Krugman on newsnight

[Vympel]

Schooling conservatives about the austerity farce

[Blayne]

I wish he would've gone into why the Estonian economy didn't fit the picture but I guess they just ran out of time.

25 years in finance and she believes that the resource allocation between the private and public sectors of the economy is a zero-sum game really? How can they be competing for the same resources when you have globalization?

[UnderAGreySky]

"25 years in finance"

Maybe that's why. Under normal circumstances, finance and economics seem to be fairly similar, with less variables to deal with. Most recessions, too. But recessions like *this* one, you're screwed if you don't have the theoretical backing. My analogy is: Any driver can tell what a car will do on the road in good weather; you need physics to explain why you should turn *into* the spin on icy roads.

There was a Tory hit-piece in the Telegraph the other day that called Krugman "the devil" and similar stuff, it was telling that it was completely devoid of figures and the only other article it referenced - by Raghuram Rajan - has been slammed for being devoid of figures too. (Rajan claimed New York is doing well and Vegas is not so the problems are structural - it was pointed out that NY has an unemployment rate of > 8% and that less than 10% of the states in the US have anything resembling full employment)

[Keevan_Colton]

So, of the business man, the politician and the nobel prize winner...who do you listen to?

[Surlethe]

The Nobel Prize winner. (Unless it's Milton Friedman.)

[UnderAGreySky]

Even Friedman the economist wasn't bad. He advocated much more aggressive monetary policy from the Bank of Japan, something that puts him to the left of Ben Bernanke. The less said about his Libertarian ideology the better, though.

Also, Krugman's Nobel doesn't bring much to the table at least for combating recessions since the work was on International Trade. His - and even Bernanke 1.0's work on Japan and the zero bound, though, counts.

[Blayne]

Krugmen did seem to massively mess up in analyzing China's economic boom in 1996 though. (Adam Smith in Beijing, awesome read so far)

[madd0ct0r]

is there a non bbc version anywhere? (usual disclaimer re commie gov censorship)

[Pendleton]

is there a non bbc version anywhere? (usual disclaimer re commie gov censorship)

Ta dah.

[madd0ct0r]

cheers (it starts at 26min for those using the link)

it is interesting how ideological the tories were.

'Not following Austerity is immoral' - from a venture capitalist.
'Zero-sum economy in a depression' - from someone with 25years in finance.

Bint - 'Efforts to reduce corporation taxes, make start ups easier, 'make it easier' for banks to lend to SMEs are going to have more impact then borrowing money to create jobs;
Krugman ' No.'

as for estonia - they've stalled:

http://macromattersblog.blogspot.com/20 ... jewel.html

[Blayne]

Actually I think they've even tried their best to avoid even admiting that there's even a depression.

[PeZook]

All that said, this debate was surprisingly civil and calm.

[madd0ct0r]

it felt more like a tutoring session with a patient teacher.

[Keevan_Colton]

All that said, this debate was surprisingly civil and calm.

I think that's in large part due to it being the BBC and more particularly Paxman hosting it. He's considered something of a nightmare at times by politicians over here and they try not to let him have an excuse to tear into them.

[KrauserKrauser]

Keynesians are by definition.never wrong. They always have an out of saying that the stimulus was.not enough. Krugman is a believer in the broken window.fallacy and wants wars to boost GDP. He is a destructive fool.

Obama has a Nobel Peace Prize. Yeah I defimitely see the reason for attributing tons of relevance to recent Nobel prize winners.

Austrians deal with reality, keynesians just want to keep giving the deug addicts more.hard drugs.

[Blayne]

What.

Are you for real? Seriously no trolling? I just want to make sure before responding.

[Block]

What.

Are you for real? Seriously no trolling? I just want to make sure before responding.

He's 100% serious.

[Blayne]

Alright well by no means am I an expect but I've seen a lot of people post on this subject on varying forums so I'll give the quick rundown firstly:

Two Rap video's about Keynes vs Hayek: Fear the Boom and Bust and Fight of the Century

I like these videos and assuming them largely accurate for a time I was won over by Hayek and to an extant still am; but I differ wildly from current Austrians in how I would implement Austrian policies, for example I would advocate still having a bailout, but for private debt and let the institutions fail and be nationalized while demand is still stimulated.

Point is I've looked at both sides of the issue and here's the facts;

1) Academic "Keynesian" for whatever that means because economics is a wide and diverse field and no macroeconomist is purely "Keynesian" anymore.

In fact I would suggest reading: http://www.amazon.com/Keynes-Hayek-Defi ... 0393077489 It looked good I didn't fully read it myself I skimmed a bit, I had opted to take out "Adam Smith in Beijing" instead, I'll get back to it in a few weeks.

2) You mistake the sequence of events, Krugman upon seeing the Obama Jobs Act actually said "while a step in the right direction doesn't go far enough" before its passage, meaning "Keynesians" (I'm going to put this in "quotes" from now on just to highlight the fact it isn't an accurate term) were actually highly critical of current efforts prior to their passage, so the recovery not happening isn't simply a matter of it not going far enough, but also frankly a vindication of them saying before the bills even passed that the bills did not go far enough and weren't likely to work.

3) Modern "Keynesians" aren't much into "government spending=good" or "C+I+G+NX 'all together' equal Y" anymore but more into monetary policy in which "Keynesians" actually suggest that inflation should be allowed to float a few % to encourage investment by the "job creators" because right now the United States is within a liquidity trap where billions are stuck in the banks collecting interest and being gambled down the drain and not contributing to society.

4) "Keynesians" don't advocate the broken window fallacy nor do they advocate aggressive wars to "stimulate" the economy, universally all "Keynesians" would agree that this is actually economically impossible because no third world war curbstomp would successfully mobilize a sufficient portion of the economy and of untapped labour/resources to get the economy going again. You would need a total war and that is just impossible. Illuminati NWO tinfoil hat wearing crazies notwithstanding.

4.5) The "Keynesian" association with the broken window fallacy is not that they believe that there should be increased war spending, only that because they recognized that virtually any heavy government spending in infrastructure, even in armaments can be a stimulating influence on the economy and result in the ending of the recession; historical evidence backs this up.

Historically for example, Japan instituted "Keynesians" policies and exited its 1920's depression in record time, as did the United States entry into WWII these are historical and successful examples of where heavy government spending successfully allowed the country to exit depression. However "Keynesians" don't advocate war or even heavy armaments spending per se, but largely advocate infrastructure investment that returns a 20% profit on every dollar invested.

5) "Keynesianism" again not a real term but for the sake of discussion..... What they *do* advocate is that when in a depression/recession the government by being a market force in of themselves should use monetary policy and government stimulous spending to "spark" the economy into growing again by stimulating aggregate demand. This is extremely simplistic and should not be taken as 100% true I've learned my lesson from the history thread.

6) Academic "Keynesians" and "Politicians" are not the same, in fact there's very little link between them, academically "Keynesians" would prefer that once the economy is growing again that we then raise taxes and return to sound fiscal responsibility so we can be in an economic position to ease the economy through the NEXT recession, because "Keynesianism" isn't about preventing or causing recessions/depressions/booms but to EASE them to be significantly less "steep" and traumatic of a swing.

Right now bubbles due to deregulation grow uncontrollable and once they pop the economy crashes catastrophically, arguably we're not even really started the crash from the 2008 housing bubble see below Youtube link:

Source: http://www.youtube.com/watch?v=XnXZzx9pAmQ This dude, its like 2 hours though of fairly apolitical lecture though he veers a little too far into relatively inoculous Libertarian terminology for my liking.

So yeah the bubbles are too steep and the resulting crash too sudden a drop, so macroeconomicists like to so called "Keynesians" want and believe the government serves a role to pop the bubbles earlier and be less egregiously steep while also by spending money getting the economy out of the bubble quickly and smoothely as possible, while still returning to fiscal responsibility once the economy is growing again.

7) Hence the problem, politicians don't like raising taxes or making the hard decisions like they do in China where they pulled off "Keynesian" policies with rather spectacular success. So taxes stay low and institutions become complacent and get vulnerable to regulatory capture by lobbyists. What happened here is that billions of dollars were given to various financial firms because their "collapse" would've wiped out hundreds of billions from the economy completely; banks do not leave behind infrastructure, right now most of the money supply is created via fiat and through loans that gets gambled in derivitive markets.

Since these firms due to deregulation are "too big to fail" they get bailed out instead of nationalized and since many of these firms are insolvent they are like in Japan "zombie" firms so we're just prolonging the problem, this isn't "Keynesianism" that Krugman would advocate but State Crony Capitalism pure and simple.

8) The nobel prize Obama got for not being Bush is nothing like Krugman's Nobel Prize that recognized his substantial contributions to the field of macroecononics, aka he "left something behind" while Obama largely got a glorified perfect attendance award.

9) While I said I like various parts of Austrian economics it actually has been largely discredited in academia, it makes assumptions to fit the data and just shrugs its shoulders whenever it can't answer a question. Austrians as they are today would let the economy collapse and allow millions dead by famine and evictions. As well as make the boom and bust cycles WORSE because they would reinstitute the gold standard which causes deflation and deflation has always resulted in a recession; prior to the creation of the Fed you had a boom and bust every few years and it sucked.

Countries who abandoned the gold standard entirely could directly trace their recovery to how early they did so, China having a silver standard avoided depression/recession entirely.

I hope this helps.

[Gandalf]

Two Rap video's about Keynes vs Hayek: Fear the Boom and Bust and Fight of the Century

I like these videos and assuming them largely accurate for a time I was won over by Hayek and to an extant still am; but I differ wildly from current Austrians in how I would implement Austrian policies, for example I would advocate still having a bailout, but for private debt and let the institutions fail and be nationalized while demand is still stimulated.

Bear in mind that the videos were made by two Hayekians (?), and as such Hayek always won the argument. Econstories addresses this in one of the videos posted.

[Blayne]

I know but they are actually kinda too honest with the material and by carefully watching it you can actually see the holes in Hayeks arguments such as when he essentially admits to not having a solution to relieve the crisis and get jobs growing again. It takes careful viewing and a half decent understanding of the arguments being made but the video isn't entirely partisan, they said it themselves they intended to give Keynes a fair chance to make his argument, and I think they actually succeeded too well, irony!

[KrauserKrauser]

Any analysis of the increased government spending in WW2 is of course ignoring the MASSIVE AUSTERITY that was imposed on the entire.US population.

This, along with the destruction of the European industrial basis allowed us to rebound fiercly, of course this led to.drastic inflation once.everyone.started spwnsing their savings but savings are an abomination to Bernanke and Krugman.

War production.is not conducive to capital.creation. It is by its very nature meant for capital destruction.
Advocating.war.spending is.just asinine.

I'll.respond.further once I'm off my phone. I agree with many of your points, including the approach to 2008 crisis.

[KrauserKrauser]

Also Krugman is on record as recommendig the creation of a bubble in real estate to.counteract the internet bubble popping. The man is dangerous and should be ridiculed.for his horrible advice.

[madd0ct0r]

do you want to discuss the British problem in the origional post?

Because from where I'm sitting - the Con-Dem policies of 'Austerity for the everyone else!' - 'eliminate goverment services, except in our areas!' ect. have failed.

Massively failed. A douple dip recession that they won't even admit to.

America initally followed with austerity, and seeing it not working eased back a little and spent a little more. Cameron's cronies have too much pride invested for that.

if their policy's are good, why is Britian languishing so badly?

[Lord Zentei]

How serious have these austerity measures been, really? I see a lot of hype about them, but not much in the way of substance.

Besides which, your characterization of their policies as "'Austerity for the everyone else!' - 'eliminate goverment services, except in our areas!'" doesn't seem to imply that you agree that they have been very austere in actual point of fact.

[Surlethe]

Has the inflation target been high enough to counteract the contractionary effects of austerity? (Remember that unchecked austerity causes and fiscal stimulus causes inflation.)