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Wednesday, November 21, 2012

End this depression II

In Chapter Two, Depression Economics, Krugman resorts to his favorite analogy, the babysitting coop, whose travails were chronicled by a 1977 article in the Journal of Money, Credit and Banking.  This is at least the third book in which he has resorted to the analogy, this time to demonstrate that overall lack of demand can’t hurt the economy and that "your spending is my income and my spending is your income."  But this time, he also cites the 150 babysitting couples as an example of his proposed cure for the global economy
"That’s where we come to the third lesson from the babysitting co-op: big economic problems can sometimes have simple, easy solutions. The co-op got out of its mess simply by printing up more coupons.

This raises the key question: Could we cure the global slump the same way?  Would printing more babysitting coupons, aka increasing the money supply, be all that it takes to get Americans back to work?

Well, the truth is that printing more babysitting coupons is the way we normally get out of recessions. For the last fifty years the business of ending recessions has basically been the job of the Federal Reserve, which (loosely speaking) controls the quantity of money circulating in the economy; when the economy turns down, the Fed cranks up the printing presses. And until now this has always worked. It worked spectacularly after the severe recession of 1981–82, which the Fed was able to turn within a few months into a rapid economic recovery—“morning in America.” It worked, albeit more slowly and more hesitantly, after the 1990–91 and 2001 recessions.

But it didn’t work this time around. I just said that the Fed “loosely speaking” controls the money supply; what it actually controls is the “monetary base,” the sum of currency in circulation and reserves held by banks. Well, the Fed has tripled the size of the monetary base since 2008; yet the economy remains depressed. So is my argument that we’re suffering from inadequate demand wrong?

No, it isn’t. In fact, the failure of monetary policy to resolve this crisis was predictable—and predicted. I wrote the original version of my book The Return of Depression Economics, back in 1999, mainly to warn Americans that Japan had already found itself in a position where printing money couldn’t revive its depressed economy, and that the same thing could happen to us. Back then a number of other economists shared my worries. Among them was none other than Ben Bernanke, now the Fed chairman.

So what did happen to us? We found ourselves in the unhappy condition known as a “liquidity trap.”"
Krugman's first claim is harmless enough.  Obviously, an overall lack of demand can hurt the economy, those who erroneously insist that supply is always capable of creating demand notwithstanding.  His second claim is partially true, but incomplete, because not all spending comes from income.  A considerable amount of spending also comes from credit, but since that is neither part of the Neo-Keynesian aggregate model nor the babysitting coop story, Krugman simply omits it.  And it can't be denied that the babysitting coop did appear to get out of its impasse by printing more coupons.

However, Krugman is guilty of a significant omission when he claims that Fed inflation - cranking up the printing presses - worked spectacularly in ending the 1981-1982 recession.  And what he omits is that one of the chief causes of the recession was the Fed's need to slam on the brakes due to the rampant inflation of the 1970s, inflation that completely failed to cure the high rates of unemployment as it was supposed to according to conventional Neo-Keynesian economic theory.  In fact, it was this failure that led to the widespread rejection of Neo-Keynesianism and the adoption of Milton Friedman's monetarist spin on it.

Also, when Krugman claims that the Fed was cranking up the money presses in 1983, he omits to mention that throughout that year, which more than covers his "few months" the interest rate never fell below 10.5 percent, which is higher than it was at any time after November 1978!  Somehow, we're supposed to believe that observably tighter monetary policy amounts to cranking up the money presses!

That being said, the money supply did observably begin increasing in 1983.  From mid-1982 to mid-1983, M2 rose $228 billion.  However, L1, total credit, grew $598 billion over the same period.

Now, Krugman admits that tripling the monetary base has not succeeded in moving the economy out of depression.  If the true lesson of the spring 1983 expansion is that credit, and not money supply is the issue, then we can assume that the current dearth of economic growth should be correlated with a similar lack of growth in Z1.

As it happens, that is precisely what we see.  Z1 has been very nearly flat since 2008 and is currently $5 trillion lower than its 60-year historical rate of growth would predict.  So, the basic foundation for Krugman's case is not only incomplete and historically inaccurate, but flawed in precisely the way that those familiar with the Neo-Keynesian model would expect.

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88 Comments:

Anonymous Krul November 21, 2012 8:06 AM  

Babysitting Co-op on Wiki.

Anonymous VryeDenker November 21, 2012 8:07 AM  

I don't have a Nobel Prize (a distant relative does, but that's irrelevant), but hear me out: what happens when all the members of the co-op decide to cash in their coupons at the same time?

Anonymous Mr Green Man November 21, 2012 8:09 AM  

Everyone I talk to has frozen their debt-based spending: small businesses aren't borrowing, no new car purchases, refinancing homes to reduce monthly outlays, pulling the old Dave Ramsey on the credit cards, etc.

I heard a friend say yesterday: Working as an IT guy with 10 years experience, with regular raises, for a company that holds up as a point of pride no layoffs since the immediate aftermath of 9/11, he is afraid to make a purchase of a new car because of uncertainty.

Obama's laziness and desire to always kick the can on things like the fiscal cliff break Krugman's plan. The chief vehicle for getting the free money into circulation is always -- Fed gives effectively free money to big banks, they charge usurious rates to everybody else to borrow it. Because of Obama's inability to make a decision -- even certainty of bad news is better for planning than complete uncertainty; people can accept the bad diagnosis -- the Fed trick is broken because little guys don't want to risk borrowing.

Anonymous Krul November 21, 2012 8:18 AM  

From Wiki:
"A modification to the co-op allegory create a situation resembling a liquidity trap. Suppose that the co-op developed a system where parents were able to borrow scrip from the administration in emergencies and pay it back with interest later.[8]

This lending program would be advantageous to both the administration and parents. It gives the administration more tools to control demand for babysitting. If the administration observes that demand for babysitting is up, it can increase the interest members must pay when they borrow scrip, which will most likely result in less members borrowing. Thus the demand for babysitting will be reduced. Similarly, the administration can decrease the amount of interest paid when demand for babysitting is low. And the system would help parents, because they would no longer have to save as much scrip because they could simply borrow more in the cases of an emergency.

These hypothetical modification to the Capitol Hill Babysitting Co-op makes its administration analogous to a central bank. Depending upon the economic conditions, the efficacy of the general system (i.e. the co-op) is partially dependent on interest rates. When times are good, it is best to have relatively high interest rates, and when times are bad the rates should be lower."

Wait a minute... isn't adjusting the interest rate to meet the demand level exactly what normal, non-"central bank" lenders do all the time? Isn't it just like any business adjusting its prices to maximize profits?

So... what exactly is the point of centralizing it? Except to establish a monopoly, I mean.

Anonymous VryeDenker November 21, 2012 8:31 AM  

So... what exactly is the point of centralizing it? Except to establish a monopoly, I mean.

Ask Karl Marx. He's the guy who came up with the idea of a central bank, after all...

Anonymous zen0 November 21, 2012 8:34 AM  

If they want me to spend money to boost the economy, they can loan me money at low interest and give me high interest on my deposits, otherwise I will just hunker down and take the erosion by inflation, hoping I die before the money runs out. If not, I will throw my self on the glorious mercy of the State, who will look after me for free.

Blogger Rahul November 21, 2012 8:49 AM  

"Z1 has been very nearly flat since 2008 and is currently $5 trillion lower than its 60-year historical rate of growth would predict."

Wasn't that supposed to happen? The amount of credit outstanding expanded more than it should have because of artificially low rates from the Fed....right?

Blogger tz November 21, 2012 8:55 AM  

Yes, Credit is the key. The problem is you would need a net positive, but the 50 trillion of worthless derivatives, abs, mbs, cdos, cdo-squared, would need to be monetized or marked down. Putting it more simply, the Fed would have to agree to pay to anyone who asked, the bubble price of their home. That would reset the system. (Yes, I know more would be needed and it wouldn't work anyway, but I'm taking Krugman seriously for the thought experiment). Instead, he wants to print and... do what exactly? Have the government hire everyone at $20/hr to dig and at 180 degrees fill in large circular trenches? Every dollar printed will pay down existing debt (via debasement if nothing else), or inflate asset prices (or food and energy). Liquidity will go to whatever is inflating, not what is deflating.

Anonymous Noah B. November 21, 2012 9:55 AM  

"Ask Karl Marx. He's the guy who came up with the idea of a central bank, after all..."

Not so much. The Bank of England was created in 1694.

Anonymous BillB November 21, 2012 9:57 AM  

Vox,

Please give us your prediction as to when Krug the cat man will champion printing a $1M for each person so we can all be millionaires.

BTW, my dogs produce a large supply of dog crap every day yet with all this supply no one comes around wanting to buy it. Guess the issue with supply and demand is that you got to have something other people want.

IMO never trust a man with a gut who is holding a cat.

Anonymous Matt November 21, 2012 10:03 AM  

I don't have a Nobel Prize...

It's always worth pointing out that neither does Krugman. He has the "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel", which was established by the Swedish central bank the better part of a century after the actual Nobel prizes.

Anonymous VD November 21, 2012 10:28 AM  

Wasn't that supposed to happen? The amount of credit outstanding expanded more than it should have because of artificially low rates from the Fed....right?

No, it's exactly the opposite of what was supposed to happen. The low rates were supposed to reverse the credit deflation and cause everyone to start borrowing and spending again. Instead, only the government has been borrowing at a rate greater than the historical norm; every other sector has either been continuing to decline or increasing at a slower rate.

Anonymous zen0 November 21, 2012 10:31 AM  

It's always worth pointing out that neither does Krugman. He has the "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel",

Hah! It is so fitting that it is a prize from banksters and is a derivative.

Blogger TontoBubbaGoldstein November 21, 2012 10:49 AM  

babysitting coop

The downfall of Keynesian economics : The chickens coming home to roost.....

Anonymous Roundtine November 21, 2012 11:05 AM  

BTW, my dogs produce a large supply of dog crap every day yet with all this supply no one comes around wanting to buy it. Guess the issue with supply and demand is that you got to have something other people want.

Yes, you lack demand. My suggestion is to start going around and asking neighbors if they will sell you dog crap. You should get another neighbor or two in on the scheme and have them do the same. You need to push up demand for the crap and get a market going. Then offer loans to speculators who want to increase their crap buying. Eventually, with enough credit from the crap bank, the price of crap will exceed the cost of dogs, i.e. if annual cost of a dog is $800, the dog's crap would be $1000. Then you will be ready for the explosion of the pure speculative bubble as dog prices rise. Eventually it will all collapse and you can ask Krugman to write an essay about all your crap loans needing a bailout from the Fed.

Anonymous Krul November 21, 2012 11:11 AM  

Then you will be ready for the explosion of the pure speculative bubble as dog prices rise.

Would you call that a "Crap Bubble"?

Anonymous JartStar November 21, 2012 11:24 AM  

I'm curious to see his solution for escaping the liquidity trap. FRNs with expiration dates? Even more massive stimulus with shorten time frames? Negative yield on treasuries?

It wouldn't surprise me if the preference for cash is so high that even a -1% yield not including inflation would still have people in cash.

Anonymous scoobius dubious November 21, 2012 11:37 AM  

From a caveman's point of view, it seems to me that Krugman's problem (piteous Christ!, as if I cared!) is really more cultural rather than intellectual: it's the problem of the rent-seekers thinking they can occupy the same moral space as the producers. There are the people who Make Things, and there are the people who Do Clever Things; in the long-term view, the people who Do Clever Things can advance for a while and maybe do very well in the short term, but once the people who Make Things figure out that they're being Cleverly snookered, then the Clever people get ridden out of town on a rail, and gripe that some terrible injustice has occurred.

Krugman's economic advice, it seems to me, is to have America do Clever Things instead of Making Things; in the long run it's unsustainable of course, as the Clever people need the Making people, but the reverse is not true. Like all Clever people, he thinks, "Why can't everybody just be Clever, like me? Then everything would be wonderful!"

It's a Clever thought, but alas not a clever one.

Anonymous JartStar November 21, 2012 11:40 AM  

It will be interesting to see if he suggests what he did for Japan in this 1998 paper or goes another direction. See part 6.

The classic Keynesian view of the liquidity trap is, of course, that it demonstrates that under some circumstances monetary policy is impotent, and that in such cases fiscal pump-priming is the only answer. ...

While this policy could work, however, is it the right one for Japan? Japan has already engaged in extensive public works spending in an unsuccessful attempt to stimulate its economy. Much of this spending has been notoriously unproductive: bridges more or less to nowhere, airports few people use, etc.. True, since the economy is demand- rather than supply-constrained even wasteful spending is better than none. But there is a government fiscal constraint, even if Japan has probably been too ready to use it as an excuse. And anyway, is it really true that it is impossible to use the economy's resources to produce things people actually want?


Krugman certainly seems to think that there's a limit to the effectiveness of public works. I think there could be a lot more public works in the US before we hit that point though.

OpenID imnotherzog November 21, 2012 11:51 AM  

Vox,

I can't stand Krugman, but I'm not with you (yet) on monetary and fiscal policy. I'm a monetarist (and a supply-sider) and have been convinced of the truth of such theories by not only Friedman but the prolific blogger Scott Sumner. One of Sumner's key lessons is to never assume anything about the money supply based on interest rates, which you do in this paragraph:

"Also, when Krugman claims that the Fed was cranking up the money presses in 1983, he omits to mention that throughout that year, which more than covers his "few months" the interest rate never fell below 10.5 percent, which is higher than it was at any time after November 1978! Somehow, we're supposed to believe that observably tighter monetary policy amounts to cranking up the money presses!"

Here is just one of many, many posts from Sumner on this topic:

http://www.themoneyillusion.com/?p=17424

I know you are in the middle of dealing with Krugman, but once you are done, I'd really like you to turn your attention to Sumner, as he has a quick mind, lots of monetary history at his fingertips, and is good with real world examples.

Anonymous scoobius dubious November 21, 2012 11:52 AM  

Obviously the solution to fixing our economy is, more immigrants.

--Q.E. Bono

Anonymous Noah B. November 21, 2012 11:54 AM  

I believe the growth of student loan debt has continued to accelerate, but I suppose that's often lumped in with other consumer borrowing.

Blogger Serge_Tomiko November 21, 2012 12:43 PM  

"And what he omits is that one of the chief causes of the recession was the Fed's need to slam on the brakes due to the rampant inflation of the 1970s, inflation that completely failed to cure the high rates of unemployment as it was supposed to according to conventional Neo-Keynesian economic theory. "

This demonstrates a total misunderstanding of how precisely money and employment are related, nevermind the function of deficit spending.

Notice something in this graph?

http://en.wikipedia.org/wiki/File:USDebt.png

Whoops! Turns out the national debt SHRANK as a percentage of the GDP for the entirety of the 1970s!

Guess again scarlet. "Money printing" wasn't going on in the 1970s.

The inflation had to do with the transition from the Bretton Woods system to the American Empire we have today. Super Imperialism by Michael Hudson is the main book on this subject, written precisely during that time.

PS - NO ONE says wasting money alone will benefit the economy. It doesn't matter if the government pays people to dig ditches, or rich losers spent thousands of dollars on virtual currency. Money must be used productively to have a healthy society, this is a given.

Deficit spending only works when it involves major industry or capital improvements. This has always been true, and to suggest otherwise shows a total lack of understanding. Which is common among libertarians who think Atlas Shrugged is all they have to bother reading.

Blogger Serge_Tomiko November 21, 2012 12:45 PM  

Hoarding money does harm others, particularly when gold is the
standard. Imagine that you are a farmer who takes out a loan in gold to buy farm equipment, and you mortgage your farm to do it. Your loan is denominated in gold coins. Let’s call them Paultards.

You don’t have any problem meeting your first year’s payments. But
each subsequent year, it gets harder. Gold, you see, is becoming more expensive. The easily mined gold has already been mined, so with each passing year, the same amount of bullion costs much more to produce in terms of capital expenditure and work. And people who like bits of shiny metal tend to take gold out of circulation every year, thinking that one day it will be worth a lot more when a predicted economic crisis will occur.

So money gets scarcer and scarcer. That means that the a crop that
might have brought in 100 Paultards a ten years ago, now bring in 40 Paultards today. But one’s one’s principal and interest do not change. One has to pay 40 Paultards a year for so many years, and when one’s entire crop goes to paying interest and principal, one loses one’s farm and becomes a pauper.

When that happens to enough small farmers and businessmen and
homeowners, the nature of society changes. One has just as much
“economic” freedom as before, but there is much less real freedom,
because more and more people work for big landowners, corporations,
etc. and face all sorts of pressures to conform to the opinions of
their bosses. Republican government, however, depends upon private
property widely distributed and securely held. Preserving republican government therefore requires an economic system that prevents the destruction of the middle class through usury and currency deflation.

If you want to look at the gold standard at work, look at western
Europe after 220 AD, when the Romans repudiated the silver denarius
and went to a complete gold standard. The deflation and devastation
(including the enslavement and enserfment of whole peoples) lasted
more than 500 years, until Charlemagne created the pound sterling
(literally a pound of silver) as the new monetary unit. Silver being more plentiful and less liable to hoarding than gold, it is less deflationary as a currency.

Anonymous scoobius dubious November 21, 2012 12:50 PM  

"Deficit spending only works when it involves major industry or capital improvements."

THANK you.

And I'm not even sure about the 'capital improvements' part.

Anonymous Dan in Texas November 21, 2012 12:57 PM  

Serge wrote: "When that happens to enough small farmers and businessmen and
homeowners, the nature of society changes. One has just as much
“economic” freedom as before, but there is much less real freedom,
because more and more people work for big landowners, corporations,
etc. and face all sorts of pressures to conform to the opinions of
their bosses. Republican government, however, depends upon private
property widely distributed and securely held. Preserving republican government therefore requires an economic system that prevents the destruction of the middle class through usury and currency deflation."

I'm hesitant to wade into these economics discussions as I'm usually just reading and learning. My question is this: Have we not had this very condition occur since coming off the gold standard? Small farms especially are virtually extinct and big corporations have taken that over. In the small rural towns, the mom and pop stores are gone and people are working for Walmart and drawing food stamps. I don't believe anyone is arguing that the middle class is not disappearing. Again, I'm not arguing a point here, I'm just asking questions and taking in different points of view to try to understand these topics better.

Blogger Serge_Tomiko November 21, 2012 12:59 PM  

Infrastructure would be a more commonly known word, but most people think of roads. They don't think of things like libraries, public baths, prisons, power plants, or a host of other governmental projects that improve the quality of life of the populace.

Maybe there is a better word? I'm open to suggestions.

Blogger Serge_Tomiko November 21, 2012 1:02 PM  

"I'm hesitant to wade into these economics discussions as I'm usually just reading and learning. My question is this: Have we not had this very condition occur since coming off the gold standard? Small farms especially are virtually extinct and big corporations have taken that over. In the small rural towns, the mom and pop stores are gone and people are working for Walmart and drawing food stamps. I don't believe anyone is arguing that the middle class is not disappearing. Again, I'm not arguing a point here, I'm just asking questions and taking in different points of view to try to understand these topics better."

This is actually a great question.

The simple answer is this: There has not been *enough* deficit spending for a very long time. If money can only be created by government fiat, or via the creation of debt - you have a real problem if the government doesn't grow the money supply. You end up with people having to take on ever more debt simply to service their existing debts. Then they lose everything.

Neoliberal economic policy has the same effect as using the gold standard - it limits the growth of money causing debt servitude.

Make no mistake THIS IS ECONOMIC WARFARE. It is intended specifically to destroy the White middle class, because those who profit from US domination of international trade are afraid of them.

Anonymous Anonymous November 21, 2012 1:08 PM  

Vox, I wanted to see the Z.1 data you commented on. I couldn't find the same flat growth since 2008 from the St. Louis Fed data points. Where was the data you saw?

Anonymous pdimov November 21, 2012 1:18 PM  

VD: Obviously, an overall lack of demand can hurt the economy, those who erroneously insist that supply is always capable of creating demand notwithstanding.

I'm interested in your explanation of how an overall lack of demand can hurt the economy.

Anonymous VD November 21, 2012 1:30 PM  

This demonstrates a total misunderstanding of how precisely money and employment are related, nevermind the function of deficit spending.

No, the stagflation of the 70s demonstrated the fundamental flaw of Neo-Keynesian thinking. You and Krugman are both completely ignoring the very events that led to the supremacy of monetarism. I'm enjoying your retreat to "exogenous shocks" that was the desperate attempt to stave off the monetarists throughout the eighties.

There has not been *enough* deficit spending for a very long time.

And here we see the Neo-Keynesian inevitably advocating more of the poison that is killing everyone. It doesn't matter how many times you guys fail, the answer is always "well, it's not a problem with our aggregate model, it's that the government didn't spend enough to keep demand propped up."

Guess again scarlet. "Money printing" wasn't going on in the 1970s.

You're lying, stupid, and lying ineptly. M2 Money supply grew 587.9 to 1473.7 in the 1970s. That's 2.5x, more than in the 1960s (1.9x) or the 1980s (2.1x)

Anonymous fish November 21, 2012 1:36 PM  

Krugman certainly seems to think that there's a limit to the effectiveness of public works. I think there could be a lot more public works in the US before we hit that point though.

Krugman has no fixed principles other than that he likes to be the center of attention. I'm pretty sure he forgets what he publishes right after he is finished thus allowing him to remain "sincere" when he offers an opinion contradicting something he wrote previously.

Anonymous Desiderius November 21, 2012 1:37 PM  

Babysitting co-op.

(a) Yeah, you needed to do this. We weren't reading this book.

(b) We've been ideologically/spiritually cuckolded by this cheap Eddie Haskell bastard. It's sobering how cheap the tricks he (effectively) used to do so are. Red Pill wrought large.

(c) I guess it's necessary to hash out dialectically the problems with what he advocates, but don't kid yourself that victory lies down that road.

Anonymous scoobius dubious November 21, 2012 1:43 PM  

"Infrastructure would be a more commonly known word, but most people think of roads. They don't think of things like libraries, public baths, prisons, power plants, or a host of other governmental projects that improve the quality of life of the populace.

Maybe there is a better word? I'm open to suggestions."

You don't need a better word, you need to make a distinction. Libraries and public baths and other public goods may improve public life --and the good life, after all, is really our actual goal, not some abstraction called "the economy"-- but paradoxically, these public good things don't necessarily benefit "the economy" in the same way it benefits us... the economy being an engine we use to achieve the good life, and not the other way round... at least if we are sane, which we often are not. Public goods can do so, of course, and sometimes they do; it just isn't axiomatic. There's a sweet spot, which ought to indicate to us that public policy is an art, and not a science.

The point is not a general one; it is specific and it is ordered, and it goes a little like this:
1. We want the good life.
2. Growing our economy give us a better chance at the good life than shrinking it does.
3. Deficit spending, under certain conditions, can sometimes grow the economy.
4. The conditions are not infinitely elastic, they are limited and defined.
5. Deficit spending on major industry (i.e., "making-stuff" industry) under certain conditions stands a plausible chance of growing the economy; deficit spending on wish-list projects, not so much. MITI good, HUD bad.
6. For instance: experience shows that if our nation has, for example, a mighty steel industry, it is very likely that museums and libraries and public gardens will sprout up in its wake. Aha, the good life! Experience does not show that building libraries and public gardens will, of themselves, cause a mighty steel industry to arise. It could happen, of course: it's just more iffy.
7. Scale matters, details matter, and people matter. Building more libraries used by lower-class Catholic white-ethnics is likely to result in a more educated and productive middle-management class, although it probably won't produce a bumper crop of Nobel physicists. Building more libraries for negroes is likely to result in... well, not much of anything, to be honest. Some jobs for Nice White Ladies, not a whole lot more.
8. For any given people, "the good life" is a real thing with actual details, not a bunch of stupid platitudes. Start by reckoning what "the good life" is, then work back to create the means of obtaining it.

Anonymous pdimov November 21, 2012 1:49 PM  

The babysitting co-op, along with other similar fairy tales, suffers from the obvious fault of coupons not being money.

Anonymous Krul November 21, 2012 1:59 PM  

Hoarding money does harm others, particularly when gold is the
standard. Imagine that you are a farmer who takes out a loan in gold to buy farm equipment, and you mortgage your farm to do it. Your loan is denominated in gold coins. Let’s call them Paultards.

You don’t have any problem meeting your first year’s payments. But
each subsequent year, it gets harder. Gold, you see, is becoming more expensive. The easily mined gold has already been mined, so with each passing year, the same amount of bullion costs much more to produce in terms of capital expenditure and work. And people who like bits of shiny metal tend to take gold out of circulation every year, thinking that one day it will be worth a lot more when a predicted economic crisis will occur.

So money gets scarcer and scarcer. That means that the a crop that
might have brought in 100 Paultards a ten years ago, now bring in 40 Paultards today. But one’s one’s principal and interest do not change. One has to pay 40 Paultards a year for so many years, and when one’s entire crop goes to paying interest and principal, one loses one’s farm and becomes a pauper.


Of course it's well known that inflation favors debtors while deflaction favors creditors. You, like William Jennings Bryan, use the small time country farmer as an example, but the fact is that the biggest debtors are always big corporations, banks, and governments. That's why they favor inflationary policies.

Gold, you see, is becoming more expensive. The easily mined gold has already been mined, so with each passing year, the same amount of bullion costs much more to produce in terms of capital expenditure and work.

...So there's a limit to the growth rate of the gold (money) supply. This means that minor deflation will probably occur as long as the overal rate of goods production in the country exceeds the rate of gold production. Not good for debtors, but not catastrophic.

And people who like bits of shiny metal tend to take gold out of circulation every year, thinking that one day it will be worth a lot more when a predicted economic crisis will occur.

You're not thinking things through. If gold is getting scarcer, and therefore the price of gold is going up, the necessary result is that more and more of these gold "hoarders" will begin selling. As they sell, the price of gold (and the value of money) will be driven down, mitigating overall deflation.

Anonymous JartStar November 21, 2012 2:14 PM  

The National Parks have been a big success if you measure it by improving quality of life. Millions of Americans enjoy them every year and don’t think the market would have produced such high quality parks for the population at large. No doubt the wealthy have always had county estates/parks in much of recorded history and really nice parks would have existed and do exist but I don’t think they’d be as accessible to the population.

I remain a fan of the American School economic policy which supports industry and trade with transportation, regulated finance, and tariffs. It’s really a populist program which puts the nation first.

The desire to take on debt not to build a useless bridge to nowhere but rather to fulfill a neo-cons wet dream of empire building is one of the reasons I despise the GOP. A Headstart program in a poor neighborhood may be an inefficient use of resources, but at least the money stays local. A failed light rail system is better than an unwinnable war.

It makes me wonder if the average GOP voter has a great deal of bloodlust which manifests itself in the love of military adventurism.

Anonymous JartStar November 21, 2012 2:18 PM  

You're not thinking things through. If gold is getting scarcer, and therefore the price of gold is going up, the necessary result is that more and more of these gold "hoarders" will begin selling.

Not necessarily as this is the deflationary death spiral scenario. The hoarders do not sell because there’s good reason to believe that gold will be worth much more in future. If every indicator you believed told you that gold would be up 10% next year would you sell what you have barring an emergency?

It doesn't have to be gold, deflationary FRNs could have the same effect.

Blogger Serge_Tomiko November 21, 2012 2:19 PM  

"No, the stagflation of the 70s demonstrated the fundamental flaw of Neo-Keynesian thinking. You and Krugman are both completely ignoring the very events that led to the supremacy of monetarism. I'm enjoying your retreat to "exogenous shocks" that was the desperate attempt to stave off the monetarists throughout the eighties."

Vox, are you blind? There is ZERO EVIDENCE of "money printing". There was no Keynsian anything going on in the 1970s, and the proof is in how the national debt remained stagnant while the economy grew.

I'm sorry, but you simply don't understand how the US economy has functioned since the early 1970s. I have given you the seminal work on the topic. Read it, rather than spouting nonsense about things you don't understand.

And, monetarism is bullshit. Its success is illusory and only makes sense to those who don't understand how we use our military and foreign policy to compel the world to buy US debt. And duh, monetarists are running the show right now and they have been wrong EVERY STEP of the way.

"And here we see the Neo-Keynesian inevitably advocating more of the poison that is killing everyone. It doesn't matter how many times you guys fail, the answer is always "well, it's not a problem with our aggregate model, it's that the government didn't spend enough to keep demand propped up.""

Duh, did you read my last post? Today, right now, middle class households spend upwards of 30% of their gross income on debt service. This is more than double what it was just a decade ago.

There has been NO significant deficit spending. It is a lie. Changing the ledgers of banks does not result in people having money in their pockets, and therefore the entire point of Keynes is being ignored by you.

Where has the money gone? Into whose hands? Certainly, money created without interest did not go into the hands of the middle class otherwise they would not be as fucked as they are today.

"You're lying, stupid, and lying ineptly. M2 Money supply grew 587.9 to 1473.7 in the 1970s. That's 2.5x, more than in the 1960s (1.9x) or the 1980s (2.1x)"

Gee, that's funny. I seem to be seeing something quite different here:

http://research.stlouisfed.org/fred2/series/M2SL?cid=29

And, I'm amused you completely ignored the debt to gdp metric. Rather selective refutation, don't you think?

Blogger Serge_Tomiko November 21, 2012 2:28 PM  

"Of course it's well known that inflation favors debtors while deflaction favors creditors. You, like William Jennings Bryan, use the small time country farmer as an example, but the fact is that the biggest debtors are always big corporations, banks, and governments. That's why they favor inflationary policies."

Are you talking about human beings and human society? Because, I've got to tell you, it sure doesn't sound like it. Governments CANNOT BE DEBTORS. That alone, proves you're daft. If a sovereign can't create money, it is not a sovereign, period.

There has never been an advanced human society on earth without extensive money lending. It appears essential to an advanced economy and advanced human society.

You can certainly ponder an alternative, but you simply cannot have deflation and pervasive money lending at the same time. This can lead only to war, and is probably the #1 cause of war since civilization began.

"...So there's a limit to the growth rate of the gold (money) supply. This means that minor deflation will probably occur as long as the overal rate of goods production in the country exceeds the rate of gold production. Not good for debtors, but not catastrophic. "

Again, there is ZERO evidence to support your view. We in fact have the exact opposite, that deflation destabilizes society.

"You're not thinking things through. If gold is getting scarcer, and therefore the price of gold is going up, the necessary result is that more and more of these gold "hoarders" will begin selling. As they sell, the price of gold (and the value of money) will be driven down, mitigating overall deflation."

This is a prime example of how the libertarian mind functions. This is a purely theoretical exercise for this man. He has never studied this phenomenon in any detail, because well - the past doesn't matter. We're all rational, and I don't care what irrational things went on back before we had this religion of rationality.

There are so many examples of hording INCREASING during deflationary episodes, it's madness to suggest otherwise. And besides, you were given the best example: Rome after 232 AD. And the real secret to Charlemagne's success.

Anonymous Krul November 21, 2012 2:31 PM  

Not necessarily as this is the deflationary death spiral scenario.

No, it isn't. Serge attempted to show that hoarders hurt the economy, especially if there is a gold standard. He did not describe a "deflationary death spiral scenario".

The hoarders do not sell because there’s good reason to believe that gold will be worth much more in future.

They do sell as soon as it is worth their while to sell, which will be different for each person.

If every indicator you believed told you that gold would be up 10% next year would you sell what you have barring an emergency?

Suppose I have 11 gold coins of equal value, and I need (or want) some cash. I would have no problem selling 1 coin, since I know that by next year my remaining 10 coins will be just as valuable as my current 11, and worth even more after that.

It's true that deflation gives people a motive to save, just like inflation discourages saving, but this doesn't mean that it hurts the overall economy.

Anonymous VD November 21, 2012 2:42 PM  

Vox, are you blind? There is ZERO EVIDENCE of "money printing". There was no Keynsian anything going on in the 1970s, and the proof is in how the national debt remained stagnant while the economy grew.

You're just ridiculously stupid. I already showed you that the money supply grew faster in the 70s than in the 60s or the 80s. Now let's compare CPI:

1960s: 26.1 percent
1970s: 97.8 percent
1980s: 70.7 percent

So, the money supply grew faster. CPI grew faster. BECAUSE OF THE MONEY PRINTING, MORON.

Gee, that's funny. I seem to be seeing something quite different here:

As I said, you are a complete and utter moron. The chart to which you linked is a chart of the very Federal Reserve numbers I cited! If you click on your link, then click on View Data, what do you see for 1959-12-01? 297.8! What do you see for 1969-12-01? 587.9!

The problem isn't that you have no idea what you're talking about and can't even read a freaking chart. The problem is that you demonstrably have no idea what you're talking about and yet try to claim that you are some sort of master of the subject.

Anonymous JartStar November 21, 2012 2:45 PM  

Suppose I have 11 gold coins of equal value, and I need (or want) some cash. I would have no problem selling 1 coin, since I know that by next year my remaining 10 coins will be just as valuable as my current 11, and worth even more after that.

You are missing the point. Gold IS cash on a gold standard and by using any of it you are essentially taking a loss on the future returns in the deflationary scenario. You admit that your cash will be worth more in the future, so why would you part with any of it outside of necessity? If you wait another year you can buy that car, boat, house, iPad, cheaper than this year.

It's true that deflation gives people a motive to save, just like inflation discourages saving, but this doesn't mean that it hurts the overall economy.

So people spending less has no impact on the economy, or do you believe that people will ignore the incentive to save and spend freely even though you just stated that you'd take deflation into account when spending your 11 gold coins?

Anonymous Noah B. November 21, 2012 2:48 PM  

"Gee, that's funny. I seem to be seeing something quite different here:

http://research.stlouisfed.org/fred2/series/M2SL?cid=29"

That graph matches exactly what Vox said. Try learning some basic math first, then get back to us with your brilliant economic insights.

Anonymous VD November 21, 2012 2:57 PM  

And, I'm amused you completely ignored the debt to gdp metric. Rather selective refutation, don't you think?

Please. I knew right away that you screwed that pooch too... I maintain a quarterly Debt/GDP chart. It grew 1 percent in the 1950s. It grew a little less than 5 percent in the 1960s. It grew nearly 13 percent in the 1970s.

It is hilarious that you claim to know economic theory better than I do when you quite clearly don't even know the basic and easily verified facts.

Anonymous Krul November 21, 2012 3:01 PM  

Governments CANNOT BE DEBTORS.

See here and here.

There are so many examples of hording INCREASING during deflationary episodes, it's madness to suggest otherwise.

I know that deflation encourages saving, everyone does. However, I do not agree that saving hurts the economy. Vaguely referring to the Roman empire after 232 AD doesn't suffice to prove the point.

Also, here's the price of gold in the US from 1800 to 1900, at period when we were on a gold standard. The price wasn't driven ever upward to disasterous heights, as you can see.



Anonymous Dan in Texas (sitting in economics class, taking notes) November 21, 2012 3:05 PM  

One of the reasons I love reading this blog is it's oftentimes a better education than one can get in any school. You can read competing view points, ask questions and hard facts to back up what you say are demanded.

Now, going back to the farmer going broke do to deflation analogy used earlier. Could one say that if the monetary system were set up that way (gold standard described) then instead of borrowing the money in the first place, the farmer would be more inclined to save any profits from each year's crops to put towards funding buying more property to expand or more efficient equipment? If the farmer plans to expand/buy more equipment anyway, once he does so the gold/money he spends will then be put in circulation in the economy, thus balancing out the affect of his hoarding the gold/money for the past few years to attain it?

Anonymous VD November 21, 2012 3:08 PM  

Governments CANNOT BE DEBTORS. That alone, proves you're daft.

He's going to have a really tough time explaining those hundreds of government defaults over the last two centuries. And he claims we're the ones ignoring history.

Anonymous Krul November 21, 2012 3:14 PM  

Gold IS cash on a gold standard and by using any of it you are essentially taking a loss on the future returns in the deflationary scenario. You admit that your cash will be worth more in the future, so why would you part with any of it outside of necessity? If you wait another year you can buy that car, boat, house, iPad, cheaper than this year.

The flaw in your reasoning is plain here. A person who wants to buy that car, etc, is obviously not going to wait until after he's dead to buy it. He will wait a while if he's confident that the price will go down, sure, but he won't literally wait forever.

This is where the Austrian concept of time preference is useful. Deflation tends to lower time preferences (meaning that people are more willing than they otherwise would be to put off purchases), but it doesn't lower them infinitely.

So people spending less has no impact on the economy

Spending fewer coins than in an inflationary scenario, but if the value of the individual coins is greater then the amount of wealth expenditure is the same or higher.

I suggest you apply your assumptions to an inflationary situation. If there is inflation then, by your reasoning, no one would ever save, knowing that the as prices rise the money they save will lose its purchasing power. Now look at the world around you. There is inflation, and yet people are saving. Not as much as they would if there were deflation, true, but saving non the less.

Anonymous Noah B. November 21, 2012 3:17 PM  

Serge, I have to ask: do you really think you know what you're talking about, or are you just making this crap up as you go?

Anonymous Krul November 21, 2012 3:22 PM  

Could one say that if the monetary system were set up that way (gold standard described) then instead of borrowing the money in the first place, the farmer would be more inclined to save any profits from each year's crops to put towards funding buying more property to expand or more efficient equipment? If the farmer plans to expand/buy more equipment anyway, once he does so the gold/money he spends will then be put in circulation in the economy, thus balancing out the affect of his hoarding the gold/money for the past few years to attain it?

A good point. People sometimes forget that the only reason to save money is to use it in the future.

Anonymous JartStar November 21, 2012 3:38 PM  

The flaw in your reasoning is plain here. A person who wants to buy that car, etc, is obviously not going to wait until after he's dead to buy it. He will wait a while if he's confident that the price will go down, sure, but he won't literally wait forever.

Which is why I made the point of speaking of necessities, and the frame of reference here is 1) a deflationary cycle 2) deflation at 10%. I understand Austrian time preference in regards to money. Small amounts of inflation or deflation has minimal effects on the economy in the short term, but it does affect it. To claim that deflation (or inflation) would have no effect is simply untrue.

Anonymous Krul November 21, 2012 3:50 PM  

Which is why I made the point of speaking of necessities, and the frame of reference here is 1) a deflationary cycle 2) deflation at 10%. I understand Austrian time preference in regards to money. Small amounts of inflation or deflation has minimal effects on the economy in the short term, but it does affect it. To claim that deflation (or inflation) would have no effect is simply untrue.

I don't know what a "deflationary cycle" is, nor have I suggested that deflation has no effect on the economy.

I suspect we're talking past each other, since I'm still thinking in terms of Serge's original argument, as I understand it:

-Hoarding leads to deflation,
-Deflation is bad for debtors,
-Therefore, "Hoarding money does harm others, particularly when gold is the standard."

Blogger Serge_Tomiko November 21, 2012 4:28 PM  

Krul:

The function of the US debt is NOT borrowing. It has nothing to do with borrowing. The government can at any time create money to pay existing liabilities. Every government in history has done this. You simply don't understand what the function of the national debt is.

Noah: We've tangled before. I actually think quite a bit about it. I've already cited a few fundamental books on the subject, what have you got to offer?

And VoxDay - I've got to tell you, your puerile responses indicate to me your young, or at least immature. Do you have any serious economists who support you? No. Have any of them made any accurate predictions about anything substantive? No. Can you explain why we have not had meaningful inflation despite trillions of dollars supposedly being "printed"? No. So please, dispense with the insults. Whether you can grasp it or not, I'm trying to help you here. Show a little gratitude, as the rest of your fan club here is not really up to the task of providing a meaningful challenge to your woefully insufficient delving into economics.

In any event. Yes, I was wrong about the timing of expansion - but the inflation of the 1970s was not due to any Keynesian policies. For the American Empire to function, there had to be enough money available around the world for other sovereigns to purchase dollars to acquire treasury debt. The money that was created after Bretton Woods did NOT end up in the general economy. I have given you the major book on this topic. Why won't you read it? Have you considered the possibility that I do not possess the skills to summarize the arguments of an 800 page book in a paragraph?

Most people who throw around the word "moron" however can scarcely read anything more substantive than Atlas Shrugged. I do hope you're up to the task of reading a real economics text.

Blogger Serge_Tomiko November 21, 2012 4:35 PM  

"He's going to have a really tough time explaining those hundreds of government defaults over the last two centuries. And he claims we're the ones ignoring history."

Tell us about how Argentina and Iceland were ruined by "default". Tell us how the repo man came and took their countries away from their people. Tell us how they were starving on the streets.

More importantly however, AGAIN - you do not understand the function of the national debt. America is completely different than other countries because of our domination of the world economy.

You simply cannot understand how the US economy works until you grasp the fact that the National Debt is essential to the functioning of our economy.

If you read Super Imperialism, you'd get a clue. But you don't really want to listen to anyone else, do you?

Anonymous Krul November 21, 2012 4:36 PM  

You simply don't understand what the function of the national debt is.

Then what, pray tell, is it?

Blogger Serge_Tomiko November 21, 2012 4:47 PM  

Oh and VD:

My research indicates:

National Debt
1940: 42.97 billion
1950: 256.9 bilion
1960: 290.5 billion
1970: 380.9 billion
1980: 909 billion
1990: 3,206 billion

GDP in billions
1940: 96.8
1950: 281.7
1960: 523.9
1970: 1013
1980: 2,724
1990: 5,735

Gross Debt as %of GDP
1940: 44.4%
1950: 91%
1960: 55%
1970: 36%
1980: 33%
1990: 56%

Where are YOU getting your data?

http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

http://www.bea.gov/national/index.htm#gdp

Blogger Serge_Tomiko November 21, 2012 4:49 PM  

And don't forget to tell us how that massive increase in deficit spending between 1940 and 1950 resulted in evil inflation and economic collapse.

Blogger Serge_Tomiko November 21, 2012 4:54 PM  

Krul:

Again, I would recommend Super Imperialism to understand it in the American context.

Sovereign debt is about changing the terms of money. It's about changing the flows of money in the economy. It's more complicated with the US, but in general that's the purpose.

Why do you think we have 90-day paper? Do you really think the US government, with the most military in the world, needs to take out a loan for 90 days?

It is very hard for people to wrap their heads around this, but it is essential to understanding how the American economy functions. And more importantly, to understanding how the present recession is economic warfare.

The reality is the American Empire is so powerful and so effective that we control more of global trade than ever before. Every white man in America could be unemployed, and we would still be able to siphon huge amounts of money out of the global economy.

The dangerous error in the Vox Day way of thinking is believing that you hard workers are getting screwed and it will have to Go Galt someday.

It's fantasy, at least in the US. By the time the American Empire collapses, Whites will be a minority and will be completely pussified and unable to defend themselves.

The first step to finding a way of avoiding that scenario is having more people understand how our financial system works. And you can't do that until you really look into how and why sovereign debt works.

Anonymous VD November 21, 2012 4:59 PM  

Where are YOU getting your data?

From the Federal Reserve, you stupid twit. Because you're just another idiot Neo-Keynesian, you don't realize that the government debt isn't the only debt that matters to the economy. You come in here babbling stuff I learned in my teens and then demonstrate that you have no clue at all what is going on.

Do you have any serious economists who support you? No. Have any of them made any accurate predictions about anything substantive? No. Can you explain why we have not had meaningful inflation despite trillions of dollars supposedly being "printed"? No. So please, dispense with the insults. Whether you can grasp it or not, I'm trying to help you here. Show a little gratitude, as the rest of your fan club here is not really up to the task of providing a meaningful challenge to your woefully insufficient delving into economics.

I've made the predictions, dimwit. I was the one who was correct, not any of the "serious" economists with the except of Steve Keen and a handful of others. And yes, I certainly can explain why we have not had meaningful inflation despite trillions of dollars supposedly being "printed" because I PREDICTED THAT IN THE ECONOMICS TEXT I published BACK IN 2009!

Blogger Serge_Tomiko November 21, 2012 5:19 PM  

"From the Federal Reserve, you stupid twit. Because you're just another idiot Neo-Keynesian, you don't realize that the government debt isn't the only debt that matters to the economy. You come in here babbling stuff I learned in my teens and then demonstrate that you have no clue at all what is going on."

Who said sovereign debt is the only thing that matters to the economy?

The essence of Keynes is the government must increase the rate of money creation (and create it without interest - i.e. deficit spending) for the economy to improve. Private debt is irrelevant, it has nothing to do with how the Sovereign manages the money supply.

If there was such tremendous deficit spending in the 1970s, why was the national debt flat for the entire period?

I don't care what the M2 statistic is. I want you to explain to me precisely how the money supply was increased in the 1970s. Clearly, it was not through the issuance of new sovereign debt.

"And yes, I certainly can explain why we have not had meaningful inflation despite trillions of dollars supposedly being "printed" because I PREDICTED THAT IN THE ECONOMICS TEXT I published BACK IN 2009!"

Then do so. I'm not going to buy your book. You're not an economist. Someone fed you your ideas. Tell me who, or give me a meaningful book.

Anonymous Noah B. November 21, 2012 5:34 PM  

"what have you got to offer?"

Basic math skills, reading comprehension, and honesty, which puts me light years ahead of you.

"America is completely different than other countries because of our domination of the world economy."

So you're saying this time is different?

"Every white man in America could be unemployed, and we would still be able to siphon huge amounts of money out of the global economy."

Complete and utter bullshit. You are unbelievably clueless.

"And VoxDay - I've got to tell you, your puerile responses indicate to me your young, or at least immature. Do you have any serious economists who support you? No. Have any of them made any accurate predictions about anything substantive? No. Can you explain why we have not had meaningful inflation despite trillions of dollars supposedly being "printed"? No. So please, dispense with the insults. Whether you can grasp it or not, I'm trying to help you here. Show a little gratitude, as the rest of your fan club here is not really up to the task of providing a meaningful challenge to your woefully insufficient delving into economics."

You know who else didn't initially have any support from other prominent members of their field? Basically every trailblazing scientist, inventor, or philosopher who ever lived. An original idea is by definition not a popular one, and without original ideas, there is no progress. But keep trying. The law of probability dictates that you'll eventually say something intelligent.

Anonymous Northern Hamlet November 21, 2012 5:37 PM  

Vox, please

You don't need the quotes around the entirety of Krugman's words as they are block quoted already and this is sufficient enough.

Anonymous Noah B. November 21, 2012 5:43 PM  

"If there was such tremendous deficit spending in the 1970s, why was the national debt flat for the entire period?"

It wasn't flat. Not even close.
http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm

Again, you're shockingly clueless.

Anonymous VD November 21, 2012 5:43 PM  

The essence of Keynes is the government must increase the rate of money creation (and create it without interest - i.e. deficit spending) for the economy to improve. Private debt is irrelevant, it has nothing to do with how the Sovereign manages the money supply.

Yes, I know Keynes said private debt is irrelevant. I point this out to people on a regular basis. The point is that KEYNES WAS WRONG.

Then do so. I'm not going to buy your book. You're not an economist. Someone fed you your ideas. Tell me who, or give me a meaningful book.

No one fed me anything. Now go away. I can tolerate stupid, but I won't tolerate stupid and obnoxious.

Anonymous VD November 21, 2012 5:44 PM  

You don't need the quotes around the entirety of Krugman's words as they are block quoted already and this is sufficient enough.

It's for the RSS readers. They can't see the block quoting.

Anonymous Noah B. November 21, 2012 5:48 PM  

If you need help reading the chart, just ask.

Anonymous Northern Hamlet November 21, 2012 6:00 PM  

It's for the RSS readers. They can't see the block quoting.

apologies.

Anonymous Simon Grey November 21, 2012 6:23 PM  

Vox, it seems to me that Krugman's analogy is simply wrong/irrelevant. The coop is not a good point of comparison because the babysitting certificates were backed by real goods (well, technically services). The co-op isn't trading currency, it's trading services, with the certificates representing services. However, unlike most currencies, the certificates are remarkably illiquid in that certificates can only be traded among certain people for a specific good. They cannot be traded for other goods (at least as I understand the system; allowing certs to be sold would undermine the purpose of the system, since the system was implemented so people did not have to pay cash or other goods for sitters).

Increasing the number of certs is technically credit inflation, not monetary inflation, which renders Krugman's comparison invalid, because ultimately the certs are redeemable at one-to-one ratio for services. If it were monetary inflation (i.e. the number of certs increased while the number of potential baby-sitting service provisions remain the same), then the nominal price of baby-sitting, measured in certs, would likely increase.

Another way in which Krugman's conclusion is invalid is that it takes assumes that monetary inflation in a mixed economy (here referring to an economy where both goods are produced and services are rendered) will have the same effect as credit inflation in an exclusively service economy.

Additionally, it would be helpful to know whatever became of the coop and its credit expansion. I wonder if the cert's general illiquidity could be compensated for by inflation. My gut tells me no, and I suspect that a better model for this sort of thing would be the bond market.

Anonymous zen0 November 21, 2012 6:43 PM  

I may be wrong, but I have a sneaking suspicion that our latest economics expert, Serge, thinks that the Chicago Monetarists are Libertarians.

Blogger Rahul November 21, 2012 6:59 PM  

"You're just ridiculously stupid. I already showed you that the money supply grew faster in the 70s than in the 60s or the 80s. Now let's compare CPI:

1960s: 26.1 percent
1970s: 97.8 percent
1980s: 70.7 percent

So, the money supply grew faster. CPI grew faster. BECAUSE OF THE MONEY PRINTING, MORON."

Vox,

Wasn't the inflation in the 70's caused by Regulation Q as well. That's what I've read in quite a few publications/articles. Obviously, Arthur Burns printed a lot of money.

Anonymous scoobius dubious November 21, 2012 9:59 PM  

"it seems to me that Krugman's analogy is simply wrong/irrelevant. The coop is not a good point of comparison because the babysitting certificates were backed by real goods (well, technically services)."

Yes, but there's an even more fundamental reason. The baby-sitting co-op analogy is prima facie wrong and irrelevant because of selection bias: the people who participate in a baby-sitting co-op are people who a) have babies, and b) are smart enough, and care enough about their babies to c) participate in a baby-sitting co-op. This does not describe the entire set of society which participates in an economy, it only describes a small subset of people with particular cares and skills. The baby-sitting co-op is not analogous to an economy or a nation or a state, it is analogous to say, a book-lending co-op.

WHY DOES ANYONE PAY ANY ATTENTION TO ANYTHING KRUGMAN SAYS?

VD, please tell me you're not going to spend even more of your time dissecting the rest of this idiot's stuff. Do something more useful and fun, build a pond for box turtles to hang out in or something. Or like Dickens once said, if you take sixty pound notes and tear them into shreds and throw them into the Thames, well at least you know what happened to them.

Anonymous David of One November 21, 2012 10:01 PM  

Twinkie Economics History - Krugman style

I bet he thinks he's pretty clever ... I also bet his cat knows better:

http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html

A critical review of Krug's column:

http://dailycaller.com/2012/11/21/krugmans-twinkie-defense/

Anonymous scoobius dubious November 21, 2012 10:17 PM  

Gawd, I can't stand it. The cover of his book (at least as reproduced in the earlier post) says that he is "Winner of the Nobel Prize in Economics". They can't even get that right: he was the _recipient_ of the prize, he didn't "win" it. What, was he in a lottery or a foot race or something? He was _awarded_ the prize, he didn't arm-wrestle for it. You say things like "Academy Award winner" in showbiz, because, well, it's showbiz. I suppose you could argue that he's trying to sell books, but really. What sort of audience, etc etc.

It's kind of like using art as political propaganda -- do you really want the people who were persuaded by a comic book to be on your side?

Anonymous zen0 November 21, 2012 10:28 PM  

VD, please tell me you're not going to spend even more of your time dissecting the rest of this idiot's stuff.

I am sure your pleas will go unheeded. He does not care what you think, and he has fourteen more sections earmarked.

Maybe YOU should take up a different hobby for awhile.

Blogger Michael November 21, 2012 10:46 PM  

In the future can we use the Serge_Tomiko episode as proof of how tolerant and longsuffering VD is toward anklebiters?

Blogger Rahul November 21, 2012 11:20 PM  

"The M2 money supply increase in the 1970s was the result of people taking on more debt to pay for the rising cost of imported goods and raw materials. This created demand for more money in order to pay the interest on all that M2 money expansion."

Woah. Let's get this straight. Inflation is always a monetary phenomenon. Thus, the Fed created the money out of thing air + you had fractional reserve banking.

Let's look at basic economics. The dollar plummeted in the 70's. So, basic economics tells you that the supply of money artificially increased via the Fed + the demand decreased. Thus, the DXY index fell, and prices went up. TOo many dollars chasing a few amount of goods is inflation.

Anonymous scoobius dubious November 21, 2012 11:57 PM  

"Maybe YOU should take up a different hobby for awhile."

Nah, I reckon I'll stick around and blather, simply to irritate you.

I like to annoy assholes.




Anonymous Noah B. November 22, 2012 12:03 AM  

OT -- new home construction and sales are rising, which is why interest rates are at a new all time low.

http://www.latimes.com/business/money/la-fi-mo-mortgage-rates-20121121,0,696811.story

Anonymous zen0 November 22, 2012 12:41 AM  

I like to annoy assholes.

Don't get your panties in a wad, I was just informing you of what to expect. I don't mind your blather, some is very entertaining.

Anonymous zen0 November 22, 2012 12:50 AM  

In the future can we use the Serge_Tomiko episode as proof of how tolerant and longsuffering VD is toward anklebiters?

I would suggest that it is more of an example of how to deal with gasconading posers.

Besides that, the guy referenced Super Imperialism by Michael Hudson, who regards the Chicago Monetarists as Libertarians, so I suggested he might also believe that, and he denied it and offered a link to a blog by a guy that thinks the Central Bank should actually employ all the unemployed people so that there is full employment.

I think the Mayan calendar thing may have something to do with it, because the loonies are coming on strong like zombies on crack.

Anonymous Roundtine November 22, 2012 1:05 AM  

Vox, I wanted to see the Z.1 data you commented on. I couldn't find the same flat growth since 2008 from the St. Louis Fed data points. Where was the data you saw?

I think the data he's talking about can be seen here: L.1 Credit Market Debt Outstanding 1

Anonymous map November 22, 2012 5:37 AM  

Hmmm....does this means that the Fed should give money directly to anyone who wants to borrow at the bank rates, bypassing the commercial banks completely.

This way banks can't hoard money and earn on vig on loans to individuals.

Anonymous scoobius dubious November 22, 2012 7:10 AM  

"I don't mind your blather, some is very entertaining."

True Fact About the Value of Blather: One time when I was younger, without my realizing it while it was actually happening, I wound up saving the lives of eight people, because I insisted on being annoying. I found myself in a situation where I felt it was obligatory to be an exasperating prick, and as a peculiar side result a bunch of people were not killed -- or to speak more accurately, they were not murdered. The story is extremely weird, and I'll only tell it over drinks, not on the internet. So if we two have a chance to do a shot some time, I'll have something pretty entertaining for you. If I do no other good deeds from now til doomsday, well I've still got that one in my back pocket. Blather is useful. Well, sometimes. Ask Flann O'Brien about it.


Blogger Nate November 22, 2012 10:29 AM  

"Then do so. I'm not going to buy your book. You're not an economist. Someone fed you your ideas. Tell me who, or give me a meaningful book. "

You mongoloid... Return of the Great Depression is used as a text book in university economics classes.

Anonymous Roundtine November 22, 2012 10:59 AM  

I guess he has never heard of a bibliography.

Anonymous dh November 22, 2012 10:58 PM  

> Return of the Great Depression is used as a text book in university economics classes.

Can this be true? That would be really interesting.

Anonymous TheExpat November 24, 2012 11:44 PM  

"The overall level of debt makes no difference... one person's liability is another person's asset." - Paul Krugman

Ask Krugman if he will lend you a million dollars. Doesn't matter what for, just ask if he will lend it to you. After all, debt doesn't matter, and you are just giving him the opportunity to gain an asset (your liability). If he says yes, take the million and then ask for more. In fact, take whatever he is willing to lend you. If he says no, he proves himself a liar and a fraud.

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