The Paul Krugman Thread

Well, that's really depressing. Pretty much the only solution I can see is getting deficit hawks out of government — or at least, reduced to the point where they can be overridden by the majority (or supermajority, if they continue to play with filibuster shenanigans). Obama doesn't have enough political capital to make a run on that issue before his term is up, so it'll probably come down to the next president and whatever Congress he ends up with. I could see a Democratic candidate doing well on a "reinvest in America" platform — more money into infrastructure, education, and social programs to both reduce unemployment and pave the way for better economic opportunity in the future. Of course, they'd have to have a Congress that was on board as well, which is possible if Democrats pick up more seats in the next few elections... but it is, ultimately, a longshot, I think.

Which goes back to "well, that's really depressing".

...and you've got to have the voters on board, which makes it an even longer shot.

2014 and 2016 are key: in 2014 we can undo the damage done by successive waves of Republican governors in the states, and in 2016 we can undo the damage the 2010 Tea Party wave did to the Senate. Bring in a Democratic House and President in 2016, and we might have something.

&Why is it a longshot, exactly? I mean, yeah, sure, it won't be easy, but "not easy" and "too hard" are not the same thing.

So, we need to convince voters that the deficit hawks are wrong and that the debt isn't really all that big of an issue, at least for us. Certainly, doing so takes a lot of work, but so do all good political movements. To be frank, I don't see any "oh shit, this is impossible"-level problems here. And that, combined with our interest in the economy taking as little damage as possible, means that quite frankly, we shouldn't throw in the towel on this.

edited 9th Nov '13 4:10:19 PM by MysteryMan23

"Long shot" doesn't mean impossible — just means difficult, like you're saying. Personally, the big reason why I think it's unlikely is because I don't have a whole lot of faith in the Democratic party to gain that much ground for that long, especially in the House, where individual deeply-red districts can get hijacked by Tea Party nutbars and screw the rest of us. Remember, unless the Tea Party suddenly dries up and blows away, we're talking about the Democrats needing the Presidency and a not just a majority, but a supermajority in both Houses. That's... unlikely.

I'd like to see Krugman's thoughts on this.

I don't know what Krugman thinks of them, but there's no value or purpose in trying to supplant the dollar. He's been extremely critical of bitcoin in the past.

What opinion does Krugman have the psychology of Economics, Economies and Economists?

I'll get right on the phone and ask him now. Hang on a tick.

Fighteer, you don't have to pretend you aren't Krugman with us. We know.

Ahhh how I long for the days when people said *I* was Paul Krugman. But I've been kind of absent from these threads lately.

So, I wanted the opportunity to comment on this post by Fighteer, who, for reasons known to himself, chose to put it over in the General Economics thread.

Briefly, Krugman discusses a report by Larry Summers that says our economy has been stagnant since the 1980's, that the only source of growth since then have been bubbles, and that in a situation like this spending is all that matters. Saving money or reducing debt is counter-productive.

I would only like to make a distinction between personal and public spending/debt. When households borrow and spend beyond their means, they have to pay it back eventually, and this leads to a consumer crisis like the recent mortgage-default debacle. When the govt borrows and spends, there are all sorts of tools for dealing with the effects of the resulting debt. The Fed govt really cant go bankrupt. So I would still encourage private savings as part of intelligent financial planning.

The moral is that private saving is counterproductive on a societal basis in a condition of secular stagnation, but individuals still need to save for their own financial needs. To resolve this paradox, the government needs to provide fiscal support, which can come in the form of minimum wage increases, "negative taxation" and income support programs, jobs programs, debt relief, currency devaluation to increase the nation's trade balance, etc.

I actually dont agree. I mean about the idea that private saving is counterproductive, not the desirability of the programs you listed. An economy consists in large part of private, and what's bad for them will ultimately be bad for the economy itself. In this case, private households engage in certain forms of investment (mortgages, car payments, college tuition funds) which are good for both the household and the economy. But this happens only to the extent that the head of the household possesses a sense of future financial stability, which can only come from control over their own resources in an economic environment that promises predictability.

It's a bugbear of mine- the Neocons in the Bush regime used to push private consumer spending as a way to prop up their under-regulated economy, and in part I feel that helped lead us to the troubles we have today.

The issue there isn't the ratio of saving vs. spending necessarily, but the problem of taking on private debt in order to sustain consumer spending. The Bush-era bubble (and indeed the consumer economy in general since 1985) was marked not by rapidly increasing incomes or by inflation, but by rapidly increasing levels of consumer debt. This should have been a red flag that we were ripe for crisis, but it was ignored by everyone in the administration.

Debt is negative savings. While it's counterproductive for the economy for consumers to prefer saving over spending, it is worse when you're saving negative dollars, as consumers (unlike sovereign nations that issue their own currency) are balance sheet constrained. Some degree of debt is good, because it acts as a fiscal multiplier, but only up to the point where consumers aren't hamstrung by the service on that debt.

edited 19th Nov '13 7:05:01 AM by Fighteer

I agree with all that, and I feel that Krugman didnt clarify that aspect of it enough (and Larry Summers in the original report ignored it entirely). So I just wanted to add my personal caveats for discussion.

I'd suppose that's just a case of limited column space. Krugman says a lot of stuff and recapping it all is more properly the subject of a published book than a weekly column or a daily blog. He's hammered on the consumer debt issue in the past.

The thing is: right now we need consumer spending, period. If there were some way to lower debt service rates and increase credit availability to encourage more spending, we should be using it. It would be better to forgive a portion of consumer debt; it would be better to engage in direct stimulus. But we don't throw away a viable tool just because we think there's a better one elsewhere; that's the Perfect Solution Fallacy.

edited 19th Nov '13 8:20:53 AM by Fighteer

The only real obstacle to this "perfect" solution is less than half a dozen members of the US House of Representatives.

And a White House advisory staff that whispers monetarist policy advice into their President's ear at night because they are inside the Washington VSP information bubble. And a filibuster-capable minority in the Senate. And a Supreme Court that leans conservative. And a public trained to believe that "debt is bad" even by the so-called liberal media.

edited 19th Nov '13 8:28:15 AM by Fighteer

Nonsense- if you cant sell giving the public free money, then you have more problems than who happens to be on the Supreme Court.

Obama couldn't sell it in 2009. So clearly those "problems" exist, and in copious amounts.

edited 19th Nov '13 10:01:17 AM by Fighteer

It's my position that those problems originate in the personality of the President himself.

I'm not arguing there, but the alternative would have been far worse. What can you do but press on?

And probably in the core personality of the USA itself, with the emphasis on individualism and the "frontier spirit".

edited 19th Nov '13 1:43:42 PM by Greenmantle

Yes, that is a major problem, mitigated by demographic shifts only very slowly.