 06:14 PM   #398
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Originally Posted by Belz... View Post
No, what I meant is that no system that relies entirely on people will be without flaws. Capitalism, while great, has inherent flaws that require mixing it up with other systems. Look at socialism. It looks great on paper until you add the crucial element that makes it fail: humans.
I think that it would be more fair to say that capitalism seeks to turn greed and/or ambition into a positive force but some people will still seek to game the system anyway and need to be kept in line whereas socialism demands that people have no greed or ambition, at least for personal gain, but act like they would if they were striving for personal reward so everyone tries to game the system.
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Old 12th December 2012, 12:40 AM   #399
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I've got a simple perspective on this. I'm an experimentalist, a fan of evidence based practice. We do it in medicine, and I believe we should do it in other aspects of life as well.

It's a simple matter to find a number that serves as a proxy for quality of life in a society and compare that to the various forcings upon that society. My preferred proxy is income inequality, because I personally prefer to live in a society where everyone has at least enough than in a society with a few rich ****ers and everyone else in grinding poverty.

When you compare income equality versus marginal tax rate, it doesn't correlate in the way that supply siders say it should. Higher marginal rates, I.E. under Clinton, correlate with lessened poverty and less difference between rich and poor. Lower marginal rates, as under either bush or baby bush, correlate with greater difference between rich and poor, which proves the lie of trickle down. The underlying idea, that making someone incredibly rich makes them into a job creator and drags everyone else up a notch just doesn't actually hold true.

What I don't understand is how the supply side concept meshes with the rhetoric. The same folks who bloviate at length about lowering marginal rates, and helping out the captains of industry and job creators are the same people who also push the idea of the american dream, that everyone can be wealthy. The bigger the gap between rich and poor the less likely that anyone actually can lift themselves up by their bootstraps, and the more likely that you just have to be born to parents who can drop a couple of million to finance baby's first business venture. Everyone can point at a success story or two, but collecting that first million to invest is a daunting hurdle. Most of us will never be wealthy, no matter what we do.
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Old 12th December 2012, 03:08 AM   #400
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Originally Posted by respect View Post
I think that it would be more fair to say that capitalism seeks to turn greed and/or ambition into a positive force but some people will still seek to game the system anyway and need to be kept in line whereas socialism demands that people have no greed or ambition, at least for personal gain, but act like they would if they were striving for personal reward so everyone tries to game the system.
The way I read your post, it seems like the failing of both systems is to take into account that there are people involved, though one forgets individuals and the other society.
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