New Nobelist Paul Krugman blogs for the NYT today:
I’ve been ruminating over economic prospects for next year, and I’m getting scared.
Two points:
1. The economy is falling fast. We’ll see what tomorrow’s employment report says, but we could well be losing jobs at a rate of 450,000 or 500,000 a month.
2. Infrastructure spending will take time to get going — a new Goldman Sachs report suggests that projects that are “shovel-ready” are probably only a few tens of billions worth, and that a larger effort would take much of a year to get going.
You don't say!
My published articles are archived at iSteve.com -- Steve Sailer
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17 comments:
Krugman thinks the way out of this issue is to increase the federal deficit by trillions of dollars, and has never once asked when and by whom will it be paid for. He has little credibility despite his prize. Someone had a very good suggestion though -- Krugman should donate his prize money to the government for bailouts.
Krugman is probably one of the more sane Obama groupies over there. This most probably due to him having this Nobel Prize. It should give you some cover for speaking the truth some of the time, though few make use of it. Anyway, getting a Nobel Prize has a lot to do with who you are, though there are a few exceptions. A Nobel laureate per se would not impress me anymore. Steve figured this out a few months back when Obama was promising this nonsense during the elections. And any right-thinking engineer with construction experience could have told you this.
What do you suppose the odds are that Obama gets a Nobel of his own soon? I'd say pretty good.
Krugman is trying to think seriously about the choices, with a tilt to the left in his basic philosophy and the preoccupations of an economist who has been worried about liquidity traps for a decade. His basic point is that, the fact we have wasted trillions in excess housing investment in the past decade does not justify wasting trillions more in idling workers and resources unnecessarily due to a financial collapse.
But he is running up against the basic problems posed by the present crisis. Monetary creation by itself does not increase demand rapidly if the banking system is frozen or sluggish and Federal spending projects tend to be delayed and wasteful.
Meanwhile, although unemployment is rising, real GDP has only declined by about 0.2% in the last two quarters and the latest Economist forecast is for a further 0.2% decline in 2009, not exactly a Breadline and Dust Bowl Depression.
It seems increasingly likely that Ben and Hank and their successors will succeed in wrapping enough taxpayer-funded bailing wire around the financial system to prevent a really bad dip in the economy. The real worry may soon become how much damage we are doing, long term, to 1) taxpayer liabilities, and 2) the integrity of our economic and political systems.
It does seem doubtful that infrastructure projects can be mobilized as quickly as Obama promised. As Sailer suggests, Obama may have to switch to a kind of "human infrastructure" (I like that phrase)program. This would be like the CETA program,on a massive scale. My former sister in law was employed under that program...she was supposed to be doing office work, of course, but she actually spent her entire employment..researching and ghost-writing her boss's (master's)thesis for a local university. There was no accountability at all for CETA money, and I fear this may be it all over again. The press will give Obama cover on this; they have too much invested in him.
Just reading 'Nobel Laureate' next to his name should tell you all you need to know...
"Monetary creation by itself does not increase demand rapidly if the banking system is frozen or sluggish and Federal spending projects tend to be delayed and wasteful."
All the feds need to do is suspend, until further notice, the payroll tax. That should fairly quickly get us to the 5-7% GDP deficit we need to restore fiscal balance, and you don't have to get any permits or environmental impact statements approved. (If we want to do more, just sned some revenue to the states so they don't have to lay people off, and can continue doing the infrastructure projects they're already doing) Monetary creation works fine when it actually gets real money into real people's hands. (Forget about all the money we have supposedly "spent" on the bailouts. That's just moving assets around, there hasn't really been any spending so far.)
"All the feds need to do is suspend, until further notice, the payroll tax."
Jimbo, I agree that simply reducing or rebating taxes is the simplest and best way to get money into consumers' hands, but two problems: 1) consumers may save, rather than spend it, and 2) while propping up consumption is the best way to prevent short-term unemployment, what the nation needs, fundamentally and long term, is more productive private investment, which you only get if consumers save more and banks lend it.
"That should fairly quickly get us to the 5-7% GDP deficit we need to restore fiscal balance."
Not sure I follow the iron-tight logic here.
Jimbo, I agree that simply reducing or rebating taxes is the simplest and best way to get money into consumers' hands, but two problems: 1) consumers may save, rather than spend it, and 2) while propping up consumption is the best way to prevent short-term unemployment, what the nation needs, fundamentally and long term, is more productive private investment, which you only get if consumers save more and banks lend it.
Hey, wait a minute, Herr Canaday! Can both of those things really be problems at the same time?
:/
Hello, and greetings from boring Canada. What a nice day, it's great to be here at ISteve.
thinks to self: what a nice day, it's great to be here at ISteve.
Speaking of stimulii, what if we just gave the trillion or whatever to the people? Would that be more efficient than bailouts to Big Car and bags of cash to big union?
Giving poor people cash is a bad idea. There was recently a $4 billion cash settlement to Canada's Natives for their treatment at boarding schools in the postwar years. The way it worked is that you appeared before a Truth and Reconciliation Commission and, depending on how sad a story you told them, got a cheque for between 5 and 20 grand.
The net effect is to stay the hell out of Indian country for a year, crime has skyrocketed. I was looking to do a kayaking trip up north and the word on kayaking boards is to pass on this destination till things cool down.
One kayaker tells the story of having his gear stolen while in Northern Manitoba, reporting it to the RCMP, who smiled and responded "you do realize you are in the highest crime area of the country, don't you?"
I'm going to go masturbate now, then attend a Save Canada rally on Parliament Hill.
thinks to self: I think I will go masturbate, then attend a Save Canada rally on Parliament Hill.
"Not sure I follow the iron-tight logic here."
Simple. Government deficit = non government surplus. (accounting identity) If there is a net desire in the private sector (including the foreign sector) to save dollar assets, the only source it can come from is a government deficit. FOr the past 20 years or so, when the deficit has gotten too small, (under 3% or so of GDP), it has usually taken increasing it to at least 5% to allow recovery. In this case, with so many private financial assets destroyed, it will take a lot more. (it took Japan upwards of 7-8%, after a lot of dicking around for almost a decade, to finally recover in the 90s. FDR never got the deficit to the right level in the 30s until the War forced him to.)
That's what has to happen. There are two ways it can happen - the slow, painful way, as government receipts go down and support payments go up until the deficit reaches the right level, or the quick, proactive way, by actively cutting taxes and increasing spending. Fortunately, it looks like Obama will take the latter path.
"more productive private investment, which you only get if consumers save more and banks lend it"
This isn't how it works. Loans create deposits, not the other way around. Productive investment is never savings constrained. Banks can lend as much money as they want to any creditworthy borrower. The problem we have now is that banks don't see a lot of creditworthy borrowers out there, and businesses aren't particularly interested in investing, since they don't see consumers with money to spend.
Lieber Blode 032222
Not at the same time, but short-term fixes have a way of turning into long-term policies due to inertia and the barnacles of interest-group politics. Like a desire to boost housing after 9/11helped justify sloppy home financing.
Mit freundlichedn Gruessen,
Jimbo:
"If there is a net desire in the private sector (including the foreign sector) to save dollar assets,"
I don't agree that, except in the short term, there is a fixed net desire to save. I think it depends on interest rates and business prospects. Otherwise we are addicted to the old Kenynesian hydraulics, ad infinitum. See UK, 1945 to 1979, for how well this works out.
"For the past 20 years or so, when the deficit has gotten too small, (under 3% or so of GDP),"
In the late 1980s and through most of the 1990s, we were coming out of the big budget debates of the Reagan era, which caused large chronic deficits. The deficits tended to shrink as the economy grew, but as the growth continued, it tended to imbalance the economy, either through inflation (by 1990-91) or the stock market bubble (1998-2000), leading to a subsequent recession. So I would view any apparent relationship between low deficits and recessions as indicating that both were consequences of an extended period of growth, not indicating that low deficits cause recessions. I think this view is backed by economic history over a period much longer than 20 years.
"This isn't how it works. Loans create deposits, not the other way around. Productive investment is never savings constrained. Banks can lend as much money as they want to any creditworthy borrower."
Jimbo:
I think it would be more accurate to say that productive investment-loans are jointly created by the agreement of lenders and businesses. Businesses look to business prospects and interest rates, while lenders look to risk, obtainable interest rates, reserves and reserve ratios, either those set by law or those the lenders feel are prudent given circumstances. The Fed can expand reserves, but it cannot quickly change business prospects or the reserve ratios lenders think are prudent.
If the Fed boosts reserves, this increase must turn into 1) higher reserve ratios, 2) added consumer spending, 3) added investment, or 4) inflation. I want to see 2, first, turning into 3 for the longer term, not 4.
So lending too, is "loosely constrained."
"jimbo said...
Banks can lend as much money as they want to any creditworthy borrower."
Only because of fractional reserve banking. If our money was in any sense real, they WOULD be limited to only loaning out money they had on deposit.
Within about a year or so, we will be reading news reports about the waste and corruption in state and local government infrastructure spending as public officials (especially those with Democrat leadership) come under high pressure to eliminate "red tape" and cut corners in order to spend the money fast and demonstrate the goodness and rightness of the stimulus plan.
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