Paul Krugman still can't grasp why years of stupid investments cause inevitable recessions.
Krugman denounces Arnold Kling's quasi-Austrian explanation of why busts occur. The reigning Nobel laureate proceeds to triumphantly zing Kling with what he thinks is a killer question:
Yes, that's what Dr. Krugman wrote: Why doesn't a housing boom cause the same kind of unemployment as a housing bust?
A commenter named Scott replies:
Krugman denounces Arnold Kling's quasi-Austrian explanation of why busts occur. The reigning Nobel laureate proceeds to triumphantly zing Kling with what he thinks is a killer question:
And now as then, the whole notion falls apart when you ask why, say, a housing boom — which requires shifting resources into housing — doesn’t produce the same kind of unemployment as a housing bust that shifts resources out of housing.
Yes, that's what Dr. Krugman wrote: Why doesn't a housing boom cause the same kind of unemployment as a housing bust?
A commenter named Scott replies:
You don’t create unemployment by hiring people.
Seriously, Paul basically just asked “Why doesn’t hiring people create the same unemployment that firing does?”
And people take him seriously?
At much greater length, I had reviewed what was wrong with Krugman's thinking about recessions a year ago.
My published articles are archived at iSteve.com -- Steve Sailer
Posts
64 comments:
File this under "partisanship makes you stupid."
because in order for employees to be hired into a boom the prevailing wage needs to be higher than it is somewhere else? eg, formerly unemployed (zero wage) or lower wage person moves to higher wage job.
when there is a bust, they move from the higher wage job to no job.
The Heart of Dorkness
A New York Times columnist/Princeton economist goes insane, establishing a kingdom in the deepest, darkest depths of Obama's colon.
The argument's more subtle than that. There's a discussion on Marginal Revolution. If I understood the idea (it's been awhile since I've studied economics), the idea is that a housing bubble must shift employment and other resources away from other industries--people shift from making cars or plastic toys or something to making houses.
Perhaps one answer to this is that while we were inflating our bubble, we imported a large fraction of the required construction workforce. And another part is that we outsourced a lot of the displaced manufacturing from overseas.
"Austrian" economists are a bunch of cranks. You waste your time taking them seriously.
A few eccentric rich folks fund them, and like other forms of libertarians they are very vocal on the web and have wrong but easy to understand theories.
Interesting that Krugman shares your view of Stephen Jay Gould, and analogizes him to the various cranks who write about economics. In this particular case Krugman attacks left-wing economics cranks, but I'm sure he'd say the same about the "Austrians" and other marginal kooks of the sort you find at the CATO Institute:
"Some members of this faction have held university appointments. But most of them lack academic credentials and, more important, they are basically hostile to the kind of economics on which such credentials are based. ...
Academic economics, the stuff that is in the textbooks, is largely based on mathematical reasoning. I hope you think that I am an acceptable writer, but when it comes to economics I speak English as a second language: I think in equations and diagrams, then translate. The opponents of mainstream economics dislike people like me not so much for our conclusions as for our style: They want economics to be what it once was, a field that was comfortable for the basically literary intellectual.
...
A similar situation exists in other fields. Consider, for example, evolutionary biology. Like most American intellectuals, I first learned about this subject from the writings of Stephen Jay Gould. But I eventually came to realize that working biologists regard Gould much the same way that economists regard Robert Reich: talented writer, too bad he never gets anything right."
economics is not a science and not a serious subject.
Can we please stop calling it the "Nobel Prize in Economics"?
If there's one thing that happens as a result of this Great Depression II, it should be that people boycott referring to this prize as the "Nobel" and start calling it by its real name, the "Sveriges Riksbank (Swedish Central Bank) Prize in Economic Sciences in Memory of Alfred Nobel."
There's no need to encourage a lame, bankrupt field by putting it in the same category as the hard sciences.
"Austrian" economists are a bunch of cranks. You waste your time taking them seriously.
Explain how the government printing money is not stealing.
Steve,
Your argument here is seriously awful.
In its original context, Krugman is in that quote in fact essentially assuming as ridiculous the notion that unemployment should go up in a housing boom as it does in a housing bust. He's engaged in a reductio ad absurdum of the views of his opponents. He basically argues that their views would imply that there should be no difference between the case of a housing slump vs a housing boom with respect to unemployment. That of course is absurd -- which is his very point.
a boom bids up the price of the resources it requires.
A bust cuts the price of the same resources to zero.
krugman's "gotcha" question is that if a boom attracts resources, it must necessarily displace them from somewhere else. the answer is that in the grand scheme of things a boom "displaces" people from unemployment, and a bust returns them there. that's how unemployment gets to 4%.
if krugman has a point, it is that a recession is good because it allows people to transition around the economy. that doesn't disprove cycle theory. it's like an optimist trying to redefine "depression" as "a way to force yourself to look for a new opportunity."
the fact that krugman can write stuff like this in the NY Times and win a Nobel prize is the best evidence you have that there is no justice in the world.
Economics is not science because because it can't make accurate predictions.
And now as then, the whole notion falls apart when you ask why, say, a housing boom - which requires shifting resources into housing - doesn't produce the same kind of unemployment as a housing bust that shifts resources out of housing.
There is an even more subtle point at work here - with the proviso that I haven't RTFA'ed, but in just that excerpt alone - Krugman doesn't seem to be aware that the housing bust shifted resources out of "housing" and right into... a great big black hole of nothing.
Which is to say: When Lehman/Golden West/Fannie/Freddie collapsed, trillions upon trillons of dollars of [apparent] wealth just vanished into thin air - indeed, I've seen estimates that all of the [apparent] wealth which had been "created" in the previous decade simply disappeared during September of 2008.
And now Krugman's Princeton buddy, Bernanke, is printing trillions upon trillions of dollars of funny money in an attempt to recreate all of the [apparent] wealth of the last decade and pretend that it didn't disappear.
[With, of course, a little siphoning-off to a, ahh, handful of strategically chosen middlemen along the way.]
It's as though these guys slept through Econ 101: The value of a thing is what people are willing and able to pay for it.
The icy cold waters of the free market will eventually succeed in informing Bernanke as to the true values of these assets, but, in the meantime, he [and Geithner, like Paulson before] are desperately trying to rearrange the deck chairs on the ship of state so as to give all of these assets a continuing appearance of value.
It's like "the dog ate my homework", only the homework didn't satiate the beast's appetite, and now its stomach is growling and it's got its eyes set on its [ostensible] master.
PS: You need to have been reading Steve & Spengler to know why the market is being forced to re-adjust the values of these assets ["Collingwood" at the old Asia Times was also good on this topic].
...the idea is that a housing bubble must shift employment and other resources away from other industries--people shift from making cars or plastic toys or something to making houses.
Perhaps one answer to this is that...
Perhaps another answer is that artificial interference in the marketplace tends to shift peoples' time and effort and savings away from productive endeavors and towards unproductive endeavors, and while you can pretend [for at least the short term] that the undproductive endeavors have some value, eventually the free market will rear its ugly head and remind you that, no, they don't have any value at all.
Antonin Scalia spoke about this recently:
Scalia: 'We Are Devoting Too Many of Our Best Minds to' Lawyering
By Ashby Jones
October 1, 2009, 8:40 AM ET
blogs.wsj.com
I'm not saying this is worth anything, but since HBD is often a topic of this blog, I'd like to tell you what my woman's reaction to Krugman was the first time I ever saw him/listened to him on television and what my reaction has been each time since:
He's wussy, wimpy, sissy, easily frightened by alpha males who appear on panels with him, can't look people in the eyes--his dart around constantly.
His body language says he's sneaky too. In short--not the kind of man I put my faith in, not even a faith in any intellect.
If you want to see a really productive use of the money that Bernanke is creating out of thin air, then watch this video.
Add me to the choir of those who recall that "Nobel Prize in Economics" is not a Nobel Prize, that Economics is among the most curious lines of academic inquiry that have a solid track record of being wrong, and that in subjectivity Economics award is somewhere between Peace and Literature.
Although, to be fair, not all of it is the fault of its practitioners.
Hoste:
Economics does not exist to answer questions like that.
It can tell you the effects of fiat money or the gold standard, but not if it is right or wrong.
We tried the gold standard for a while, and it didn't work. Among other problems, it enriched NY bankers (your favorite people!) and caused horrible dislocations among farmers, who were then a very large share of our population.
In any event, low and stable inflation is one of the civilized world's top economic priorities and should only concern you if your method of saving is to bury paper currency in your back yard. Bonds, CDs, etc are all priced such that they implicitly account for expected inflation, or in the case of TIPS explicitly adjust up or down with inflation.
If you think these instruments don't fully take into account future inflation and don't trust the government on TIPs, nobody is stopping you from buying assets that whose nominal value increases with inflation, such as stocks, real estate, and of course gold. In fact it has never been easier to buy gold, if you have a brokerage account it takes 5 seconds.
Bob said ...
"Austrian" economists are a bunch of cranks. You waste your time taking them seriously.
But aren't damn near all economists cranks? I mean seriously, isn't that what we've learned from the latest crash and recession that literally 98% of them didn't foresee? And isn't it obvious that their mathematical modelling is the same kind of garbage-in-garbage-out nonsense as practiced by the global warming hucksters? Lately Hyman Minsky seems to have been resurrected as a profound thinker, a man ahead of his time -- but when he was alive, he had essentially no followers among other economists, since he didn't use mathematical models and regarded human financial behavior as essentially irrational.
Really, why do economists have any cachet anymore? How often do they have to be wrong before people tune them out?
Bob: In any event, low and stable inflation is one of the civilized world's top economic priorities and should only concern you if your method of saving is to bury paper currency in your back yard. Bonds, CDs, etc are all priced such that they implicitly account for expected inflation, or in the case of TIPS explicitly adjust up or down with inflation.
The artificial manipulation of prices will always end in disaster.
Bernanke is being forced to inflate the currency artificially because the free market is [correctly] demanding that we experience DEFLATION.
None of this will end well - it can't - nothing good will come of it.
You simply cannot fantasize into existence a non-zero value of a thing - to the extent that a thing has any [non-zero] value at all, that value must have be EARNED [not fantasized].
It's all going to end in disaster.
[Again, read Steve & Spengler to learn why.]
The problem in the economy now is too much debt. There's nothing wrong with debt - except that every month or year interest must be paid on that debt, which requires more money than was in the system before.
So now the U.S. debt is up around 350% of GDP. So if the average interest rate is 5%, then the money supply needs to grow at 3.5 x 5% or 17.5% just to keep debt from being defaulted on. 17% is surprisingly close to the actual money supply growth over the last few years. The only way to put that amount of money in the system every year is .... more debt.
The game now is to try to reduce the average rate paid on that debt, in order to reduce the amount of new money needed every year. When the U.S. Treasury issues bonds and those bonds are bought by the Federal Reserve (i.e. printing money or the modern term "quantitative easing") then the effective rate on that money is 0%, since the money the Fed receives in interest goes back to the treasury.
Krugman is smart enough to keep his mouth shut on all this - and just cut to the chase of the Federal Government needs to borrow and spend more.
Mr. Sailer has already been corrected in these comments, but just to emphasize:
1. Krugman's argument was a reductio ad absurdum, so of course his question sounds absurd. That's the whole point. His mistake, according to the Austrians, is in misunderstanding their own argument in the first place.
2. Partisanship (Mr. Sailer) makes you stupid.
Krugman is full of it.
I dealt with Krugman's critique of the "Hangover Theory" here.
1. It doesn’t explain why there isn’t mass unemployment when bubbles are growing as well as shrinking — why didn’t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business?
And now as then, the whole notion falls apart when you ask why, say, a housing boom — which requires shifting resources into housing — doesn’t produce the same kind of unemployment as a housing bust that shifts resources out of housing.
Because the resource shift in a boom is driven by a surplus of available jobs, while during a bust it is driven by a surplus of labor.
The boom, in theory, should produce not the heavy unemployment of the bust, but rather its complement, a large number of unfilled jobs.
2. It doesn’t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble.
Because resources are fungible. A bubble is propped up largely by diverting resources from other uses in order to maintain the bubble.
Bubbles are not usually characterized by the demand for one item increasing while aggregate demand for all other items falls off by the same amount; usually in a boom demand for one item goes up dramatically, but demand for all other items stays mostly the same or goes up as well (otherwise, the "bubble" would be financed by savings and therefore not a bubble).
So resource misallocation generally does not segregate itself to the "bubble item." Even if demand for other things remained constant, the diversion of resources to producing the "bubble item" would reduce the supply of these other items and lead to an unstable situation across the board.
Krugman is proof that economics is just sociology with a few numbers splattered all over it. You can interpret and postulate what you like because a hard proof, like in physics, is not required. Krugman owes his prizes and fame to the fact that the NYT circuit chooses co-ethnics to parade around as intellectual shields.
In addition to distinguishing between "hiring" vs. "firing", it's also useful to distinguish between "trickle" and "flood".
Think about subway stations, which typically have fewer "Enter" turnstiles than "Exit" turnstiles. Given that the same total number of people enter and exit, why do you suppose that is, Dr. Krugman?
.
Every day I'm just getting more entrenched in my view that modern economics theory is just a complete load of steaming bullshit - Emperor's new clothes stuff - that gives a platform to second rate men to twist words and equations in order to suit whatever political prejudices they have.
We should just ignore these charlatans and lionise the real scientists - the physicists, the biologists etc.
I've said it before and I'll say it again:
"Academic" economics is bullshit.
(Absolutely no further explanation or elaboration is required for that statement - that litlle quote is succinct,precise and 'economical'- in the true sense - in itself).
-There is only one real determinant of the wealth of any nation state, namely the talent, industry and ingenuity of the people of that nation state. - All else is bullshit.
If someone screams 'North Korea', 'South Korea'! , all I can say is that North Korea a nation of a few million people , decided for political reasons to devote its wealth into building atomic bombs.
He got his prize for being anti-Bush, like Gore and Carter.
Why didn't Paul Craig Roberts or Clyde Wilson get a Nobel?
Why didn't Paul Craig Roberts or Clyde Wilson get a Nobel?
Carter only turned against Israel recently, after he got his Nobel. Robert's has been fuming against Israel for a while, so I can see why they passed him over.
"... I speak English as a second language: I think in equations and diagrams, then translate."
Rainman!
I think what Krugman is asking is why, supposing the housing bubble created real but sometimes economically wasteful jobs, cannot fiscal stimulus also create real, even if sometimes economically wasteful, jobs?
So far, so reasonable.
The Austrian School concentrated on the wastefulness, whether it proceeds from investment bubbles or fiscal remedies. Krugman might agree, partly. But he would argue that there is even more waste from the knock-on effects of not replacing the bubble jobs, temporarily with fiscal stimulus, since many other jobs are being lost due to the slump in total demand.
Kling is arguing that, even if we manage to prop up the economy temporarily, we will face the same problem when we try to end the stimulus. To which Krugman would reply, I think: 1) the replacement will not be sudden; and 2) by that time the banking system will be fixed, and it will enable a gradual return to non-wasteful jobs without a deep slump.
Krugman is not a primitive Keynesian. He thinks we should stabilize the economy with monetary policy, most of the time. Just not this time.
Arrogant, yes. Stupid, far from.
@Sweaty Swede & DK: Excellent point. Unlike the medicine prize and the prizes founded by Nobel himself, the economics prize is not cleared by the Swedish Academy. It comes straight from the committee. The other committees have to be mindful that if they show blatant favoritism in their selections, the academy might block their nominations. The economics committee doesn't have that worry. So for a time in the late 80s and early 90s, a majority of the committee consisted of economics professors from the University of Chicago. And during those years, the prize went time after time to other members of that same faculty.
"Explain how the government printing money is not stealing."
Only if you explain how the NY subway selling tokens is not stealing.
If you want to understand fiat money, here's a good introduction:
http://www.moslereconomics.com/wp-content/graphs/2009/07/7Frauds2.doc
In any event, low and stable inflation is one of the civilized world's top economic priorities ...
Why, exactly, is slow erosion of the dollar's value "one of the civilized world's top economic priorities?" This just means that early recipients of new dollars are able to transfer wealth upstream at a rate that keeps those downstream recipients from demanding that the theft cease.
Wait a minute ... don't bother answering.
And the reality is that like all pathologies, theft is never sated, and there goes your pie-in-the-sky system of perpetual, low-grade inflation.
Thanks for this laugh of the day, Steve! Diversity recession is to economists as Enron is to accountants: the event that shattered any trust intelligent people might have in their respective professions.
Economists for banks, auto makers, and unions demanding government handouts for banks, auto makers, and unionized industries - what the hell did we expect them to say? Economically sound stuff? No!
"In its original context, Krugman is in that quote in fact essentially assuming as ridiculous the notion that unemployment should go up in a housing boom as it does in a housing bust. He's engaged in a reductio ad absurdum of the views of his opponents."
But who is Krugman addressing? Who is making the claim that unemployment goes up in a housing boom and in a housing bust?
You guys just have no clue about macroeconomics -- at least pick up an elementary textbook before you start trying to zing a nobel prize winner.
All the answers to the question of "why a boom doesn't cause unemployment", which you are crowing so triumphantly about and seem so simple and obvious to you...all those answers contradict Says Law and the classical macro idea that the economy naturally stays in macroeconomic equilibrium. This is precisely Krugman's point. It *is* obvious why a bubble doesn't create unemployment, but those same obvious reasons are why classical macroeconomics fails.
Steve consistently embarasses himself when he attacks Krugman, because he simply doesn't understand anything about the basic questions that drive macroeconomics.
Why didn't Paul Craig Roberts or Clyde Wilson get a Nobel?
Because nothing they say empowers politicians or enriches bankers.
One more nobel prize was given to a women .
Ada E. Yonath (born 22 June 1939 in Jerusalem) is an Israeli crystallographer.
she received the Nobel Prize in Chemistry, together with Venkatraman Ramakrishnan and Thomas A. Steitz, for her studies on the structure and function of the ribosome.
Why didn't Paul Craig Roberts or Clyde Wilson get a Nobel?
LOL. That would have to be some kind of alternative universe in which the Confederacy won the Civil War or something.
hence my take on the nobel prize in economics. a worthless award. a prize in psychology would be far more appropriate.
there could not be much more difference between economics, a field with a nobel prize, and say engineering, a field without one.
engineers are permanently connected to reality and are required to predict exactly what is going to happen. economists can make up anything, have it proven totally inaccurate, and then win a prize.
An analogy: Building a ditch and filling it up again (housing) may look like its causes employment, but all those people might as well be unemployed because they are not creating something of value. All they are doing is consuming value with their wages and the capital efforts of their labor.
When everyone realizes that building ditches and filling them up again is a bad idea there is not mass unemployment. It's just we record ad unemployment that which was really unemployment to begin with. There are reverberations throughout the economy, but its doubtful 'real' gdp declined if you exclude the valuation of these ditches and the jobs people doing them had since these ditches had no value. Moreover, now that resources can be moved into areas that have real returns, not fake returns, the economy can begin real growth.
Thus our economy actually grow very little over the last 5 years and current declines reflect this. However, the government seems bent on stopping the reallocation of capital to where it needs to go.
GreySwan
Paul Krugman should not be taken seriosuly. He is a poltiical propogandist.
Austrian economist are cranks?
Then what are neo-Keynesians like Krugman?
Can you direct me to a Keynesian economic policy that has been successful?
Krugman's a left wing hack with pretensions of being an economist. That he got the Nobel means that the Nobel has become political (duh). The economics Nobel, like the peace Nobel, means nothing these days. The idiots who blew up LTCM in 1998 and were bailed out by Greenspan were also Nobel recipients.
The liberal-left media loves Krugman because he tells them exactly what they like hearing. His column is in the Oregonian 2-3 times a week. The few times I've read it was so nauseating that I no longer read his column.
I was an economics major as an undergraduate until I discovered the great flaw in economics education - no women. I switched to psycology - a "science" even less impressive than economics, but filled with nubile young co-eds.
Even I - dominated as I was by my glands rather than my brain wasn't so depraved that I ever took a Political Science class. So I'm depressed when I note that Obama (Barrack Antichrist Obama) while at Occidental never took any economics (or math, or science) but filled up his schedule with Poly Sci classes. He is unprepared for the likes of the Krugman theories. Presumably he understands voting patterns but he knows little about monetary or fiscal policy.
Of course as others have pointed out, academic economics doesn't have a very good record in terms of foresight and prediction. This month's Road and Track has Lamborginis. That takes me back to the Internet boom when the company I worked for brought in financial planners to help the programmers prepare for their coming great wealth. Our planner spoke at length about yellow Lamborginis. Seriously. We were all so intoxicated with the certain prospect of driving exotic dago iron that we were unprepared for what actually happened. Within a month the company was bankrupt all the staff were let go and everyone was suing everyone else. My superior economic education didn't save me. I showed up that morning (the morning I was fired)to demand a raise and a promotion.
Common sense ought to trump economics, whose practitioners notably lack any. These are the La La land guys (Right and Left) who have maintained for years that it's a good idea to send your manufacturing base overseas so you can buy all that cheap stuff made with coolie labor. Those few who have recognized the stupidity of this policy (e.g., Paul Craig Roberts) are regarded as cranks by the rest of the profession.
"Some members of this faction have held university appointments. But most of them lack academic credentials and, more important, they are basically hostile to the kind of economics on which such credentials are based. ...
Perhaps that has a lot to do with the fact that the popular schools of economics have zero predictive value. All the economists were telling us everything was fine in 2005. They're telling us everything is getting better now.
In reality, our standard of living has been declining since the 1970s due to inflation, with a parenthetical productivity increase in the late Klinton years but not due to anything Klinton did. We've been masking this declining standard of living with debt, debt, and more debt. Now, we've reached peak debt and are deflating. Only Austrian economists predicted this.
You might argue that Austrian economics is hackery, but please don't extol the virtues of the alternatives - it insults our intelligence.
As a man of the Left, Krugman thinks economy is a zero sum game. If there's a housing boom, there must a bust in another part of the economy. If there's a housing bust, there must be a rise in some other sector. One sector or nation thrives AT THE EXPENSE OF another. The ONLY way all of economy can thrive together is through the intervention via massive government planning and spending, which is why he is anti-free markets.
He doesn't understand that in free market economics, all boats can rise or fall together.
I think his point is better than some here give it credit for, and still stupid. Yes, a bust does shift resources as much as a boom, and a housing boom sucked productive capital from say IT industry investment, and a bust may eventually shift capital to another home. So yes, a housing boom would cause less employment in say that undercapitalized IT sector, and a bust might eventually lead to more IT hiring.
OK. So his theory isn't totally retarded. But, if housing is more labor intensive than an alternate capital use, it would create more employment than the alternative. And its reasonable to think it is- houses are still made on site not in factories by robots. And, a bust doesn't cause an automatic shift of capital, so sure, maybe EVENTUALLY a bust will lead to more employment in other sectors, but there's a period of friction loss while things re-sort. And of course the capital emobdied in the vacant foreclosure house or the half built casino is awefully hard to liquidate and shift right over to a new R&D office in silicone valley or whatever.
Duh
Krugman seems to ignore that fact that the housing boom didn't occur "logically"--with capital allocated from other sectors. For example, it wasn't as though US spent a lot on housing at the expense of spending on healthcare or computer research. No, housing boom was caused 'illogically', with money created out of the thin air by the fed or borrowed from the Chinese. This was precisely why the whole thing became so dangerous. Because housing didn't have to compete with other sectors for capital, there was no sober or sensible pressure from non-housing sectors against the housing sector for indulgently hogging too much capital. In fact, non-housing sectors also got a lot of capital and loans necessary for their own expansion--again, thanks largely to the Fed and borrowing from the Chinese. So, the Boom economy of the late Clinton and Bush yrs was the not the result of 'logically' allocated capital but 'illogically' borrowed capital. It wasn't a matter of allocating real wealth held by Americans from one sector to another but 'wealth' created either by Fed(and Wall Street Jews) or borrowed from the Chinese.
(The nature of our media being what it is, we can bitch about the power of the Chinese but must stay mum about the more crucial power of the Jews who devised and controlled the global financial sector.)
Even today, if you allow every Detroit person to borrow $100,000 and spend like crazy, the economy of the Mofo City will rock n roll for awhile. Since the money will have been borrowed--from Fed-created money or from the Chinese--, the rest of us will be able to ignore the craziness since it wasn't taken from our wealth(though, in the wrong run, Detroit's troubles will affect all of us as WE will eventually have to bail Detroitians out via government intervention--but that's after all the dust has settled).
The question is how sustainable is economic expansion via mindless borrowing? One need only to look at Latin America in the 70s. They borrowed A LOT and for several yrs, it seemed like the region was on the up and up. But, Latin American nations didn't invest in sustainable or sensible economic development and eventually ended up with mountains of debt.
So, where's my Nobel?
Off-topic, but the T99/Roissy crowd might be interested in these new statistics on interracial banter at online dating sites.
The housing bubble was driven by excessive leverage and the labor resources came from Mexico, which was why there was no resource shift from other industries. Human capital flowed to the US from Mexico while real dollars flowed out in remittances.
With the housing crash, other industries were affected because that excessive leverage soaked up and limited the credit and capital available to all other industries.
"Austrian" economists are a bunch of cranks. You waste your time taking them seriously.
A few eccentric rich folks fund them, and like other forms of libertarians they are very vocal on the web and have wrong but easy to understand theories.
You have that back-asswards. It's the anti-Austrian "libertarian" faction which is being funded by the rich folks such as the Koch brothers - e.g. Reason and Cato.
In this particular case Krugman attacks left-wing economics cranks, but I'm sure he'd say the same about the "Austrians" and other marginal kooks of the sort you find at the CATO Institute
Bob, your knowledge of the field you are discussing is close to nil. CATO is a Chicago school bastion. They booted out the Austrians, such as Rothbard, decades ago.
Indeed, a bubble does cause lack of employment in certain sectors, as labor moves from one use to another. Those Austrian cranks even have a term for the shifting of labor from more productive jobs to less productive jobs. Malinvestment.
And this malinvestment has ripple effects across the entire economy. It's not just construction jobs that go away, but jobs making granite counter tops, etc. When those jobs are no longer in demand, those workers have to move back to jobs that are more productive - but were less lucrative at the time of a bubble due to the market distorting effects of "free" money from the government.
Economics is best thought of as a branch of philosophy, IMHO.
Beavis Andrea Butthead: As a man of the Left, Krugman thinks economy is a zero sum game. If there's a housing boom, there must a bust in another part of the economy. If there's a housing bust, there must be a rise in some other sector. One sector or nation thrives AT THE EXPENSE OF another. The ONLY way all of economy can thrive together is through the intervention via massive government planning and spending, which is why he is anti-free markets.
Bingo.
And the point that I was making above is that not only can wealth be created [thus enlarging the total sum], but wealth can also be destroyed [thus contracting the total sum], and wealth can even prove to have been illusory [it only ever existed in peoples' imaginations].
The idea that the total amount of "wealth" is static - that there is a conservation of wealth the way that, say, most theories of physics require a conservation of energy - is ludicrous.
Anonymous: There is only one real determinant of the wealth of any nation state, namely the talent, industry and ingenuity of the people of that nation state. - All else is bullshit.
I'd add to that list something along the lines of "moral fiber".
There are plenty of very brilliant people - like the Ashkenazim and the Han and the Brahmin [and, as you indicate, the North Koreans] - who, when left to their own devices, never advanced much beyond living in mud huts, simply because they couldn't resist the urge to steal one another's private property.
"hence my take on the nobel prize in economics. a worthless award."
Worthless indeed. Doubtless you've had well respected committees of very smart people tell you that you were the best in the world at a bunch of things, but Jody, let us mortals have a least one moment in the sun, hey?
There is only one real determinant of the wealth of any nation state, namely the talent, industry and ingenuity of the people of that nation state. - All else is bullshit.
If someone screams 'North Korea', 'South Korea'! , all I can say is that North Korea a nation of a few million people , decided for political reasons to devote its wealth into building atomic bombs.
But the overall level of wealth of South Korea is much higher than North Korea's even including NK's nuclear weapons. South Korea could probably build a nuke program several times the size of North Korea's if it wanted to and still have a higher standard of living than its northern neighbor.
The fact of the matter is that the things that South Korea invested in produced additional wealth, whereas the things that North Korea invested in did not. So South Korea wound up with more wealth than North Korea, not simply more wealth not invested in nukes.
So policy, that is, what a country chooses to do with its resources can have an enormous impact on the country's wealth.
"Doubtless you've had well respected committees of very smart people tell you that you were the best in the world at a bunch of things"
no, that's barack obama.
If you want to see a really productive use of the money that Bernanke is creating out of thin air, then watch this video.
Cash for Chaos
Henry Payne
Thursday, October 08, 2009; posted at 12:30 PM
corner.nationalreview.com
JPG: CASH FOR CHAOS
MP3 #1: CASH FOR CHAOS
MP3 #2: CASH FOR CHAOS
Rush Limbaugh has been playing these MP3 audio clips of the event, from Ken Rogulski, of WJR in Detroit.
I strongly, STRONGLY urge all iSteve-ers to listen to the second audio clip.
Shifting resources into housing, when the demand isn't real but produced by hysteria & printing money DOES produce unemployment. However it takes a while for effects tto work through, which is precisely why we have a business cycle.
So you get the employment a few years down the road when the printing money effect runs out.
Equally the effect of shifting resources out of housing, when the market demand isn't there, into something more productive is what pulls economies out of recession.
Economics 101. Shame Krugman doesn't understand it. Greater shame Obama doesn't.
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