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 About two months ago economists Paul Krugman and Steve Keen got in a very public, somewhat unpleasant, and very unusual, online spat.
   It is worth noting that not only did Krugman not win the debate, he was pretty convincingly defeated. Businessinsider, which didn't have a dog in this race, explained it as thus:

 Ultimately, Krugman does not come off as persuasive in this fight, writing that continuing to respond is "wasting [his] time,"

   The points of dispute probably went over the heads of most people, and thus the debate was probably ignored by most people, but the fact the debate happened at all is very significant. Why? Because this wasn't a left-right debate that we see in Washington. This was a debate that displays just how extreme the discussion of economics has drifted in today's world.

 So who is Steve Keen? He's an Austrialian economist, author and a disciple of John Keynes and Hyman Minsky.

 Nouriel Roubini appears to be the most commonly recognized by (virtually all) the main sources I've seen. Yet, economists chose Australian Professor Steve Keen over Roubini for the Revere Award (outvoted by more than a 2 to 1 margin - details below) for publicly warning of the Global Financial Crisis.

  If you listen to mainstream media, you will hear that there are two alternative economic theories in the world today: 1) right-wing, Chicago School, "austerians", who believe that to get back to "growth" and get more "competitive" we need to lower our standard of living and balance our budgets (except when it comes to military spending, of course), and 2) neo-Keynsian liberals like Paul Krugman who think we need massive amounts of deficit spending in order to get the economy going (including more military spending).
   On one side you have faith in markets, in the other you have government-managed economy.

  Right, left. Black, white. Good, bad. Either you are with us, or you are against us. All other "alternative" are beyond the pale and are simply wacko.
Does this look familiar to anyone else? It looks like the same choices you would see in a Hollywood action flick, where the only intellectual question is if the good-guy can kill enough of the bad guys before the movie ends. (note: He can)

  What we see are two different versions of the status quo. Neither the Chicago School, nor the Krugman school would make any fundamental changes to the system. Neither version would fix any systemic problems. Neither version would upset the financial elites of the world.

   It takes either extreme ignorance or brainwashing to buy into this limited universe. Not only are we being presented with a false choice (that there are only two alternatives), those two alternatives are false.

  For starters, the status quo is NOT a free market economy. If it was a free market economy then the banks would have failed in 2008. A free market economy without the risk of failure is like gambling without the risk of losing.
   The government is currently, actively, picking winners and losers in the economy. That's the whole idea behind Too-Big-To-Fail. What's more, they've picked the working people of America to be the losers, eventhough we may not have made any bets at the gambling table. The TBTF banks have bought off the politicians of both parties to force the taxpayers to bail them out when their looting of the public goes to extremes.
   That's not a democracy or a free market. It's a kleptocracy and a plutocracy, and its unsustainable.

  The other false alternative is presented by Paul Krugman.
Krugman correctly attacked the neo-cons early, and that's why they hate him. Krugman consistently exposes the intellectual midgets in the conservative extreme every month. Thus it is easy to consider him as someone on your side.
   The problem, as Steve Keen exposed, is that Krugman isn't what he presents himself as. Krugman says he's a New Keynsian, when in fact he's a neo-classical economist, which is just another branch of mainstream economics.

  For instance, during the debate Krugman said this:

 first of all, my basic reaction to discussions about What Minsky Really Meant — and, similarly, to discussions about What Keynes Really Meant — is, I Don’t Care.
 I can sort of understand that point. If taken to an extreme it just becomes mental masturbation. But then Krugman goes on to admit that he doesn't understand what Keen is saying. That's not just a bad position to put yourself into to start a debate, it's downright stupid.
   The problem is if you call yourself a New Keynsian and then fail to understand what Keynes actually said. Then you become a fraud.

  Keen went on to demonstrate how Krugman is just another neo-classical economist.

 One crisis later, leading Neoclassicals like Paul Krugman continue to argue that only the distribution of debt can matter:
   People think of debt’s role in the economy as if it were the same as what debt means for an individual: there’s a lot of money you have to pay to someone else. But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.

    That’s not to say that high debt can’t cause problems — it certainly can. But these are problems of distribution and incentives, not the burden of debt as is commonly understood. (Krugman 2011)

So can we ignore the level of private debt? No—because this “profound insight” is in fact a blind-spot about the role of banks and debt in a capitalist economy....
a Senior Vice-President of the New York Fed asserted it when arguing against the Monetarist experiment of the 1970s:

    "In the real world, banks extend credit, creating deposits in the process, and look for the reserves later." (Holmes 1969, p. 73)

 This relatively simple explanation, as one example, was for some reason too complex for Krugman. I'm not sure why.
   Krugman then goes on to display truly neo-classical thinking that was disproven 100 years ago.

   Most of the world considers 2008 to have been a global Minsky-moment. Krugman, for some reason, proudly proclaims that he is not a Minskyite.
  Keynes was famous for saying: "When the facts change, I change my mind. What do you do, sir?"
    I think its time for some to re-examine their core beliefs.

Why is this important?

  The first thing to understand about the economic debate today is that the right-wing blames all government interference with the economy as either socialism or Keynesianism.
  The right-wing has long since proven that they don't have a clue what the word "socialism" even means. They lump the word in with fascism, feminism, atheism, terrorism, and any other "ism" that scares them.

  You might think the right-wing understood what Keynesianism is. As it turns out, the New Keynesian crowd doesn't even totally understand what Keynes had to say. Thus the economic debate between the Chicago School and Krugman is really a red herring. It is a distraction to keep us from considering the full range of choices we have.

   My other favorite economist is Michael Hudson. While Keen focuses on the mathematical flaws in today's economics, Hudson looks at the historical flaws. The debate between Krugman and Keen was not overlooked by Hudson.

 All this is a good idea as far as it goes. But Mr. Krugman stops there – as if that is all that is needed today...Thus dumbs down his argument, and actually distracts attention from what is needed to avoid the financial and fiscal depression he is warning about.
   Here’s the problem: To focus the argument against “Austerian” advocates of fiscal balance, Mr. Krugman hopes that economists will stop distracting attention by talking about what he deems not necessary. It seems not necessary to write down debts, for example. All that is needed is to reduce interest rates on existing debts, enabling them to be carried.
 Hudson lists a couple items that Krugman doesn't endorse, such as:

1) Writing down debts, which would cause the banks to lose money

2) Shifting taxes off labor onto property, an idea which is not just morally correct, but good economic policy - endorsed by such economists as Adam Smith and John Maynard Keynes where he famously advocates "euthanasia of the rentier"

The effect of Mr. Krugman’s suggestions is for the government to subsidize the existing financial and tax structures, leaving the debts intact and ignoring the largely regressive, unfair and inefficient system of taxation...
  In Mr. Krugman’s reading, private debts need not be written down or the tax system made more efficient. It is to be better subsidized – mainly with easier bank credit and more government spending. So I am afraid that his book might as well have been subtitled “How the Economy can Borrow its Way Out of Debt.” That is what budget deficits do: they add to the debt overhead.
 The primary problem in the world economy today is extreme debt levels. The bond markets are saying that public debts are too high. You and your neighbors are saying that private debt levels are too high. In fact, debt saturates every segment of society.

   Once upon a time a prominent blogger here named Bonddad was concerned with increasing debt levels. He was 100% correct in being concerned with them.
   When Bonddad said that the country is collapsing under the weight of debt he was right. His statement is still right, even though he no longer appears to believe it.
When Bonddad said that Obama's plan for spending our way out of economic trouble is unworkable he was right. His statement is still right, even though he no longer appears to believe it.
   Bonddad is far from being alone. The current economic debate these days seems centered around stimulus spending vs. austerity. The spectrum of economic thought has been shrunk down to microscopic levels that neither address the heart of our economic problems, nor threaten the status quo.

  I understand the message when people say that we can't worry about deficits and debt levels in middle of an economic crisis, I just think that people are missing the most important idea here: massive amounts of debt are the cause of this economic mess, so why would even larger amounts of debt be the solution?

  It's interesting that Hudson says that Krugman is trying to stop distracting attention from right-wing talking points. I've recently been reading "Death of the Liberal Class" by Chris Hedges, and it seems rather obvious that what Krugman is doing IS distracting by design. Hudson sort of gets it:

 The effect of his narrow set of recommendations is to defend the status quo – and for my money, despite his reputation as a liberal, that makes Mr. Krugman a conservative.
 Krugman is no conservative, but he does do his part in defending the status quo. What Hudson is confused about is what the current purpose of liberals in America are.
   Chris Hedges, who's expertise is politics instead of economics, explains:
 In a traditional democracy, the liberal class functions as a safety valve. It makes piecemeal and incremental reform possible. It offers hope for change and proposes gradual steps towards greater equality. It endows the state and the mechanisms of power with virtue. It also serves as an attack dog that discredits radical social movements, making the liberal class a useful component within the power elite.
 This is the role that Krugman has assumed - the attack dog of the liberal class. The reason he attacked Keen was because Keen was working working outside of the status quo (and yet, somehow, getting serious attention) and was proposing radical solutions to our economic problems, solutions that if seriously considered might get people thinking about the more fundamental problems in society.
   The problem for the status quo is that the liberal class has been almost completely discredited and gutted by the corporate class.
 The inability of the liberal class to acknowledge that corporations have wrested power from the hands of citizens, that the Constitution and its guarantees of personal freedom have become irrelevant, and that the phrase consent of the governed is meaningless, has left it speaking and acting in ways that no longer correspond to reality....
  The media, the church, the university, the Democratic Party, the arts, and labor unions - the pillars of the liberal class - have been bought off with corporate money and promises of scraps tossed to them by the narrow circles of power.
 As long as the economic debate comes down to nothing more than how much debt the government should take on, then nothing will ever change. Krugman and other liberals should stop carrying the water for the wealthy elite and start addressing the structural problems in the economy. Krugman and other liberals needs to start thinking outside of the establishment box.

Originally posted to gjohnsit on Mon Jun 11, 2012 at 09:21 AM PDT.

Also republished by Community Spotlight.

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  •  Tip Jar (133+ / 0-)
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    Callate o despertaras la izquirda! - protest sign in Spain

    by gjohnsit on Mon Jun 11, 2012 at 09:21:05 AM PDT

  •  When the US body politic... (79+ / 0-)

    ...is mostly to the right of Hannibal Lecter, at least have the decency to acknowledge that Krugman is a step in the right direction.

    That said, the tragedy is that (except for marginalized figures like Chomsky or Kucinich, who are often ridiculed) there is no left-wing thought in the United States -- unlike the rest of the world. The fact that Keen is a furriner is what I;d call a clue.

    The causes for this are many, and I'm not going to go into that here.

    I think the current Obama/Romney or Dem/Rep is as relevant today as a fight between politburo members of the USSR before the crash was then.

    The inability to think outside the right-wing economic box is only one of our crippling handicaps; the US is equally woefully unprepared to face the challenges of peak oil and global warming, which are the challenges of the 21st century.

    The only reason I'll vote for Obama is that I hope he'll manage a smoother transition into the forthcoming collapse à la Gorbachev than Romney, but I expect nothing else from him -- or from any economists.

    The country we knew (I'm 58) is gone for good and the next couple of decades are going to be painful beyond belief.

    OVER HERE: AN AMERICAN EXPAT IN THE SOUTH OF FRANCE, is now available on Amazon US

    by Lupin on Mon Jun 11, 2012 at 09:31:06 AM PDT

  •  You blew it big time here, Krugman is right. (44+ / 0-)
    massive amounts of debt are the cause of this economic mess, so why would even larger amounts of debt be the solution?
    I don't know how many times Krugman has gone over this over and over again, why we need stimulus now, and austerity when the economy is growing.  Krugman has explained this in excruciating detail.
    •  I understand (18+ / 0-)

      that you don't see a larger picture. That you have accepted and embraced the idea that there are only two choices.
        That's fine. It puts into the overwhelming majority of Americans.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 09:52:20 AM PDT

      [ Parent ]

    •  can't cut our way to recovery (25+ / 0-)

      Growth and recession both affect both sides of the ledger: wages and prices, revenues and expenses.  In general, you can't selectively increase prices/revenues while decreasing wages/expenses ... except in the most trivially marginal sense of increasing "efficiency", which can be done well (Japan) or badly (Walmart), with implications for the economy as a whole.  If anything, our debt burden is the result of trying to do just that: boosting individual spending and corporate profits while slashing wages and "investment".

      Debt is a problem, but it's not today's problem; weak demand is today's problem. Public and private cutbacks on spending, hiring, etc. won't strengthen demand; instead, they'll weaken it further, deepening the recession.  The ability to carry debt is not an insignificant concern - it affects your ability to use debt productively (or at all) without being buried by it - but the way you do it is by strengthening revenues, not by liquidating productive assets to make your interest payments and sacrificing ability to make money in the future.

      Krugman might not be looking to debate broad socio-political implications of the economic order, but that's a far cry from being an apologist for the status quo.

      To those who say the New Deal didn't work: WWII was also government spending

      by Visceral on Mon Jun 11, 2012 at 10:07:50 AM PDT

      [ Parent ]

      •  No, debt is THE problem (13+ / 0-)

        Why do you think we have weak demand? Unemployment and underemployment. Why do we have so much underemployment? Because of weak demand employers won't hire. Why did the weak demand happen in the first place? Because everyone is spending their disposable income on past debts.
           That's private, public, corporate, and financial all burdened down with vast debts.
           Why do you think the banks are in danger of going under? Debts. Why do you think Europe is in danger of going under? Debts.
        Why do you think people have no spare money? Debts.

          Lastely, what do you think happened during the 1930's? The private sector disposed of its debts through default, thus setting up the economy for strong growth.

        Callate o despertaras la izquirda! - protest sign in Spain

        by gjohnsit on Mon Jun 11, 2012 at 10:17:26 AM PDT

        [ Parent ]

        •  wrong, wrong, wrong (29+ / 0-)

          public debt is not a big problem for us.

          Private debt, yes. the private sector doesn't spend as much when saddled with too much debt and trying to pay it down - which is why the government should step in.

          •  The government stepping in (8+ / 0-)

            The government can only step in in one way that would help the working class - by directly employing people. New Deal programs.
               That isn't what is happening. Instead we have the government giving out loans to an already indebted public.

             I'll admit that Krugman isn't against New Deal employment, but my problem is the idea that any government spending is good government spending. We need to be much more selective.

            Callate o despertaras la izquirda! - protest sign in Spain

            by gjohnsit on Mon Jun 11, 2012 at 02:01:19 PM PDT

            [ Parent ]

            •  oh, I agree that the government (10+ / 0-)

              isn't doing enough, sure.

              But you are wrong that it's the only way the government could help working people. They could help people get educations. They can buy things, so that companies would need to hire people to do the extra work, they could pass laws making it easier to unionize, etc

              Krugman is for those, and a public-work-type program as well (although I'm not positive about his stance on unionization laws), and Krugman has never suggested that it would be bad to better-target government spending.  So I'm not sure if you have a real disagreement with him or if you are fighting a straw-man that only vaguely resembles Krugman.

              •  I think it’s the straw man (12+ / 0-)

                With all due respect to the diarist, I think he has entirely missed Krugman’s points that he’s been making for years on his blog. To wit,

                When the economy is in a liquidity trap – which means interest rates are at zero and monetary policy is ineffective because the Fed can’t lower rates below zero – and suffers from lack of demand in the private sector because everyone is trying to deleverage their debt at the same time, only massive deficit spending by the government will boost demand to help get the economy moving again and put people back to work. Government debt doesn’t matter under these conditions because interest rates are at historic lows and the government can borrow money at virtually zero interest. Only when the economy is booming again do we need to address the deficit. Until then, the government has a moral imperative to engage in massive stimulus to create jobs and ease the suffering of millions of unemployed and underemployed people.

                Krugman has demonstrated the correctness of his argument time and again on his blog with factual evidence of current and past economic conditions. He has repeatedly proven that the austerian approach both in Europe and the U.S. is causing massive suffering by needlessly prolonging Depression-level unemployment. He is the foremost spokesperson on this topic today, not just in the U.S. but also in Europe. I don’t know why Keen labels Krugman a neoclassical economist; he is a Keynesian through and through.  

                •  re: "I don't know why..." (3+ / 0-)
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                  Because, when you're selling fog, namecalling repels sunlight. Supposedly.

                  The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

                  by semiAdult on Mon Jun 11, 2012 at 04:40:59 PM PDT

                  [ Parent ]

                •  Ok, but (3+ / 0-)
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                  GreyHawk, katiec, Deep Dark

                  isn't there a significant difference between the liquidity crisis you describe and the insolvency crisis that we actually face?  

                  Stimulus spending pumps liquidity into the system, but don't we really need to distinguish cash injections from capital investment?  Aren't we far better served by the government spending our tax dollars to directly employ people in building public infrastructure rather than dumping cash into the financial and corporate sectors and simply hoping they lend and employ?  

                  "None are more hopelessly enslaved than those who falsely believe they are free." - Goethe

                  by jlynne on Tue Jun 12, 2012 at 12:46:09 AM PDT

                  [ Parent ]

                  •  Rather than pumping liquidity directly into the (2+ / 0-)
                    Recommended by:
                    Andrew M, jlynne

                    banks, we could have given every adult X amount of dollars and those with debts would have to use the money to pay down their debt, thus rescuing both individuals as well as the banks.

                    This is both Keen's and Hudson's idea, with similar solutions put forward by other economists, most notably Stiglitz.

                  •  Yes !!! (1+ / 0-)
                    Recommended by:
                    jlynne
                  •  Yup (2+ / 0-)
                    Recommended by:
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                    Problem is that, especially in the early stages, they look the same.

                    So the PTB try a little goosing and it seems to work so when it stops working and they get back to square one again they rinse and repeat.

                    The flawed analysis to start with  sets us on the wrong path and from then on the fools cry press on.

                    Until inauguration day The USA is in the greatest danger it has ever experienced.

                    by Deep Dark on Tue Jun 12, 2012 at 12:57:39 PM PDT

                    [ Parent ]

                  •  The US is not insolvent. Cannot be insolvent. (1+ / 0-)
                    Recommended by:
                    jlynne

                    Because it can always print money.

                    Hey, Republicans, the whole world is watching.

                    by TAH from SLC on Tue Jun 12, 2012 at 02:30:02 PM PDT

                    [ Parent ]

                    •  yes, but (0+ / 0-)

                      the private sector is very definitely insolvent.  

                      As for the US itself, the more money you print, the more you spark inflation and the greater the risk of hyperinflation.  But since we have to print it to avoid default, the question is how best to spend it?  Invest it in public infrastructure and the American people, or throw it back on the casino table?

                      "None are more hopelessly enslaved than those who falsely believe they are free." - Goethe

                      by jlynne on Tue Jun 12, 2012 at 02:50:30 PM PDT

                      [ Parent ]

                      •  Don't disagree with you, but the risk of inflation (0+ / 0-)

                        right now - in a liquidity trap - is pretty small.  Invest in public infrastructure, invest in helping people pay down debts, invest in education, etc.  Just invest.

                        I don't know if the private sector as a whole is insolvent.  Certainly many people are hurting, don't get me wrong.  But to say the entire private sector is insolvent is a pretty big stretch.  After all, corporations have been posting huge profits and are sitting on huge piles of cash.  Individuals outside of the top 10% are not doing so well.

                        That kind of gets to what Krugman means - the distribution of debt is a current problem.

                        There's a lot more, but this diary did very little to clarify or illuminate.

                        Hey, Republicans, the whole world is watching.

                        by TAH from SLC on Tue Jun 12, 2012 at 03:17:20 PM PDT

                        [ Parent ]

            •  I agree with the idea that we need to be more (1+ / 0-)
              Recommended by:
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              selective on what we as a society spend on to get us back on the path of recovery. But we are missing one vital part - taxation. If one is concerned about running up the debt of the government then one should entertain the idea of significantly high taxes on the wealthy. The money they are sitting on is doing society no good. And without higher employment the economy is going to continue to drag us down. And we are paying a heavy social and psychological cost for this inertia. We are losing hope and descending into fear.

              The free market zealots are winning the battle because we on the left are not engaging in this battle with a message of hope and determination to make life better for the little guy. We raise the wealthy to heroic status and then wait for them to come to the rescue. They are not coming willingly. They believe in Schumpter's creative destruction, except when it applies to them.

              So I say lets tax them punishingly. And put that money to work providing jobs that address real problems. Like bridges and schools and sewer systems. And teacher's aides and health care aides and public artists. And pay them a wage that brings dignity to their lives and provides benefits that allow people to live as much as possible free from fear. These are the issues that matter more than arcane discussions about FED policy and incremental reform to the finance system written by the finance systems servants.

              Sometimes it is important to be precise. And sometimes complexity is a tool used by some to blow smoke up your ass.  

        •  can't argue with that, but doesn't affect my point (6+ / 0-)

          Unsustainable debt doesn't change the fundamental fact that the only way to make things better is to grow: spend, hire, invest, etc.  Otherwise we have to settle for truly permanent recession; the jobs are never coming back and we don't care because recession is better than more debt.

          If the debts can't be carried (back to "normal") or paid down (austerians), then they need to be written off completely.  That might also be very painful in the short term.  Under normal conditions, creditors (especially banks) can bet on a certain percentage of their loans being paid back with interest, amounting to a net profit; take that away, and you blow a multi-trillion dollar hole in the "asset" side of the world's ledger.  It might well be the only way out in the long term, but most people will be too desperate to care in the short term.

          This is where debt-based relief and "stimulus" becomes the lesser of two evils; cynical rulers would want to keep people fed, sheltered, and not contemplating revolution and cynical plutocrats would want to avoid finding out just how low things can go.

          To those who say the New Deal didn't work: WWII was also government spending

          by Visceral on Mon Jun 11, 2012 at 10:34:26 AM PDT

          [ Parent ]

        •  No, It wasn't the debt deflation, it was stimulus (5+ / 0-)
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          The recovery didn't happen because of the debt deflation, the defaults happened quickly, and caused the collapse of the banking system.  It wasn't until FDR started public works programs, using huge deficits, did the economy start recovering.

          I don't have a problem with a carefully controlled debt forgiveness program, and I don't care about the bond holders, but it has to be done VERY carefully in conjunction with a stimulus program.

          •  debt deflation is generally a bad thing (7+ / 0-)

            Your classic depression is a death spiral of falling prices, shrinking profit margins, wage cuts and layoffs, collapsing demand for goods and services, which feeds back into falling prices.  Debt deflation starts the death spiral by shifting money from wages and purchases (killing demand) to paying off debts, which does nothing for demand; recovery becomes impossible until the debt is either paid off in full or until priorities change.

            The depression death spiral can be interrupted at any of these points.  Right now, they're trying to interrupt it by boosting profit margins, arguing that this will eliminate the drive to cut corporate expenses (to protect profits).  They're succeeding at boosting profits, but it's clear that this is not and will not do anything to actually break the death spiral.  Stimulus aims to boost demand for goods and services; the New Deal and WWII both succeeded at this.

            To those who say the New Deal didn't work: WWII was also government spending

            by Visceral on Mon Jun 11, 2012 at 11:02:40 AM PDT

            [ Parent ]

        •  Yeesh, you sound like... (5+ / 0-)

          all the Ron Paul sycophants I know who prattle on endlessly about the debt and how we need to "end the Fed" and go back to the gold standard.

          All they can talk about, it seems, is how bad the debt is.  Never mind that our country has had debt since its formation.

          I can obviously accept that less debt is better than more debt, but I'm just not convinced that it's as big a problem as you claim.

          •  Good (1+ / 0-)
            Recommended by:
            GreyHawk
            all the Ron Paul sycophants
            Because to right-wingers I sound like a communist.
            If I'm not pissing off both sides then I'm not doing my job.

            Callate o despertaras la izquirda! - protest sign in Spain

            by gjohnsit on Mon Jun 11, 2012 at 03:10:32 PM PDT

            [ Parent ]

          •  I disagree (4+ / 0-)

            "I can obviously accept that less debt is better than more debt"

            What did you spend your money on to acquire the debt?

            Bombs - bad.
            Education, infrastructure - good.

            One produces wealth in the long run (has a rate of return higher than the debt) the other doesn't.

            Look at the the history of the two parties and it becomes obvious which understands this basic principle of economics and which doesn't.

            Which is good news for John McCain.

            by AppleP on Mon Jun 11, 2012 at 06:26:12 PM PDT

            [ Parent ]

            •  EXACTLY (1+ / 0-)
              Recommended by:
              Dr Erich Bloodaxe RN

              Not all deficit soending is equal
              If you borrow huge amounts of money and buy fancy $700m fighter aircraft which cause pilots to black out, what damn benefit have you really created ?

              The point is that the monies  borrowed should be spent in ways that will generate the medium / long term FUTURE economic activity which will allow the debt to be paid down. If the deficit spending does not generate that economic activity, the 'austerity' which Krugman says will be needed later to pay off that debt could leave you in the same position you started

        •  Diary Author Conflates Public and Private Debt (8+ / 0-)

          Plus, he or she doesn't understand Keyes either.  

          It's really quite simple.  Think of the economy a pie. A recession is when the economy shrinks, or a small slice is removed from the pie.    

          We get unemployment, leading to weak demand, leading to fewer goods sold, leading to more unemployment, weaker demand, even fewer goods sold.  Rinse and repeat.

          The pie gets smaller and smaller.

          Keyes says the government should borrow and spend to ensure the pie doesn't enter a cycle of shrinking.  When a recession removes a small slice of the pie, have the government borrow and spend to replace the slice.  The whole point is to keep the pie from shrinking further and further.  When the pie starts growing again at a sustainable rate, Keyes says increase taxes to pay back what the government has borrowed.

          This has nothing to do with the GOP, which loves Keyes.  Recession hits, and the GOP cuts taxes and increases government spending on defense.  Reagan did it, Bush the Lessor did it.  Romney will do it.  Very few people in the GOP give a shit about the deficit when the GOP lead government is borrowing and spending.

          They just refuse to raise taxes during the good times.

          Moving on, the author's claims about public debt are complete nonsense.  The author claims:

          The primary problem in the world economy today is extreme debt levels. The bond markets are saying that public debts are too high.
          Actually, the U.S. bond market is saying the exact opposite.

          Meanwhile, In The Bond Market  

          Here, we can see that the U.S. Government is currently paying a negative interest rate when indexed for inflation.  Without indexing, 10-year U.S. bonds closed today at 1.59%.  There is no way on this Earth how the author can contend that the markets are saying U.S. Government debt is too high when they are quite willing to lend to us at 1.59%.  The extremely low rate of interest shows that the author simply doesn't know what he or she is writing about.  

          •  It does seem the diarist is confusing public (5+ / 0-)

            and private debt.

          •  If the U.S. bond market was the entire bond (0+ / 0-)

            market, then you would have a point.

            But then I said world economy.
            We're watching one country meltdown after another after being priced out of the bond markets.
                Falling Treasury interest rates are a reflection of those problems.

             I'll give you another example: 30 years ago there were about 50 companies in the US with AAA ratings. Now there are about 3 companies.
               That means credit quality at companies has declined. Why? Too much debt.

             How about another example: about 30% of Americans are being hounded by bill collectors.

              There are lots of examples of debt being too high but some people don't want to see it.

            Callate o despertaras la izquirda! - protest sign in Spain

            by gjohnsit on Tue Jun 12, 2012 at 06:34:51 AM PDT

            [ Parent ]

            •  Euro Debt Crisis-Not World Debt Crisis (2+ / 0-)
              Recommended by:
              jeopardydd, TAH from SLC

              I used the US as an example.  England is the same.  Japan is lower than U.S.

              Not only do you conflate public and private debt, but you also conflate seperate countries.

              There is a debt crisis in countries that have borrowed money denominated in a currency the borrowers do not control--the Euro.  This ism't the entire world as you claim.  It is the fact that they have no control over the currency that is causing the Euro crisis.  England, which prints its own currency doen not share this problem.

              Here again you highlight how little you know about what you are writing about.

            •  What Timmy said, but nicer :). It really does (2+ / 0-)
              Recommended by:
              jeopardydd, TAH from SLC

              seem you're mixing up a lot of different stuff and then calling it all one piece of wax.

          •  And Krugman's point is that when interest (2+ / 0-)
            Recommended by:
            TimmyB, TAH from SLC

            rates are this low it is stupid not to borrow. There is an old axiom that if you and your friend are in the woods being chased by a bear you do not have to out run the bear. You just have to out run your friend.

            We do not need to be perfect in order to attract money, we just need to be better than the EU, or Asia. The "bond vigilantes" can not punish everyone in the world, if they could they would have "gone Galt" 4 years ago.

        •  Unchecked self-interest preceeded debt (4+ / 0-)
          Recommended by:
          GreyHawk, melo, eleming, samddobermann

          We are seeing a repeated cycle of financial overreach,
          crisis, and bailout of the banks that has been going on since the 70's. We have all been paying for this behavior and Wall Street has learned nothing. There are indications that the pattern will continue. Unregulated greed in the financial sector is destructive. Democrats are finally waking up to the consequences of being so cozy to the banks and financial institutions.

          Republicans are still trying to sell the message that greed is good and are busily undermining the Obama administration's efforts to control it. If they can't win an election then they will buy one with all the Koch brothers money they can gather. Voter disenfranchisement will take care of the rest of the problem. We have just a matter of months to wake up the rest of America to what is happening. Even then, it will be a tough fight.

          Attacking Krugman who has been a significant voice in a strong wind of opposition appears not only futile but destructive.  His "Liberal Conscience" has been light of hope to those of us who regard economics as a foreign language .

        •  Yes (1+ / 0-)
          Recommended by:
          katiec

          Recently, the US public has been using what monies they have to pay down debt (credit card, mortgage, car loans etc) rather than consuming - hence as you're suggesting, lack of consupmption / demand is the SYMPTOM; Debt is the problem

    •  One problem (0+ / 0-)

      is that we are VERY good at providing stimulus now but we are total shit at austerity at any time.

      Proposing austerity when times are good just gets binned because that "just harshes the mellow"

      But you also contradict yourself. If you agree with Krugman that more debt can't solve the problem,. you cannot hold that stimulus is the answer because ALL new stimulus is ALSO new debt.

      That is why it wont, and can't ever work. New debt to cure old via stimulus is an oxymoron. That's also why they hate Keen. His solutions attack the real cause which is unsupported (as in there is no collateral for it) debt. His solution is to write down the debt which is, after all, not owed to anyone but the bank that created it out of thin air.

      One of Krugman's key problems is that he, and idiots like Friedman, think that debt is money borrowed from someone else right now.

      If you have $100 and lend it to me there is no larger economic problem. You have foregone use of that money and I have gained it. For that service I pay you a rent called interest.

      But our current debt problems are not that kind of debt. What the bankers have done is calculated (out of their asses) the size of the economy in 10 or 20 years, then created debts that could be repaid from an economy that size in the future. That was 20 years ago.

      They haven't just taken our deposits and loaned them out, they have become time travellers who have borrowed the money from US in the future and loaned it to US NOW. For this time travel service they charge us a fee.

      But if we get to the time to repay the debt and the economy is not big enough to support it, they don't get the money back.

      In any rational world they would say, OK, we have had all that interest for ourselves and economic growth for the community, we just write off the debt. After all, they don't have to give the principle back to anyone.

      But their share value is dependent on not only the interest flow but the principle being returned. What's more, their prudential requirements call for a debt/equity ratio that they cannot restore if they write off the debts that can't be paid. Boom!

      So they can't afford to forgive the debt. So they keep rolling it over at ever higher penalty rates of interest.

      We are now at the point that, not only can the principle not be repaid from the size of the economy, the interest payments are so high that we can't afford to pay for anything BUT the interest.

      The interest payments are now sucking so much money from the real economy (savings, production, taxes paid etc) that the real economy is shrinking even faster and the debts are even less payable.

      Lowering rates just pushes back the steepest part of the exponential curve a bit but we have now reached the limits of even that process because rates cannot be less than zero.

      And still the debts are unpayable, the interest is sucking the economy dry and the bankers are demanding ever more austerity to free up money to pay them.

      They and most economists, except Keen and co, don't understand that the wealth created by the real economy that produces food, clothes, houses and a few other useful things is ALL there is to pay them with. Once their demands exceed some arbitrary but quite low level, everything else they do, except to reduce their demands, will have the same effect, crashing the whole economy.

      We are now pretty close to that, it could be as near as a few months, it could be a year or two; given the size of the global economy it is impossible to predict but since it is already about 2 years overdue, duck and cover is about the only option left for most people.

      Until inauguration day The USA is in the greatest danger it has ever experienced.

      by Deep Dark on Tue Jun 12, 2012 at 12:42:41 PM PDT

      [ Parent ]

  •  Wow that infowars link is way off-base. (12+ / 0-)

    I can't count how many times I've read and seen Krugman urge that now is the ideal time to invest in public infrastructure. The spending would stimulate the economy, borrowing costs are extremely low, and the improved infrastructure itself would help the economy long-term.

    Yes, he has also made the point that deficit spending can help stimulate an economy out of a recession even if the spending is not on something which is actually useful, such as military spending (or "digging ditches" per Keynes), but that has never been his actual recommendation. In the linked video he makes that point by imagining a fake alien invasion which led to massive spending, which would stimulate the economy. Infowars interprets that as a coded suggestion that the government should create another unnecessary military conflict.

  •  Euthenasia of the Rentier (9+ / 0-)

    was called for by JS Mill long before Keynes. It is a good idea with an admirable pedigree. Thanks for the insightful analysis.

  •  That's A Lot to Write About Our 2 Seeming (11+ / 0-)

    economic choices without ever mentioning words like "trade" and "anti trust" or concepts like steep progressive taxation.

    I'm not a student of economists so I can't really engage a discussion that depends on who advocated what, but I do know that the middle 20th century included much stiffer anti-trust limits on business, finance and media, much more managed trade to protect labor and domestic sectors, seriously compressive progressive individual taxation, many critical kinds of policies that are or have been included in the much saner economy we had in the past.

    Is Krugman against all that? I think he's said he's basically against managing our trade and that alone is enough to keep prospects for the bottom 80% pretty limited.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Mon Jun 11, 2012 at 10:19:38 AM PDT

    •  It kind of got away from me (3+ / 0-)

      I didn't realize how big this diary was until I was done with it.

        I'm just a little fed up with the economic debate being so constricted and not addressing the core problems.
         Borrowing and spending a whole bunch of money is not going to fix this economy. Not now. Not ever. It's better than austerity, but then a punch in the mouth is better than a poke in the eye with a sharp stick. I hate to think those are my only two choices.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 01:19:16 PM PDT

      [ Parent ]

      •  what (3+ / 0-)
        Recommended by:
        hnic357, GreyHawk, eleming
        "Borrowing and spending a whole bunch of money is not going to fix this economy. Not now. Not ever"
        what are you basing that statement on? I don't think it is correct.
        •  Economics 101 (1+ / 0-)
          Recommended by:
          GreyHawk

          That's what I'm basing it on.
          Have you ever known a country to get rich by spending borrowed money? Or a person?

          Callate o despertaras la izquirda! - protest sign in Spain

          by gjohnsit on Mon Jun 11, 2012 at 03:02:19 PM PDT

          [ Parent ]

          •  so you (3+ / 0-)
            Recommended by:
            auron renouille, Xkeeper, GreyHawk

            blast people for sticking with the "normal" economic positions, then back up with what you are saying with "economics 101"? How does that work?

            Anyways, "econ 101" does not state that borrowed stimulus won't help. The opposite, actually (see: government spending multiplier).

            And yes, I have known a country to get rich by borrowing and spending money: the United States and most rich countries.

            •  Re: (4+ / 0-)
              Recommended by:
              k9disc, ozsea1, GreyHawk, apollo4210

              I don't mean this as an insult, but you are in a little bit over your head.
                 For instance, you think America (and most rich countries) got rich by borrowing and spending. You are totally and completely wrong.

               Let's start with England. How did they become a world empire? Before England's military conquered the world, they were the first industrialized nation. They were known as the "workshop of the world".
                In other words they built stuff the rest of the world wanted. That's how they got rich.

                America surpassed England in industrial production shortly before WWI. Even before that we were the largest producer of crude oil in the world (and continued to be until shortly after WWII). For several decades after WWII we were the last industrial power standing.
                 In other words, we got rich building stuff and feeding the world's food and energy needs. Not by borrowing and spending.

               The last 30 years we've stopped making stuff and spent our time borrowing and spending. We went from the world's largest creditor nation to the world's largest debtor nation in the early 80's.
                 I'll let you decide if you think this change has made America more wealthy or less.

              Callate o despertaras la izquirda! - protest sign in Spain

              by gjohnsit on Mon Jun 11, 2012 at 03:29:37 PM PDT

              [ Parent ]

              •  no (5+ / 0-)

                It's not either/or.

                America got rich while borrowing/spending. We have not balanced the budget much in a long time, have we? The US has been in debt a long, long time.

                Certain things that the government spent money on, such as the GI bill, the highway system, some basic research, etc has paid massive dividends.

                and since you are starting to get a little uncivil with the "you are in over your head comment", I would say that you simply don't know what you are talking about re: stimulus, debt, etc.

                •  Right, because that's how the money supply is (2+ / 0-)
                  Recommended by:
                  GreyHawk, samddobermann

                  expanded to meet demands for more dollars, a bigger economy.

                  I don't know the diarist would go about balancing the budget, nor do I know why he would want to do so.

                •  Looking a little deeper (1+ / 0-)
                  Recommended by:
                  GreyHawk

                  Looks like I have to explain myself a little more simply.

                  We haven't balanced the budget for a long time. That would be around 1970.
                     Guess what also happened around the same time? Inflation-adjusted median wages also peaked. They've been in decline ever since (i.e. people are getting poorer).

                    I was careful to say "net creditor". That means the entire economy, not just the federal government. We switched from being a net creditor nation to a net debtor nation in 1984 - the first time in about 100 years. We've long since become the biggest debtor nation in the world.

                   No doubt that certain things the government spends on have paid huge dividends. But I'm not just talking about the federal government. I'm talking about the whole economy.

                  Callate o despertaras la izquirda! - protest sign in Spain

                  by gjohnsit on Mon Jun 11, 2012 at 05:29:37 PM PDT

                  [ Parent ]

                  •  we didn't balance the budget in the 1960's either (3+ / 0-)
                    Recommended by:
                    katiec, GreyHawk, TAH from SLC

                    Except for one year (1960), and we were doing well.

                    We didn't balance it for most of the 1940's, or most of the 1950's either. We were doing a lot better in the 1930's the years that we ran the biggest deficits than when we tried to balance the budget.  

                    This is what I'm saying - you don't seem to have a basic grasp of what's gone on. I gave you a link to this stuff and you apparently didn't even look at it.

                    And I agree that the level of private debt we've had is a problem, but not the Federal Debt. It works differently.

                    •  Historically, unless there's a trade surplus, a (2+ / 0-)
                      Recommended by:
                      jeopardydd, GreyHawk

                      balanced budget is followed by a recession.

                      •  it's especially insane (2+ / 0-)
                        Recommended by:
                        katiec, GreyHawk

                        to try to balance it at a time when there's a lack of demand in large part because of too much private debt deleveraging, lots of things that need to be funded, and NEGATIVE real interest rates for government borrowing.

                        if there's any time for the government to spend, spend, spend, it's now.

                    •  We balanced the budget in 1969 (0+ / 0-)

                      I didn't have to look at your link to know that. Here.

                        I'm going to let this discussion slide because I really don't think you understand what I am saying.
                        I'll have to blame myself for being unclear and for trying to take on too large of an issue. Next time I must address a more bite-sized issue so that everyone will understand.

                      Callate o despertaras la izquirda! - protest sign in Spain

                      by gjohnsit on Tue Jun 12, 2012 at 06:41:30 AM PDT

                      [ Parent ]

                      •  m error (0+ / 0-)

                        1969 and 1960, with deficits from 1961-1968, including much, much bigger deficits than the modest surpluses in those two years. Yet we did well those years overall. How does that gibe with your position?

                        As for me not understanding what you are saying - part of that is because when people are asking your for any sort of specifics, you are mostly just deflecting those requests. If you refuse to squarely answer people's questions to you, then yes, people are not going to understand what you are saying.

              •  btw, Steve King (2+ / 0-)
                Recommended by:
                Leo Flinnwood, GreyHawk

                explicitly states that countries should spend in a downturn (like Krugman believes):

                KEEN:
                If you have the private sector deleverging, so it’s taking money out of the system and therefore reducing economic activity, if the government does it as well you’ll amplify the downturn. So I’d say your austerity programme right now is the wrong way to go

                MASON:
                And if states teeter on the edge of bankruptcy- I mean Britain was worried about its sovereign credit rating – what should they do, go on spending?

                KEEN:
                Yeah. Fundamentally a country with its own sovereign currency can’t go bankrupt when its debts are in that currency. The dilemmas in13

                Greece are all because- er, in Europe – because there’s actually no country that ownsthe Euro. And therefore they can run out of it in that sense.

                •  Yes, Keen agrees with MMT about this. For him (2+ / 0-)
                  Recommended by:
                  gjohnsit, GreyHawk

                  the issue is never the size of the public debt, it's always where, on what, the money is spent.

                  Keen' focus is on private debt.

                  He doesn't worry about public debt when it comes to monetary sovereigns, which ca never go broke.

                  In this regard he's not a "cyclist", cuz the size of the public debt is never an issue, whether in good times or bad.

                •  Once again (1+ / 0-)
                  Recommended by:
                  GreyHawk

                  my point is that we don't only have two choices: austerity vs. deficit spending.

                    That was kind of the entire purpose of my writing this diary, and I repeatedly said it in my diary.

                   

                  Callate o despertaras la izquirda! - protest sign in Spain

                  by gjohnsit on Mon Jun 11, 2012 at 05:31:04 PM PDT

                  [ Parent ]

                  •  Thanks for writing this gj... (2+ / 0-)
                    Recommended by:
                    GreyHawk, gjohnsit

                    Happy to find you on the Rec list.

                    I have to agree with your assessment on Krugman. I do like when he advocates public infrastructure spending, but he's just so mum on so many possibilities. He's locked in the rigid structure of 'respectable' economics.

                    I've never been a huge fan of his, and your post here puts a pretty good finger on my feelings.

                    I'm looking forward to checking out this debate.

                    And thanks a ton for the Hedges link.
                    Peace~

                    Democracy - 1 person 1 vote. Free Markets - More dollars more power.

                    by k9disc on Mon Jun 11, 2012 at 06:02:17 PM PDT

                    [ Parent ]

                  •  except (1+ / 0-)
                    Recommended by:
                    GreyHawk

                    I was using the source (Keen) that you used int he diary to point out that he thinks the government should keep spending.

                    But ok, what is your fix if it's not those things?

              •  We have a debt based monetary system. If the (1+ / 0-)
                Recommended by:
                GreyHawk

                federal government had no deficit, then there would be no private dollars being saved.

                Per accounting: a public liability is a private asset.

                So how do you suppose the US should be debt free?

                •  Well (1+ / 0-)
                  Recommended by:
                  GreyHawk

                  There are a couple points worth responding to:

                  1) debt based monetary system doesn't mean that every dollar is backed by federal debt. So your central premise is wrong.

                  2) Who said anything about being debt free?

                  Callate o despertaras la izquirda! - protest sign in Spain

                  by gjohnsit on Mon Jun 11, 2012 at 05:33:47 PM PDT

                  [ Parent ]

                  •  How is every dollar not backed by fed debt? What (1+ / 0-)
                    Recommended by:
                    GreyHawk

                    dollars are NOT?

                    So if not debt free, then what sized debt would be good?

                    •  The federal government doesn't create all debt (0+ / 0-)

                      Most of it is created by private institutions.
                      The complaint Greenspan had of plans to paying down ALL of the federal debt around 2000 was that the Fed would lose control of interest rates, not that money would vanish from the system.

                       Historically (looking at the last 100 years) a national debt level of about a 1/3 of what we have now is reflected in a healthy economy.

                      Callate o despertaras la izquirda! - protest sign in Spain

                      by gjohnsit on Tue Jun 12, 2012 at 06:46:04 AM PDT

                      [ Parent ]

                      •  My understanding is that private institutions (0+ / 0-)

                        create what MMT calls horizontal "money".  However, over the long horizon, all accounts are vertically settled, and so all net dollar assets are eventually traced back to the Fed.

                        Even Keen seems to recognize this.

                        •  pS, wish I could link to the Keen/MMT discussion (0+ / 0-)

                          of horizontal vs vertical currency, but don't know how.

                          Suffice it to say that while private institutions creat credit, they don't create money/dollar bills.

                      •  Re debt levels: we haven't been on a pure fiat (0+ / 0-)

                        system over the last 100 years.

                        A pure fiat monetary system turns dollars into nothing more than score keeping, as you you can never run out of points.

              •  Sorry, "I don't mean this as an insult, but you (0+ / 0-)

                are in a little bit over your head."  Pot meet kettle.

                Hey, Republicans, the whole world is watching.

                by TAH from SLC on Tue Jun 12, 2012 at 02:38:21 PM PDT

                [ Parent ]

          •  US During WW II And During The Years Following (3+ / 0-)
            Recommended by:
            BigDuck, GreyHawk, jeopardydd

            Our debt to GNP ratio was at its highest then. Strange statement to make when in taking Keen's side while stating that he is a Keynesian as well. Keynes advocated deficit spending. Or a person? What about Mitt Romney and leverage? I suspect we are dealing with a contrarian for the hell of it here.

            What amazes me is that you will never go to a right wing site and see detailed discussions about how Arthur Laffer and Milton Friedman differ. Laffer speaks and all the right wing politicians nod their head. Krugman advocates what should be the core of progressive economic policy and we get diaries like this and complaints that he supported NAFTA 20 years ago.

            •  A couple points (2+ / 0-)
              Recommended by:
              katiec, GreyHawk

              1) The topic here is overall debt levels. Not just government debt levels.

              2) Keen supports bigger more dramatic stimulus than any Keynesian today. The difference is that he wants to put directly to people and he wants it printed.

              3) I don't consider Laffer to be worth the time of day. I think he's a joke.
              As for Friedman, he's dangerous and the father of supply-side economics.

              4) I didn't know Krugman supported NAFTA, but it doesn't surprise me. He's pretty much part of the Larry Summers crowd.

              Callate o despertaras la izquirda! - protest sign in Spain

              by gjohnsit on Mon Jun 11, 2012 at 05:38:18 PM PDT

              [ Parent ]

          •  yes! (2+ / 0-)
            Recommended by:
            BigDuck, GreyHawk

            we did starting with FDR.

            blink-- pale cold

            by zedaker on Mon Jun 11, 2012 at 04:26:04 PM PDT

            [ Parent ]

          •  Spending borrowed money is what business does (2+ / 0-)
            Recommended by:
            GreyHawk, Dr Erich Bloodaxe RN

            all the time. You borrow the money to purchase inventory for a business you are starting. Of course, you have to have a business plan and get approval. The goal is to make money or a profit. If you business plan is workable, you probably will.

          •  Yes - "...borrowed money? Or a person?" (1+ / 0-)
            Recommended by:
            Dr Erich Bloodaxe RN

            Many people I knew borrowed money to buy houses to resell and then had a resale and renter business going.  Also most small businesses used to be started with borrowed money.

            Howard Dean is my man.

            by eleming on Tue Jun 12, 2012 at 04:50:58 AM PDT

            [ Parent ]

          •  Bain Capital? not a country....yet (0+ / 0-)

            Just guessing here but isn't that what private equity does?  Then go in purchase a company using the assets of the company they are buying to get a loan for the buy.  They then sell off all the assets and but the company into bankrupts and walk away rich.

            "Aubrey, may I trouble you for the salt?"

            by Borg Warner on Tue Jun 12, 2012 at 07:34:28 AM PDT

            [ Parent ]

          •  FDR during the depression. Marshall Plan. (0+ / 0-)

            All the rich people I know use other people's money (i.e., debt."  we call it "OPM".  That is precisely what they do.

            Hey, Republicans, the whole world is watching.

            by TAH from SLC on Tue Jun 12, 2012 at 02:37:02 PM PDT

            [ Parent ]

          •  Companies do it all the time. (0+ / 0-)

            So do some individuals.

            The devil is in the details of how you spend the money you borrow.

            Very few companies these days simply start out by having all the money they need just sitting around.  They borrow money, invest in physical plant, and create a revenue generation scheme.  Then they can pay back the money they originally borrowed, and continue getting wealthier.

            Up until this diary and the comments in it, I thought you had a pretty good grasp of economics.  Right now I'm sitting here wondering if someone else hacked the account, and is simply trying to trash your reputation.

      •  Yes it is going to fix things. It's about the (0+ / 0-)

        only thing that will.  And we're failing to do it.

        Hey, Republicans, the whole world is watching.

        by TAH from SLC on Tue Jun 12, 2012 at 02:35:45 PM PDT

        [ Parent ]

  •  Hi - I had a hard time following this diary (14+ / 0-)

    Usually I like your stuff.

    But here, you tell us there is a big debate between Krugman and Keen. It would be helpful if you lay out the key points of the debate for us laypeople.

    Halfway through it appears that the disagreement centers on debt, whether it is OK to carry it or not. Is that right?

    thanks.

    An ambulance can only go so fast - Neil Young

    by mightymouse on Mon Jun 11, 2012 at 10:22:08 AM PDT

    •  It was very arcane. (3+ / 0-)
      Recommended by:
      mightymouse, squarewheel, GreyHawk

      If you go to Krugmans blog or Keens blog you will see the comments. The debate was about a very obscure technical issue that most laymen will never fathom. I know I had a hard time following it myself. This article never really spells it out either.

      Do facts matter anymore?

      by Sinan on Mon Jun 11, 2012 at 03:36:36 PM PDT

      [ Parent ]

      •  One issue was very obscure. Another one is less (2+ / 0-)
        Recommended by:
        gjohnsit, GreyHawk

        obscure: the role of banks in the economy, whether they create new money out of thin air or not.

        Krugman thinks banks lend reserves, so no net new dollars, just money moving from one person to another.

        Keen thinks banks create new dollars out of thin air because the lend first, then find the reserves.

        Keen's correct.

        •  I listened to Keen for an hour yesterday... (0+ / 0-)

          He maintains that banks make money out of thin air because their assets are measured up to a month prior which gives them a month to make loans without meeting asset ratio obligations. However, some of the comments I saw in his blog were from bankers who said this was wrong. So, I wonder what is really going on..

          Do facts matter anymore?

          by Sinan on Tue Jun 12, 2012 at 08:44:51 AM PDT

          [ Parent ]

          •  Keen emphasizes a particular time horizon. A (0+ / 0-)

            lot of the responses were based on a longer time horizon.

            Keen doesn't always do such a good job in clarifying this, though through his discussions with MMT this aspect of his thinking became more clear.

            There's also something having to do with an office within the Treasury and how they clear (do accounting) that some people were making a big deal out of.  I can't recreate the argument, but it seemed to me that while the accounting done would throw a wrench in Keen's argument, the accounting is archaic since the end of Breton Woods, so that, even if it's still done in a certain way/order, it could now be done differently.

            It doesn't seem to me, however, that Keen's main point was undermined:  that banks loan to good borrowers, then find the reserves through interbank lending, and if need be, through the Fed as the lender of last resort.

            That is, banks are not constrained in their lending by reserve requirements.

            I think his evidence, along with the evidence of others who also study banking, is pretty solid about this.  See modern monetary theory if you'd like.

          •  PS, MMT distinction between horizontal and (0+ / 0-)

            vertical money creation would help clear up the confusion.

            Keen emphasizes horizontal money, over tge long term, however, everything has to go through national accounting, ie, the Fed.  This means that eventually all new dollars are created by tge Fed, not banks.  What Keen shows is that there is a time lag between credit issued by private banks and the growth of base money.

            That's why there are more derivatives, etc - bets - than there is money in the world.  It thus seems obvious to me that keen is correct, and his critics are wrong.

  •  Very interesting diary (5+ / 0-)
    Recommended by:
    gjohnsit, Matt Z, gulfgal98, emal, GreyHawk

    Thanks. I agree that the steps necessary for correction seem to be larger than anyone is willing or capable of discussing, at least in public.

    I don't understand how any economic solution proposed by anyone can work unless it address the negative equity and the fact that derivatives created more illusory wealth and/or risk than there is money in the world.

    Germany seems to be talking about bad banks, which I think is a step in the right direction.

    “Human kindness has never weakened the stamina or softened the fiber of a free people. A nation does not have to be cruel to be tough.” FDR

    by Phoebe Loosinhouse on Mon Jun 11, 2012 at 10:25:26 AM PDT

  •  there are a few flaws with this analysis (15+ / 0-)

    although I commend you on a good, insightful discussion, there are a few glaring flaws here:

    1) Krugman does NOT say that private debts shouldn't be written down.  He just has preferred ways of doing it (for example, higher inflation which will de facto write down the "real" value of debts).

    2) this is incorrect:

    The primary problem in the world economy today is extreme debt levels. The bond markets are saying that public debts are too high.
    The bond markets are saying the exact opposite. For countries such as the United States, interest rates are at record-lows, because the bond market sees them as safe.

    3) The diary and some of the sources linked to basically criticize Krugman for not saying certain things or simplifying ideas. Fine.

    However, there could be any number of reasons he doesn't say certain things at certain times - it's not directly related to the topic being discussed; there's a limited amount of time to say things in interviews or debates and he thinks other points are more important; he simplifies stuff because it's meant for public digestion and he's really good at explaining things to lay people which is an extremely important thing;  he likes certain ideas but doesn't think they are politically feasible so he chooses to focus on other things in public discussions, etc.

    I think those would all be legitimate explanations.

    •  Re: (5+ / 0-)
      he likes certain ideas but doesn't think they are politically feasible
      This sort of revolves around my point. The liberal class is basically telling us what is politically feasible.
         At certain points in our nation's history ending slavery was not politically feasible. So was an 8-hour day, civil rights, the woman's vote, etc.

        Politicians tell us what is politically feasible. Journalists, university professors, labor leaders, etc. are supposed to tell us what is possible, not just what is feasible. Then the public decides what to do.
         Here we have the problem. Journalists, professors, labor leaders, etc. aren't telling us what is possible.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 01:25:14 PM PDT

      [ Parent ]

      •  Krugman (5+ / 0-)

        states a lot that he's not an expert on politics, but that it sort of has to be taken into account.  For example, he wanted a bigger stimulus and wants something bigger than the Jobs Act now. But he also states that they are better for nothing and if that's all we get, it's better than nothing.

        He also states that he thinks they should be/have been bigger, and criticizes those who didn't push for it to be bigger.

        I don't think that's incorrect, do you?

        •  That's all right as far as it goes (1+ / 0-)
          Recommended by:
          GreyHawk

          just like what Hudson said.
          It's a nice start, but it doesn't address the core problems in the economy.

          There aren't many people on the left that have a chance to be widely read. The corporate media prevents that.
            Krugman is in a unique position. He should use it to offer a greater vision of a progressive future. Not pick fights with economists slightly further to the left of him.

          Callate o despertaras la izquirda! - protest sign in Spain

          by gjohnsit on Mon Jun 11, 2012 at 02:14:13 PM PDT

          [ Parent ]

  •  The rest of that Business Insider article (14+ / 0-)

    isn't so supportive of your contention that Krugman lost the debate:

    Regardless of whether or not Krugman is right to support an inflation- and debt-fueled recovery (at least in the short term), this is not really the debate. It's also not about Hyman Minsky.

    The debate becomes not "do banks expand the money supply or not?" but "who is really in charge here?" Keen says the banks, Krugman says the Fed/Treasury.

    Keen is wedded to the idea that banks control the monetary base, and thus Fed interference will never be enough to control credit.

    But his very proposals to fix the system essentially endorse an idea that Keen himself opposes: He expects that regulators and laws will prevent the follies that cause financial crises. If we just re-invent the wheel, he argues, we'll get rid of the "positive feedback loop between rising debt and asset prices" in order to tame the financial system.

    Further, all the evidence points to the idea that the Federal Reserve does indeed control credit conditions in the economy, falling short of preventing credit crises simply because it is an imperfect regulator. That said, the Fed's actions in the recovery suggest that it has probably mitigated the worst of the recession's effects.

    ...

    Is Krugman's neoclassical model ideal? Probably not. Does Minsky have a point? Yeah, probably.

    But Keen's avowal that the Fed has little power is also short-sighted.

    “What’s the use of having developed a science well enough to make predictions if, in the end, all we’re willing to do is stand around and wait for them to come true?” - Sherwood Rowland

    by jrooth on Mon Jun 11, 2012 at 10:32:27 AM PDT

    •  Yes, this is the core of the Keen/Krugman spat (7+ / 0-)

      Keen thinks in expansive accounting models of the economy where the money stock  is endogenously determined.

      Krugman thinks in  toy neoclassical models where money stock is set exogenously by the monetary authority's (Fed's) choice of the short rate.

      In my view, Keen is well intentioned but mislead by the absence of  behavioral  assumptions in his models.   Bankers do create money whenever they want to but they only want to when they can loan at rates greater than market rates that depend on expectations of future short rates set by the Fed.

      So Keen is right, banks do create money at will, but Krugman takes the argument  because the fed controls the short rate and bankers ignore the Fed at their peril.

      (Of course, this doesn't imply the Fed can't screw up a lot but that's another story)
       

      •  that's a big oversimplification (3+ / 0-)
        Recommended by:
        hnic357, Beetwasher, GreyHawk
        "Krugman thinks in  toy neoclassical models where money stock is set exogenously by the monetary authority's (Fed's) choice of the short rate."
        Krugman thinks that there are certain conditions (which we are currently in) where that is not true. There's a reason he didn't think that interest rates or inflation would rise with QE, for example.
        •  Agreed (3+ / 0-)
          Recommended by:
          Beetwasher, ozsea1, GreyHawk

          But my comment is about  modeling an  economy in a more normal state, not  an economy in a liquidity trap where the fed is constrained by the zero bound.

          Keen's critique of Krugman concerned the  role on money creation in the expansion of the credit bubble not in the aftermath.

          •  ok (3+ / 0-)
            Recommended by:
            jrooth, Beetwasher, GreyHawk

            But Krugman stated that the FED (and the rest of government) was not doing what it should have been during during the inflation of the bubble. That seems reasonable to me, and I see no reason to think he is wrong about that, or that tighter controls on bankers + better FED policy couldn't temper the power of bubbles.

            •  Yes, I think we're on the same page (3+ / 0-)
              Recommended by:
              jeopardydd, ozsea1, GreyHawk

              My views are closer to Krugman's than Keen's.    The fed screwed up  not trying to rein in the housing bubble.   But the errors were not due primarily to using  the wrong models,  the errors were due to the unwillingness of the Greenspan fed to regulate the mortgage industry.

              I have a lot of sympathy for Keen's frustration with Neoclassical theory  ( the lack of banking sector, representative agents, often no money and/ or debt ).  But the reason Krugman style models are stripped down is to allow one to make policy arguments based on an understandable limited set of assumptions.    Krugman knows his models don't begin describe the complexity of the real world.  But they are in his view the best currently going to advocate policy.

              Keen's theoretical efforts are well intentioned, but the history of economics is filled with efforts to build insightful accounting models of multi-sector  financial economies.  Maybe Keen sees something other theorists have overlooked but I suspect he is way too far out over his skis.  

              Policy arguments need to be made with the models you have, not those you wish existed.

  •  Has Bonddad gotten around to "Jubilee" yet? (6+ / 0-)

    Haven't read him since he left here. Used to post in his diaries when I saw them "Is it time for Jubilee yet?" but never got a response, nor a rec nor hide.

    But it was, should have been, obvious to even the most casual observer as early as 2005 that our problem was (remains) that when you add up all the accounts everywhere that existing debt -- through the miracles of compound interest and finance Capitalism -- could not possibly be paid of within anyone's lifetime. Nor, likely, their kids and even grandchildren.

    Should have been obvious that at some point people would realize this and, especially the well-positioned, would take measures to grab as much wealth for themselves as they could manage, even if it meant pulling rice grains from starving children. But clearly this would mean that the velocity of money through society -- and thus the state of the economy would be clearly reduced. In 2005 this was obvious, and all you really had to know was the figures printed in public and arithmetic.

    Let's not excoriate Krugman in total, for I'm sure his heart is in the right place, though his thought that we need merely adjust the status quo is mistaken.

    But it's plain that our debt-based system has reached the point where either it has to be reset -- the once or twice a century forgiveness of all private and public debt -- or humanity needs to have the larger portion of it either reduced to complete slavery, or be largely terminated.

    The latter choice being sort of the "Black Plague" solution to Europe's medieval depression, where suddenly all this land and assets were there for the taking; where labor could insist on more freedom and better compensation.

    If the Dark Hearts at the top of our Global Pathocracy have their way, I'd bet on the "let them die off solution," but they'd be able to live with slavery, I'm sure.

    So. Is it time for Jubilee yet?


    The Internet is just the tail of the Corporate Media dog.

    by Jim P on Mon Jun 11, 2012 at 10:44:08 AM PDT

    •  From what I can see (3+ / 0-)
      Recommended by:
      Jim P, ozsea1, GreyHawk

      Bonddad has decided that debts no longer matter. That seems to be the mantra of the liberals. Conservatives believe that debts matter, and the working class is responsible for all of them, even ones they didn't create.

        Oh, and Bonddad also believes that all other economic bloggers are morons.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 01:28:17 PM PDT

      [ Parent ]

      •  Bonddad got easily confused here, thinking (9+ / 0-)

        lines on a chart are the whole of reality. Last I remember of him was how we had Green Shoots and that meant all would be well pretty soon. And you were human excrement if you didn't see how the line pointing up proved the line would continue to go up.

        Are you as amazed as I am at how so many "experts" can't seem to grasp that the status quo assumptions and procedures will only lead to more of what we have? Very strange, as if there were some kind of drug dispensed in the water-coolers.

        Thanks for all your essays. Please keep 'em coming. But give Krugman a break: status quo-bound thinking, but a human heart.


        The Internet is just the tail of the Corporate Media dog.

        by Jim P on Mon Jun 11, 2012 at 01:49:37 PM PDT

        [ Parent ]

      •  All economic bloggers? (1+ / 0-)
        Recommended by:
        GreyHawk

        nah...just a couple of them.

        Obama 2012 http://whatthefuckhasobamadonesofar.com/

        by jiffypop on Mon Jun 11, 2012 at 04:06:00 PM PDT

        [ Parent ]

        •  Did you see this? (1+ / 0-)
          Recommended by:
          GreyHawk

          I only saw it recently.

           So, if you're a political blogger and you write about economics, please realize that you have absolutely no idea what you're talking about.  Really.  You don't -- not one clue.  Please -- in the name of all that is holy -- please stop.

          Callate o despertaras la izquirda! - protest sign in Spain

          by gjohnsit on Mon Jun 11, 2012 at 05:42:35 PM PDT

          [ Parent ]

          •  I saw it, and thought it was quite ironic. (0+ / 0-)

            Bonddad had a really good grasp of one segment of the economy, and thought that by extension if that segment is doing well, the economy as a whole is doing well.  He got frustrated by the fact that the reality faced by most Americans simply doesn't agree with what's going on in his focused field of economics, and seemed to assume that reality was at fault for the discrepancy.

            (I past tensed that because I stopped reading him when he kept talking about upturns and green shoots as if we were going into some golden age of recovery, when it was obvious to everyone in the 99% that we were still in for long term screwage.  If he's truly given up on a Republican focus on 'debt', maybe it's time to start reading him again some.)

  •  to fight an enemy you must (6+ / 0-)

    recognize  the enemy.

    The rise of the NGO in international and thereby national power in the late 20th century,  entities which may ostensibly belong to a nation, but which have moved beyond the regulation, control and interests of any one nation, is the issue that is entirely ignored in public.   We speak of corporatist power, but ignore international religious organizations, media giants, charities and not so charitable institutions that are nevertheless tax exempt, all private entities that move national opinion and control huge amounts of money and buy political favor.

    And they are largely ignored and unregulated, they meet, they plan international strategies (KONY 2012 anyone?, The Family, Bilderberg Group, The Kock Bros Travelling Horror Show, just to name a few) and they all seek less government and abhor international cooperative government efforts.   Because governments that function in concert on regulations, laws and oversight would provide a counter weight to the destructive power of these organizations that answer to no one government and have the interests of only their group, and generally a rich one at that, who else sits on their boards, run the charities and businesses, run the banks and have an interest in a dominionist religion.   And they are not loyal to anyone but themselves.

    So, the economics are as co-opted as the policies and laws.  

  •  Krugman's problem (12+ / 0-)

    is that in the U.S. it's basically unpossible to acknowledge you can't get blood from a stone.  Most of that debt will never be collected ever, but the holders aren't ever going to agree to dismiss it.

    People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. The sensitivity of the poor to injustice is a trivial thing compared with that of the rich.
    That's from The Age of Innocence by Galbraith.
  •  Krugman's biggest problem is that he panders... (15+ / 0-)

    ...to the status quo. Paul Krugman's from the "whatever's-best-for-Paul-Krugman" school of economics.

    It's interesting to compare Krugman to Stiglitz, however. There are many differences between the two that often go unmentioned. Stiglitz, IMHO, maintains a somewhat closer philosophy to Hudson and Keen than Krugman ever has. But, even Stiglitz is very much into his own brand of self-promotion...albeit a slightly more altruistic version of same than Krugman, IMHO.

    Both Krugman and Stiglitz are categorized as New Keynesians...but, in fact, Stiglitz is more true to the label than Krugman (ever will be).

    A really good post, gjohnsit! But, I'm afraid it may be a bit too nuanced for some in this community to appreciate. C'est la vie!

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Mon Jun 11, 2012 at 11:14:39 AM PDT

  •  Thanks for the diary. I'm going to have to read (5+ / 0-)

    it again, and maybe look up keen to understand everything, but hey, you gave us a new option to consider. That's always good.

    "Such is the irresistible nature of truth that all it asks, and all it wants, is the liberty of appearing." - Thomas Paine

    by blueoregon on Mon Jun 11, 2012 at 11:20:24 AM PDT

    •  That's what I was shooting for (2+ / 0-)
      Recommended by:
      blueoregon, ozsea1

      I didn't expect this one to make the rec list. Criticizing Krugman just isn't going to over well here. I knew that.
        But if you want to challenge people's thinking you have to risk saying something unpopular.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 01:35:49 PM PDT

      [ Parent ]

  •  probably the best diary I've read in a long time. (5+ / 0-)

    I've never been a big fan of Krugman. He always seems to be off key to me.

    Thanks for the video of the Steve Keen interview. I'll have to put his book on my to read list.

    When I cannot sing my heart. I can only speak my mind.

    by Unbozo on Mon Jun 11, 2012 at 11:29:08 AM PDT

  •  We don't often disagree... (22+ / 0-)

    ...but we half-disagree here.

    The main acute problem of the economy right now is not enough demand, hence not enough jobs. Creating that demand in the short run requires more government spending.  Easing the acute problems buys breathing space to deal with the chronic problems. Those chronic problems are not amenable to the kind of neo-classical economics Krugman supports.

    But there is no way in hell that the U.S. will make the radical leap that is required, philosophically and, of course, practically, to deal with the chronic problems until the acute problems are eased.

    Some people argue that following the Krugman prescription is a distraction from the real work to be done. I argue, on the contrary, that it is a bridge.

    Don't tell me what you believe, show me what you do and I will tell you what you believe.

    by Meteor Blades on Mon Jun 11, 2012 at 11:53:44 AM PDT

    •  Both right. Well done. Just watched the HBO (5+ / 0-)

      special on the finance failure and TARP. Paulson hoped the infusion would encourage the banks to free up lending, and do the right things for the economy with out building in quid pro quo.

      They didn't regulate, the banks did not do the right thing. And they consolidated the number of institutions.

      The word "nationalization" is incorrect: it is receivership.

      Nice discussion.

      Science is hell bent on consensus. Dr. Michael Crichton said “Let’s be clear: The work of science has nothing to do with consensus... which is the business of politics. Science, on the contrary, requires only one investigator who happens to be right,”

      by Regina in a Sears Kit House on Mon Jun 11, 2012 at 12:45:12 PM PDT

      [ Parent ]

    •  what makes you think (0+ / 0-)

      that Krugman doesn't support policies that help in the long-term?

      •  Mostly, his economic model doesn't include things (5+ / 0-)
        Recommended by:
        gjohnsit, joanneleon, wsexson, annieli, ozsea1

        like banks, their role in the economy, money, private debt.

        If your model doesn't even allow for these things then it's pretty darn difficult to address them head on.

        For instance, Kruman thinks that for every borrower, there's a lender, so that no new dollars are created.

        Keen, and others (especially MMT), looks at actual, as opposed to merely theoretical, banking practices and thus show that private banks create new dollars.  Thayer do so by lending first and then finding reserves, which often eventually leads to using the Fed as lender of last resort, ie, the Fed creates new dollars.

        This was the main issue of debate between Krugman and Keen.

        Keen is right about this.

        MMT, which is comparable with Keen, and they will be working together in the future, has further things to say about this if you're interested.

        •  huh? (3+ / 0-)
          Recommended by:
          hnic357, Turn Left, Sembtex

          he discusses those things all the time. one reason he supports higher inflation right now is to erode the real value of private debts in order to stimulate demand. So then how can you say that his economic models doesn't include private debt in it?

          •  He still doesn't think that banks create new money (3+ / 0-)
            Recommended by:
            joanneleon, gulfgal98, ozsea1

            really.  Read the exchange with keen.

            Keen's big focus is on exogenous money, ie, private debt creation.  No neoclassical economist has such focus, so their thinking about private debt is very different than those who' focus it is.

            Also, your understanding of private debt is almost certainly closer to Keen's than to Krugman's cuz neoclassicals have to do all sorts of weird add-on's to their theory to grapple with the limitations (which I think is counter-intuitive) to their theories.

            You won't find Krugman saying: "A debt that can't be paid won't be paid".   A pretty intuitive stance, and one that Keen agrees with, though it's Hudson who most often says it.

            And increasing inflation won't do the trick.

            •  Endogenous, that is. (1+ / 0-)
              Recommended by:
              joanneleon
            •  Krugman (4+ / 0-)
              Recommended by:
              wsexson, hnic357, Turn Left, Sembtex

              never stated that increasing inflation would completely fix things by itself. It's on thing to do that will help a bit. Why do you think that eroding the real value of private debt won't help increase demand?

              Krugman also thinks that debt writeoffs are sometimes a good idea (mortgages, Iceland, etc).

              I think you are arguing against a more simplified straw-man than Krugman's actual beliefs.  TO be fair, it's easy to do because he intentionally simplifies his statements in any sort of media venue. You have to do things like read his blog on a daily basis or read his book to get the full extent of his thoughts.

              •  I don't mind Krugman. But, he still doesn't (2+ / 0-)
                Recommended by:
                gjohnsit, ozsea1

                believe that banks create new money :).

                And I also think MMT has a better macro picture of how money moves through the system than Keen does, though there's certainly room for what he's doing.

                Krugman's exchanges with MMT were also very interesting, and he did, eventually, concede some of their points.  Most important of which was recognizing that the US cannot go broke.

                And he seems to now have also conceded that new money creation does not create inflation in conditions of less than full employment.  Which is why he is now calling for the Fed itself to raise interest rates.

                Again, I don't hate on Krugman.  But also think other economists have valuable things to say.

                •  doesn't he? (0+ / 0-)

                  From his blog:

                  "Banking Mysticism, Continued

                  Update: It’s obvious that many commenters don’t get the distinction between the proposition that banks create money — which every economics textbook, mine included, says they do (that’s what the money multiplier is all about) — and the proposition that their ability to create money is not constrained by the monetary base. Sigh."

                  But yes, other economists do have things to say, ranging from interesting insights to complete baloney.
                  •  You should google "Steve Keen money multiplier" (0+ / 0-)

                    to see what the debate is about.

                    The money multiplier hypothesis is wrong according to Keen, as well as others who study the issue.

                  •  Ie, Krugman thinks banks ability to create credit (1+ / 0-)
                    Recommended by:
                    ozsea1

                    is constrained by base money, Keen doesn't think this.

                    Rather, banks make loans first, then find reserves.

                    •  right, I get that (0+ / 0-)

                      that's just not what you previously said (I'm assuming you were simplifying).

                      Now, I'm trying to work my way through Keen's stuff as we speak (won't get to much of it until at least later in the week), but could you please explain what evidence we have that Keen is correct about this?

                    •  From Krugman (2+ / 0-)
                      Recommended by:
                      ozsea1, Sembtex

                      Oh dear. Nick Rowe sends me to Keen’s latest, which asserts the following about New Keynesian models:

                          Firstly, there are similar underlying principles to the DSGE models that now dominate Neoclassical macroeconomics, and as with Ptolemaic Astronomy, these underlying principles clearly fail to describe the real world. They are:

                          -All markets are barter systems which are in equilibrium at all times in the absence of exogenous shocks—even during recessions—and after a shock they will rapidly return to equilibrium via instantaneous adjustments to relative prices;

                          -The preferences of consumers and the technology employed by firms are the “deep parameters” of the economy, which are unaltered by any policies set by economic policy makers; and

                          -Perfect competition is universal, ensuring that the equilibrium described in (1) is socially optimal.

                      What on earth? Point 1 is all wrong — NK models are all about sticky prices, so what’s that about “instantaneous adjustments”? (And who said anything about rapid return to equilibrium?) Point 3 is also completely wrong: NK models almost always assume imperfect competition, so that we can talk about price-setting agents.

                      This is all in Eggertsson and Krugman, by the way.

                      Nick uses a four-letter word to describe this; I can’t, because this is the Times.

                      •  that said (1+ / 0-)
                        Recommended by:
                        katiec

                        I'm not sure if Rowe and Krugman even fairly represent Keen's points there.

                        I'm just getting started on this particular debate.

                      •  Personally, I find MMT somewhat more (1+ / 0-)
                        Recommended by:
                        Meteor Blades

                        understandable in tackling these issues than I find Keen, mostly because Keen is a math wiz, and I'm a math moron.

                        MMT suffers from too much jargon and a boring presentation.

                        Basically, however, both are trying to more descriptive in how the monetary system actually works.  And since neoclassicism was around prior to the fall of Bretton Woods, it might suffer from a theoretical frame that has had to add on stuff to account for new realities.  Also, it never, generally speaking, actually studied banking.

                        Krugman thinks his additions work just fine.

                        Keen thinks it's time to have a theory that doesn't have to add add ons.

                        An example would be the barter issue.  Anthropologists can't find any indication there has ever been a barter economy.  So why begin by "imagining" a barter economy?

                        Why not begin where it looks like all money actually began?  With credit creation?  This may not seem like a big deal, but I think it is for, among other things, it puts credit at the center of economic thinking, and this has political consequences.

                        I think you'll enjoy Keen, I have.  And I also really like MMT.  
                        It's fundamentally changed how I view the world.  

                      •  PS, Nick Rowe just confused me re. the Krugman/ (0+ / 0-)

                        Keen debate.  

            •  Great comments, katiec (3+ / 0-)
              Recommended by:
              katiec, annieli, Meteor Blades

              You have a good way of explaining things in plain language. Thanks.


              "Justice is a commodity"

              by joanneleon on Mon Jun 11, 2012 at 02:34:23 PM PDT

              [ Parent ]

    •  I'm not surprised that many disagree (3+ / 0-)
      Recommended by:
      joanneleon, ozsea1, mithra

      I knew that criticizing Krugman was going to be unpopular with some.
         When I was first teaching myself about economics I read a lot of Krugman. Even bought a couple of his books. He says some things that I really like. I particularly like his political stands.

        However, as I began to learn more advanced stuff I realized that Krugman is rather limited in his views.

         I understand the "art of the possible" that is politics. But Krugman isn't a politician. Our intellectual leaders should have vision and not worry about what is politically possible. That is a requirement for being an intellectual.

         However, only the leaders on the left have abandoned that obligation. They've betrayed us in that way. Leaders on the right haven't. They still dream big. So big that they leave science and logic behind.

        Bridges are for politicians. We don't need someone to tell us where the bridges are. We need someone to say what should be on the other side of that bridge.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 01:46:34 PM PDT

      [ Parent ]

  •  Yves Smith has had "knock-down-drag-outs" w/... (2+ / 0-)
    Recommended by:
    gjohnsit, joanneleon

    ...Krugman, from time to time. On many occasions, she has called him out for supporting the status quo.

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Mon Jun 11, 2012 at 01:27:06 PM PDT

    •  just out of curiosity (4+ / 0-)
      Recommended by:
      hnic357, jiffypop, shalca, bobswern

      what status quo would that be, and why is Krugman wrong to support it?

      If it's too much work to explain it, maybe you could just link to the Smith articles?

      Thanks in advance.

      •  Here are three examples... (4+ / 0-)
        Recommended by:
        jeopardydd, katiec, ozsea1, gjohnsit

        Good and totally spot-on criticism, IMHO...
        HERE is Naked Capitalism righteously slamming Krugman for buying into housing industry hype. (Krugman’s been REALLY disappointing on this subject, IMHO.)

        Mixed sentiments on this one...
        HERE’s Naked Capitalism on Krugman and MMT. (I have mixed feelings about this one.)

        Totally over-the-top on this subject...
        And…HERE is Naked Capitalism going quite a bit off the deep-end, which they do from time to time; in this instance concerning “Americans Elect.”

        "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

        by bobswern on Mon Jun 11, 2012 at 07:29:01 PM PDT

        [ Parent ]

        •  thanks, (2+ / 0-)
          Recommended by:
          bobswern, ozsea1

          I'll take a look.

        •  ok, the second/third (same link) (0+ / 0-)

          one is a little strange. they are saying that Krugman is implicitly advocating for spending cuts (when that is not his position at all). At worst, he was sloppy with a blog post.

          The first, I'll have to look into more, but Krugman it looks to me on first glance that he may be wrong on the current housing data and it's potential for growth in a blog post. I guess he can make a mistake from time to time (is that really so surprising?).

          If he sticks to his guns after the additional evidence is pointed out to him, then that's a different matter, but just getting something wrong after seeing some data but not the entire picture is not really a think to "slam" him with, just something to "correct" him on, imo.

        •  also (0+ / 0-)

          I'm not really sure how those things are "status quo".

          •  Correction. And, 1 and 3 are status quo... (1+ / 0-)
            Recommended by:
            gjohnsit

            ...2 is "a mixed bag." HERE's the correct link for the MMT piece (sorry, my bad). And, actually, there were quite a LOT of posts over at Naked Capitalism on the whole Krugman-versus-Keen dust-up from March through last month. Many links for this one.

            And, reiterating what I stated above, I have mixed feelings about this particular subject. (This was #2, albeit improperly linked. Again, my apologies for that.)

            "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

            by bobswern on Mon Jun 11, 2012 at 07:57:15 PM PDT

            [ Parent ]

        •  MMT supporters can get weird on Krugman. (0+ / 0-)

          However, Krugman can get weird on them too.

          What's your mixed feelings about?

          Thanks,
          Katie

  •  Just read the diary and every single comment (11+ / 0-)

    and my heads a swimmin'.
    I don't do economist talk well, especially when it gets into the thick parts, but I have grown to trust certain people here on economic matters, a bunch who have posted in these comments.
    I learned a lot, I'll probably forget it, but thanks to everyone. This is why DK matters to me.

    Carry on...

    Here is the truth: The Earth is round; Saddam Hussein did not attack us on 9/11; Elvis is dead; Obama was born in the United States; and the climate crisis is real. It is time to act. - Al Gore

    by Burned on Mon Jun 11, 2012 at 01:50:18 PM PDT

    •  Same here (6+ / 0-)
      Recommended by:
      Burned, gjohnsit, emal, i m bobo, ozsea1, mithra

      and I have an interest (not knowledge) in economics.  It is diaries like this and the comments within them that have expanded my knowledge enormously.  I need to do a lot more reading to get a handle on what the biggest differences are and why they matter.

      I will say one thing.  I believe economics is much like my own profession (planning).  It is a combination of both science and art.  The science part is that we do know what does not work.  The art is finding the right solutions for the situations.

      On a personal note, gjohnsit is one (if not the) best diarists here.  This diary had me very confused and probably that is a good thing.  It is challenging me and others like me to look beyond X versus Y choices.

      "Growing up is for those who don't have the guts not to. Grow wise, grow loving, grow compassionate, but why grow up?" - Fiddlegirl

      by gulfgal98 on Mon Jun 11, 2012 at 04:09:03 PM PDT

      [ Parent ]

      •  I have more of an aversion to it (1+ / 0-)
        Recommended by:
        gulfgal98

        but I realize its importance so I try even though I'm screaming inside.

        Here is the truth: The Earth is round; Saddam Hussein did not attack us on 9/11; Elvis is dead; Obama was born in the United States; and the climate crisis is real. It is time to act. - Al Gore

        by Burned on Mon Jun 11, 2012 at 06:29:11 PM PDT

        [ Parent ]

  •  Dustin Hoffman Heroes "It's all bullshit" (3+ / 0-)
    Recommended by:
    gjohnsit, ozsea1, mithra

    Not economics but, same meaning. These debates are meaningless because it in order to prove a theory you have to have an experiment and have hard data to prove it works.

    During the depression, it still wasn't proven conclusively that Keynesian theory works. People still have to say "Well World War 11 ended the depression". That means to the right and left wars are good for the economy. Wrong. But we have wars all the time in a lame attempt to prove it.

    In a Democracy, there is always going to be a large degree of disagreement and never more so then now. Anyone who approaches a economic problem as a theoretical purist is bound to either get flattened in a debate or put out some really shitty policy that hurts millions and millions.

    No matter, any of the theories looked at all depend on one constant: trust. Trust was lost starting in Sept of 2008 and crime was welcomed in March of 2009 when FASB was threatened with extinction by Democrats no less. If the rule of law is not being enforced at the top then trust is gone and it doesn't matter what economic train you ride, they are all going to crash. It's just a matter of when.

    Talking about that shit now and ignoring the role of the banks and the do-nothing DOJ is mental masturbation regardless of where the theory comes from. "It's all Bullshit".

  •  The current purpose of liberals (2+ / 0-)
    Recommended by:
    gjohnsit, emal

    in the world is to be an opiate for the masses, in my opinion.


    "Justice is a commodity"

    by joanneleon on Mon Jun 11, 2012 at 02:29:34 PM PDT

  •  I take issue with your meme: (5+ / 0-)
    The government is currently, actively, picking winners and losers in the economy. That's the whole idea behind Too-Big-To-Fail. What's more, they've picked the working people of America to be the losers, eventhough we may not have made any bets at the gambling table.
    Three and a half years on, nobody has yet to offer an answer to the question: once those banks were allowed to be as big as they allowed to be, how would it have helped the working people of America to let them to fail?

    This meme constantly puts a class-warfare spin on things for emotional charge, while ignoring the fact that the different sectors of the economy are entwined, and the failure of one section is not isolated from the rest of the system. That's great for rhetoric, but lousy for problem solving, because it distracts us from the real problem, which is not the fact that they got bailed out, but the fact that they were allowed to become so big that their failure would take down the economy in the first place.

    They didn't bail out banks because they wanted to reward banks: they bailed out banks because it was the only emergency technique they had at their disposal, and letting them fail would have been catastrophic to all sectors of the economy. "Too big to fail" was not a creation of the bailouts, it was a description of a horrible circumstance.

    The problem is systemic, and still exists, but segments of the left are so intent on the idea of "punishing" the banks that they are willing to indulge in rhetoric that is, at best, a complete distraction from anything that will lead to legislative change.

    You can call it "class warfare" -- we call it "common sense"

    by kenlac on Mon Jun 11, 2012 at 02:35:32 PM PDT

    •  This is another example of a false choice (7+ / 0-)
      Recommended by:
      gulfgal98, emal, jrooth, katiec, i m bobo, ozsea1, mithra
      once those banks were allowed to be as big as they allowed to be, how would it have helped the working people of America to let them to fail?
       Not only are you giving only two choices, but you are restricting how to measure success.

        What should have happened was the banks should have been 1) nationalized, 2) broken up, and 3) had their CEOs prosecuted.
         What should have happened, as I list above, would constitute failure of the banks. It's just outside of your limited options of "doing nothing" versus giving the banks whatever they want.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 03:08:59 PM PDT

      [ Parent ]

  •  So if there is another way, doing away with (0+ / 0-)

    debt, then how is that accomplished? Maybe I'm in over my head here.

    "The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?" ~Orwell, "1984"

    by Lily O Lady on Mon Jun 11, 2012 at 02:42:43 PM PDT

    •  I agree (0+ / 0-)

      If there are other ways and this whole matter is being reduced to false either/or choice. Please share some of the other viable alternatives that have viability in the real world.

      If we don't change, we don't grow. If we don't grow, we aren't really living. - Gail Sheehy

      by itisuptous on Mon Jun 11, 2012 at 03:20:29 PM PDT

      [ Parent ]

      •  The author (2+ / 0-)
        Recommended by:
        ozsea1, jeopardydd

        completely misses the issue of ROI.  Or, in terms of government spending, investment.

        If the interest on borrowed money costs less than the wealth it returns then it is invested money.  

        Any businessman worth his MBA will borrow money and nearly 0% to get a future return higher than that.  They would borrow every cent they could get their hands on, in fact.

        Yet the right believes that doesn't apply to the government - even though they say the government should be run like a business.

        The whole lack of discussion on this frustrates me to no end.

        Which is good news for John McCain.

        by AppleP on Mon Jun 11, 2012 at 06:40:47 PM PDT

        [ Parent ]

  •  Bond markets are NOT saying public debt is 2 high (6+ / 0-)

    "The primary problem in the world economy today is extreme debt levels. The bond markets are saying that public debts are too high. You and your neighbors are saying that private debt levels are too high. In fact, debt saturates every segment of society. "

    Right now, 30 year T-bills are being purchased at a loss (negative real interest).  The bond markets are saying, "Please, please, spend some damn money."

    Public debt does not cause the same problems as private debt.  We can roll over the public debt, but we have liquidate private debt (e.g., mortgage cramdown) or reduce future private investment by paying it back.

  •  Here's the problem claim (6+ / 0-)

    that isn't warranted just by quoting an old "senior vice president" at a Federal Reserve Bank.  (As if there aren't hundreds of such titles at Fed banks.)  

    "In the real world, banks extend credit, creating deposits in the process, and look for the reserves later." (Holmes 1969, p. 73)
    This just isn't a true statement, or at least not true in the simplistic sense the Keen seems to have taken it, and appealing to the opinion of one Fed manager seems like a weak way to make an argument here.

    I work in banking and have served on the asset and liability committee, and it is simply a fact of life that no loan is ever made at bank unless the money is already on our balance sheet to lend it.  If it wasn't the bank's check would not be honored at another bank when deposited.  

    And banks have to balance their books every night, sending up warning signals to the treasury managers to go find cash from somewhere if it looks like it cash might be tight the next day.  While it is possible to go to the discount window for cash if you need it, and a few banks are indeed using it during the present crisis, it does not in any way mean that banks are creating new money just by independently lending it, as Keen seems to be arguing.  Because of the fact that laws and regulations limit the amount banks may lend and the collateral they may use for obtaining funds from either the Fed or other lenders, the supply of cash really is effectively controlled by Fed policy, not bank lending.  Krugman's account seems more correct here.

  •  Keen is most concerned with personal debt (4+ / 0-)
    Recommended by:
    jeopardydd, shalca, katiec, Sembtex

    I have heard him speak and this is his biggest issue. Too much debt being carried for too long by too many regular people. I have not heard him suggest we forgive personal debt. Your long post never really got to the heart of the debate between them.

    Do facts matter anymore?

    by Sinan on Mon Jun 11, 2012 at 03:31:25 PM PDT

  •  I'm in favor of erasing my debt and giving (0+ / 0-)

    me free money. Excellent idea!

    Rick Perry is George Bush without brains.

    by thestructureguy on Mon Jun 11, 2012 at 03:31:56 PM PDT

    •  Reading comprehension issues or just trollin'? (0+ / 0-)

      Heh.

      Both parties are beholden to their corporate sponsors. The Democratic Party deigns to throw us a few bones from the table on which to gnaw and squabble over, but it's just kabuki.

      by ozsea1 on Tue Jun 12, 2012 at 11:14:09 AM PDT

      [ Parent ]

  •  This is a very strange diary. (9+ / 0-)

    The point of it seems to have gotten lost in the haste to denigrate Krugman.

    Perhaps Krugman is wrong. Perhaps we should go back to the original theories on the income tax and ratchet rates up to 90%. Perhaps we need the Wobblies back.

    But it's hard to find your thesis in all of this, much less a decent explication and defense of it.

    I see quite a few disturbing things in both the national and the world-wide economy. And I see Krugman harping on many of them, while OWS and others attack the banks for theft on the grandest of scales.

    But this diary is largely incomprehensible, because it doesn't actually spell out what you think the economy needs or how it might be accomplished, or any reasonable defense of those ideas.

    Certainly there are points here and there. Certainly the scheme of bailing out the banks w/o bailing out those the banks are cheating out of their homes is hugely destructive. But tell me what your thesis is, not what it isn't.

  •  So, in your analysis that debt is causing (3+ / 0-)
    Recommended by:
    jeopardydd, shalca, David PA

    all of the problems, please explain all of the depressions that occurred in the 19th century.  Our debt wasn't very high back then.

    Occupy the voting Booth!

    by anonevent on Mon Jun 11, 2012 at 03:41:39 PM PDT

    •  You are very mistaken ... (6+ / 0-)

      ... if you imagine the 19th century as a cash economy.

      Quite the contrary. The era was absolutely choke-full with debts and credit, probably much, much more so than today. Depressions of the time involved severe credit contractions just like today.

      The difference with today was the structure of credit relations. Credit was for the most part between suppliers and consumers without any intermediation through a banking system. It could be an industrialist extending credit to its resellers or in the other direction, between an industrialist owing to its suppliers, between a homemaker and her grocer, a renter and his landlord. It was absolutely pervasive. It was all the more important that actual, physical money was very scarce and dangerous to hold on,  because of the reliance on metallic standards, gold and silver.

      It's actually quite fascinating to look at probate records of the 1850s and see the astonishing amount of effort that was expended on resolving those myriads of debts when estates were settled. You can also read novels of the era, from Dickens to Balzac, and you will see how much credit in every form and everyday occurrences occupied the minds and the souls.

      As a matter of fact, modern (20th century) banking emerged in large part out the necessity to bring liquidity to this system through the practice of discounting private notes (hence the "discount window" at the Fed), far more than the need to store and dematerialize metallic money.

      Credit always preceded money and banking, all the way back to the Babylonians. Contrary to what the fables often taught in Econ 101 about a supposed evolution from barter to cash to credit, it is credit that creates money and banking, not the other way around.

      I deal in facts. My friends are few but fast.

      by Farugia on Mon Jun 11, 2012 at 05:14:15 PM PDT

      [ Parent ]

    •  Actually (2+ / 0-)
      Recommended by:
      Kristina40, Farugia

      The debts of the early 1870's was higher than any other level in American history until this past decade.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Mon Jun 11, 2012 at 05:47:42 PM PDT

      [ Parent ]

  •  I know Krugman supported free trade ( so far as to (1+ / 0-)
    Recommended by:
    gjohnsit

    comparing Seattle WTO protesters including unions to racists in South AFrica). But then changed his view. He thinks TBTF banks are not an issue. But even for a econo-dummy like me, it is no-brainer. He thinks banks lend money using our deposits whereas they create money when they make loans (Ellen brown has written about this). And gasp! he compares Obama/Romneycare to Social Security.  Those are some problems I found with him.

    Where he is right, he is very good at explaining things in simple language.

    "The word bipartisan means some larger-than-usual deception is being carried out”. - George Carlin

    by Funkygal on Mon Jun 11, 2012 at 04:26:32 PM PDT

    •  He can be bland because his writings lack any (0+ / 0-)

      sense of political struggle.  That explains why he had an academic response to OWS ( "hey, they need to get wonkish - like me" ).

      "The word bipartisan means some larger-than-usual deception is being carried out”. - George Carlin

      by Funkygal on Mon Jun 11, 2012 at 04:28:45 PM PDT

      [ Parent ]

    •  regarding TBTF (0+ / 0-)

      he seems to think that even if you get the banks smaller, even a smaller bank failing can take down the entire system (and uses the take down of the 28th largest bank that started the 1930's bank runs as evidence). He thinks that's why they have to be heavily regulated.

      I don't know if he's correct, but it's not an unreasonable assertion or anything.

  •  So Krugman is working more within the (1+ / 0-)
    Recommended by:
    Sembtex

    system, the real world, not focusing on some moves or changes that he doesn't think are possible. That's how I see it. Doubtless you will feel that is wrong or too simplistic. But that's where I am in my understanding. Is it just me or is it funny that two prize winning economists (Stiglitz and Krugman) more or less agree (according to my understanding)? Are you saying those prizes mean nothing?

    "extreme concentration of income is incompatible with real democracy.... the truth is that the whole nature of our society is at stake." Paul Krugman

    by Gorette on Mon Jun 11, 2012 at 04:29:17 PM PDT

    •  Forgot to add that for myself, overthrowing (1+ / 0-)
      Recommended by:
      Sembtex

      the current system in favor of something better for the 99% is something I would support.

      "extreme concentration of income is incompatible with real democracy.... the truth is that the whole nature of our society is at stake." Paul Krugman

      by Gorette on Mon Jun 11, 2012 at 04:30:37 PM PDT

      [ Parent ]

  •  Good luck getting viable "tax reform" (1+ / 0-)
    Recommended by:
    emal

    ..through a thoroughly corrupt and partially insane House, and a Senate with some of the same attributes but with archaic filibuster rules as an added bonus.

    ..and we sang dirges in the dark the day - Do you recall what was the feel, the day, the music died -- Don McLean

    by Anthony Page aka SecondComing on Mon Jun 11, 2012 at 04:35:44 PM PDT

  •  Took me several reads (1+ / 0-)
    Recommended by:
    gjohnsit

    But I think I finally see your argument and reasoning and what exactly you are saying about Krugman...and how and why you feel he is protecting the status quo (at least  regarding debt write off and or tax burdens)

    It sounds logical what you are saying...thanks for informing me about where his thinking and proposals perhaps falls short in solving the financial problems we face.

     I Learn something new everyday!

    The Plutocratic States of America, the best government the top 1% and corporations can buy. We are the 99%-OWS.

    by emal on Mon Jun 11, 2012 at 04:46:49 PM PDT

  •  Steve Keen is the Man (2+ / 0-)
    Recommended by:
    katiec, gjohnsit

    Classic: Debunking Economics: The Naked Emperor of the Social Sciences (2001, Pluto Press Australia) ISBN 1-86403-070-4

    slutty voter for a "dangerous president"; Präsidentenelf-maßschach; Warning-Some Snark Above"Nous sommes un groupuscule" (-9.50; -7.03) "Sciant terra viam monstrare." 政治委员, 政委!

    by annieli on Mon Jun 11, 2012 at 04:56:48 PM PDT

  •  This might be worth reading, but (3+ / 0-)
    Recommended by:
    Xkeeper, Sembtex, jeopardydd

    the misrepresentation of Krugman's alien invasion comment as support for arguing he is in favor of increased military spending pretty much screams bull-shit.

    Even if you disregard that any article about Austrians that ignores 50+ years of continually being wrong about the hyperinflation that is right around the corner is missing the entire point about the criticisms with Austrians.

  •  The economy is about to collapse! (0+ / 0-)

    And the Good Deal (subsidized capitalism) is running out..
    It's 2008 all over again but much, much  worse …
    http://theeconomiccollapseblog.com/

    Nudniks need not apply.

    by killermiller on Mon Jun 11, 2012 at 05:04:30 PM PDT

  •  The holders of debt are going to have to take a (4+ / 0-)
    Recommended by:
    katiec, ozsea1, David PA, Sembtex

    haircut eventually.
    This situation existed at the end of the Roman Republic. The country was divided between debtors who could never pay and creditors. Politicians (like Julius Caesar) became generals so they could conquer neighboring countries (Gaul) to pay off election debts. It ended in a civil war and a victorious Caesar cancelled 25% of all debts and lowered legal interest rates and started  massive public works projects . Caesar was soon assassinated.
    Krugman has already figured on the hair cut and has moved on to the public works and other stimulus measures.

  •  Much ado about nothing, imo. (3+ / 0-)
    Recommended by:
    katiec, ozsea1, Sembtex

    Krugman's point is that we should increase Federal spending to promote job growth, directly, as I've read his articles. The American Right says we can't afford it because it would increase our Deficit. Krugman says that doesn't matter.

    The above is really an argument about what its result would be. Krugman is saying it doesn't matter what the Right says its effects would be. I agree with Krugman on that point.

    The fact that he's obliged to argue about its effect is much more a statement of how the argument is framed (by the Right), but that doesn't make his argument wrong. Keen is taking issue with the Right, not with Krugman, but I wouldn't mind seeing Keen argue the point with George Will.

    The victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory.

    by Pacifist on Mon Jun 11, 2012 at 05:42:51 PM PDT

    •  I really did think they both got their panties in (0+ / 0-)

      a wad over relatively little, and both should save vitriol for the right wing.

      Both should have conducted their exchange with far greater courtesy.

      There really is, however, differences with their views.

  •  Well, of course not (3+ / 0-)
    Recommended by:
    katiec, ozsea1, gjohnsit
    What we see are two different versions of the status quo. Neither the Chicago School, nor the Krugman school would make any fundamental changes to the system. Neither version would fix any systemic problems. Neither version would upset the financial elites of the world.
    Of course not.  That's the nature of a hegemonic system.  It is "adiabatic", it neither lets anything in nor anything out.  But, when I tried posting a diary today about the characteristics of hegemony, how much attention do you think it got?

    The dominant ideology gets to call itself non-ideological, just "common sense", just "the way things are", "the way the world works".  If that was true, then those dominant ideologies would never change.  We'd still be loyal to the doctrine of the "divine right of kings" and "le droit de seigneur".

    The law, in its majestic equality, forbids rich and poor alike from sleeping under bridges. ~ Anatole France

    by ActivistGuy on Mon Jun 11, 2012 at 06:08:49 PM PDT

  •  To be blunt (3+ / 0-)
    Recommended by:
    auditor, ozsea1, Dr Erich Bloodaxe RN

    this is Bush's fault.

    Remember when he inherited a surplus and immediately went about "fixing" the problem?

    Without the tax cuts and wars the debt would be a small percentage of our GDP and the deficit would be a meaningless blip until the economy turned around.

    It was planned.  He spent the surplus and put us into debt on purpose!  

    The GAO TOLD US that there would be trillion dollar deficits in 2010 if the tax cuts went through and he did it anyway.

    Romney has no plan to fix the deficit/debt problem.  He wants to make it WORSE.  That is the only way they can see to eliminate the social safety net.

    We can grow our way out of the debt or we can go the way of Greece.  Republicans and Democrats have different views on this.  Which is why Republicans should be completely shut out of power for a generation.

    Which is good news for John McCain.

    by AppleP on Mon Jun 11, 2012 at 06:15:00 PM PDT

    •  Actually we can take this back (2+ / 0-)
      Recommended by:
      taonow, Dr Erich Bloodaxe RN

      to Reagan. This snowball has been rolling down hill since "trickle down" was embraced and the spigots of money started flowing to congress in return. Clinton did his part by deregulating the banks and killing Glass Steagall. They are all the same in that they serve their masters well and we are NOT their masters.

      ~War is Peace~Freedom is Slavery~Ignorance is Strength~ George Orwell "1984"

      by Kristina40 on Tue Jun 12, 2012 at 05:36:45 AM PDT

      [ Parent ]

  •  bonddad was a pompous !@# (3+ / 0-)
    Recommended by:
    ozsea1, gjohnsit, ftm

    i highly respect your posts but don't ever cite bonddad again please.  unless you want to cite his diary series where he mocks his detractors, only for the market to crash the next day or such.  my favorite ones were the V recovery series.... grrrrr

    i agree with this "third way"... that allowing the system to fail and the rich to lose it all is the way to go.  but we all know that they will somehow benefit from the crash while we regular people pay the bill.  

    there is no "free" market.... that's a marketing term for "oligarchy".... for those sons of bitches to rape and pillage while mother earth or the little guy to get eaten up by them and their "private equity" firms....

    for mankind to survive the coming environmental (and economic) catastrophe, we are going to have to physically take back all the money and resources the rich have stolen(non-violently of course, some 99% tax hikes on the 1% for a few years and perhaps some retroactive ones if that doesn't do the trick) and apply it to healing the planet and its downtrodden people.  then we are going to have to set up a system ruled by Fairness.

    stalin and hitler are the result of letting an oligarchy run amok again.  that's where things are going.

    as with everything in the world, the equations always get balanced.  the world has been on a path away from tyranny and hate.  there is no turning back now.

    the solution isn't communisn or socialism or any other ism.  is there one for Fairnessism?  too bad people are too greedy to vote for fairness.

    Stop Prohibition, Start Harm Reduction

    by gnostradamus on Mon Jun 11, 2012 at 06:59:06 PM PDT

    •  I only quoted Bonddad (0+ / 0-)

      because some still hold him in respect, and many of those same people disagree with me here in this diary.
         I'm still curious how those people can argue for massive deficit spending when their hero says that's not the way to go?

      I actually think Bonddad has a decent grasp about some things. If its in his field of expertise he's pretty good.
        I think his weakness is big picture stuff...and his total lack of humility.

      Callate o despertaras la izquirda! - protest sign in Spain

      by gjohnsit on Tue Jun 12, 2012 at 06:54:32 AM PDT

      [ Parent ]

  •  Massive amounts of debt are not the cause. (5+ / 0-)

    They are the symptom.  The cause is distribution:  too few people can create too much, but the people who don't contribute (because they aren't needed) cannot show they earned their share, so they go without.  The debt is a symptom: as more people join the "un-needed" group, they borrow while they still can....

    Think of a world where 50% of the workforce can easily supply 100% of everyones wants and needs.  So, do 1/2 the people work and 1/2 sit on their asses?  Or does 1% make 50% of the people work their asses off, collect 1/2 the output, and use artificial shortages to control the rest?

    You can't austere your way out of our situation, that is nuts.  Spending your way out forces a redistribution, so even if you don't understand or can't admit to the reality, in a way you are still addressing it.  

    and their contempt for the Latin schools was applauded by Theodoric himself, who gratified their prejudices, or his own, by declaring that the child who had trembled at a rod would never dare to look upon a sword.

    by ban48 on Mon Jun 11, 2012 at 07:06:00 PM PDT

  •  Free markets? Pfffft. (3+ / 0-)
    Recommended by:
    i m bobo, ozsea1, gjohnsit

    A free market is like a world without friction. Fiction.

    What idolators of the "free market" mean is a "politics-free" market, but there is no such thing - never has been. Every economy is a political economy. And those who flog the free-market notion just don't want us to notice the intrinsic politics, who the winners and losers are or would be, in their regime of so-called "free" markets.

    Thanks for pointing us to Keen and Minsky.

    "Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing ever happened." Sir Winston Churchill

    by psnyder on Mon Jun 11, 2012 at 07:26:23 PM PDT

  •  This is a badly oversimplified reading of Krugman (2+ / 0-)
    Recommended by:
    Sembtex, jeopardydd

    I notice that the diarist doesn't really offer significant quotation of Krugman, but only quotes his critics.  If you want to refute Krugman, lay out his arguments accurately and fully - USING HIS ACTUAL WORDS. You can't just cite some quotes from his critics and consider that you've presented a fair or convincing argument against Krugman. It's ridiculous to cite Chris Hedges and then simply assert that oh, look, that must be what Krugman is doing. Krugman's been vehemently against the consensus "neoliberal" economics of the last decade, criticizing the media for inadequate reporting, Democrats for failing to fight back against the austerity nonsense - and Republicans for peddling failed libertarian/teabagger ideas.  How you manage to envision Krugman's numerous columns on these matters as an attempt to distract from the real issues, heaven only knows.

  •  Liberals Bite Back (2+ / 0-)
    Recommended by:
    katiec, gjohnsit

    The idea that the liberal class has been gutted by the corporate class is belied by Daily Kos. Think what you want of the church or the Democratic Party, they aren't any better or worse than what we make of them. They are our tools, ultimately, and as long as there are liberals there is no way to defeat liberalism.

    But whether Krugman lost this battle or not is really not relevant to what we need to do. The problem we have is structural. So, saying you are for or against public debt or private debt or that debt is too high or that it's a problem doesn't really matter. The deficit that matters is the trade deficit. That's what is impoverishing the U.S., and fixing that is the key to getting back on track.

    For example, the decline in unions and the decline in wages are directly related to free trade. As we've bought in more and more to the siren song of cheap labor we've brought cheap wages on ourselves. Our national policy is to hold down wages and ship wealth-producing jobs overseas.

    You cannot package up and ship almost $300 billion a year to China (and another two-thirds of a trillion to other places) never to be seen again without rapidly depleting the nation of its cash.

    At this point I usually mention uniform tariffs and an international minimum wage.

    But the bottom line is that the U.S. economy (and therefore, really, the world economy, because we buy everything) has been wrecked by mismanaging our trade relationships.

    To the extent that Krugman and others debate people who think debt and deficits are important, they are all distracting us. When we've fixed the structural problem we can worry about this other, less important stuff. Until then, I think the Euro is a safer bet than the dollar.

  •  Interesting. (2+ / 0-)
    Recommended by:
    Kristina40, gjohnsit

    I'd like to see an economist deal with the issue of the trillions of dollar in notational value in derivatives and what effect it has on economic choices made today.

    Part of the economic solution, it seems to me, is getting back some of the wealth distributed to the 1% in last 10-20 years.

    “I freed a thousand slaves. I could have freed a thousand more if only they knew they were slaves.” - Harriet Tubman

    by Publius2008 on Mon Jun 11, 2012 at 11:01:32 PM PDT

    •  Bingo! Lost in all this austerity-vs-borrowing (4+ / 0-)
      Recommended by:
      Kristina40, gjohnsit, splashoil, melo

      brouhaha is the damn CRIMES that were committed.  The damn banksters were selling bags of air for the price of bags of gold, fraud pure and simple.  Now I'm just a simple caveman, but if I buy a car that explodes as soon as I drive it off the lot I'm damn well gonna get my money back.  If the dealer pulls in 20 random people off the street and empties their wallets to pay me back, then assigns them the title to the burned-out wreck, seems to me the justice system should take a dim view of such shenanigans.  TRILLIONS were stolen by barefaced conmen.  We know where the money went, all the transactions are matters of record.  Sentencing these goniffs to prison and clawing back their ill-gotten gains would provide more of a boost to the economy than a QE3 or another half-assed stimulus package.  But it's never gonna happen cos the politicos need that money to flow freely into their campaign coffers.  Feh.

      It ain't free speech if it takes cash money.

      by Uncle Igor on Tue Jun 12, 2012 at 12:50:05 AM PDT

      [ Parent ]

  •  Just a thought... (0+ / 0-)

    I think some of the more visceral reaction to your diary may stem from your choice of title. You imply by the structure of your title that Krugman -- and thereby his supporters -- are rooted in "rhetoric" while Keen is rooted in "reality." (Maybe you meant to do that.) If you're trying to win people over to your point, it might not be helpful to classify them as opposing reality. It makes it hard to read with an open mind.

    "Mitt Romney isn't a vulture capitalist: vultures only eat things that are dead." -S. Colbert

    by newinfluence on Mon Jun 11, 2012 at 11:49:05 PM PDT

  •  What Would Distribution of Money (1+ / 0-)
    Recommended by:
    gjohnsit

    And debt look like in a just society?

    "I'll believe that corporations are people when I see Rick Perry execute one."

    by bink on Tue Jun 12, 2012 at 03:29:53 AM PDT

  •  Thank you (1+ / 0-)
    Recommended by:
    gjohnsit

    Thanks for the diary. It has been bloody painful to listen to both sides these past few years as they rant at each other.

    The simple facts remain that the economy pre crisis was only growing because of a rapid expansion in debt (remember those folks using their homes as ATMs and the government running wars on the credit card). As such it was unsustainable. So all attempts to try to get back to those levels are doomed to failure.

    Japan too has shown that simply trying to spend to keep the economy going is futile (it does allow normality to sort of exists, but eventually you are screwed).

    What is required is a wholesale reboot of the economy ... and that requires among other things a repudiation/writeoff/writedown of a lot of debt. To ignore this is to ignore reality.

    Those who make peaceful revolution impossible will make violent revolution inevitable. - JFK

    by taonow on Tue Jun 12, 2012 at 06:01:00 AM PDT

  •  Debt: A Case Study (1+ / 0-)
    Recommended by:
    katiec

    Michael Olenick:

    Servicers give lip service to the notion that foreclosure is an option of last resort but, only when recognizing losses, do their words seem to sync with their behavior. But it’s all about the incentives: servicers get paid to foreclose and they heap fees on zombie borrowers, but even with all sorts of HAMP incentives, they don’t feel they get paid enough to do the work to do modifications. Servicers are reimbursed for the principal and interest they advance, the over-priced “forced placed insurance” that costs much more and pays out much less than regular insurance, “inspections” that sometimes involve goons kicking in doors before a person can answer, high-priced lawyers who can’t figure out why an assignment is needed to bind a property to a trust, and a plethora of other garbage fees. They’re like a frat-boy with dad’s credit-card, and a determination to make the best of it while dad is still solvent.

    Despite the Obama campaign promise to bring transparency to government and financial markets, the investors in trusts remain largely unknown, so we’re not sure who bears the brunt of the cost of Ocwen’s incompetence in loss mitigation (to be fair Ocwen is not atypical; most servicers are atrocious). But, ACE2007-HE4 has a few unique attributes allowing us to guess who is affected.

    Read the whole piece to get a good picture of the sludge that Sheriff Tim and Barack are backstopping with our taxes/debt.  Of course there was no need for any shovels or digging to throw the money away...
  •  Think of the problem in reverse to see how silly (3+ / 0-)
    Recommended by:
    katiec, melo, Dr Erich Bloodaxe RN

    it gets:

    Ok, we want to increase employment by 1 million.  So we want 1 million new workers.  Ok, what do we want them to do?

    We could come up with lots of ideas:  rebuild roads & bridges, clean up dump site, environmental improvement....  But, these are all big government directed programs and now we are communists.

    How about more teachers, fire-fighters, policemen...???  Communism again.

    Ok, so we want 1 million new jobs, but we want to do it the right way and have private industry employ them for non-gubmint business.  So... if private industry had the need for 1 million workers, wouldn't they be hiring?  We want private industry to hire people "by magic of the free market" (so we've already become irrational by banking on magic).  So to make the magic work we incentive-ise, give grants, give away resources such as land and mineral rights, loosen laws, and basically pretend we are not doing anything while trying to ensure an outcome.

    It is f'ing stupid, and I do agree Krugman never tackles the stupid head-on.  But, I don't think he can without being labelled a communist.  Our economics is the ultimate naked emperor.

    and their contempt for the Latin schools was applauded by Theodoric himself, who gratified their prejudices, or his own, by declaring that the child who had trembled at a rod would never dare to look upon a sword.

    by ban48 on Tue Jun 12, 2012 at 07:47:42 AM PDT

  •  new world (1+ / 0-)
    Recommended by:
    melo

    Great post--the world has changed and we need to change our ways.  The former world of countervailing powers has been altered--first by corporate money and control of the media--and second, more importantly, by freer trade.  Capital now flows effortlessly to the least costly environment--be it labor, natural resources, or capital itself.  Transport of goods and services have become exceeding cheap and efficient.  Thus, we don't control our own ship.

    This smaller world will lift the poorest nations and depress the richest-- until some sort of equilibrium is accomplished.  Right now, we live in the country with the most consumption--and many of those purchases are spent on foreign goods, creating huge trade deficits--we are literally spending away our wealth.  Trade deficits are much more damaging than budget deficits--and neither the left nor the right want to discuss this too much.  The media ignores this fact--the business schools minimize the long term affects.  Yet, we all know that our children won't be as rich as we are--and that their children will reminisce about their grandparents wealth.

    Apres Bush, le deluge.

    by melvynny on Tue Jun 12, 2012 at 07:47:58 AM PDT

  •  America pay your bills and live within (0+ / 0-)

    your means.

    I cannot believe that your solution is to default on your debts.

    I better spend, spend, spend and tell my creditors to find a way to pay for it, not my problem.

    •  please re-read the dairy and check out the links (0+ / 0-)

      This is dense thoughtful stuff. For most, wrapping our minds around economic theory and synthesizing new ideas is like discussing quantum physics. Not for the faint of heart or mind.

      Both parties are beholden to their corporate sponsors. The Democratic Party deigns to throw us a few bones from the table on which to gnaw and squabble over, but it's just kabuki.

      by ozsea1 on Tue Jun 12, 2012 at 11:18:47 AM PDT

      [ Parent ]

  •  Is this simply an echo-chamber diary (0+ / 0-)

    ..or are you interested in reaching people who are not already with you? Because if you are, it would be nice if you could explain a bit about your side of the argument, what this guy Keen stands for...I followed a couple of links and found stuff clearly not intended to communicate with anyone unfamiliar with some pretty obscure lingo. You complain that the mainstream media presents the choice as between Krugman-Keynsians and Chicago-School "Austerians"--but you have nothing here to help someone who would like to know what your alternative is.
     

    "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

    by Alice in Florida on Tue Jun 12, 2012 at 09:02:19 AM PDT

  •  Can't recommend this diary. (1+ / 0-)
    Recommended by:
    randomfacts

    This is simply wrong:

    The primary problem in the world economy today is extreme debt levels. The bond markets are saying that public debts are too high. You and your neighbors are saying that private debt levels are too high. In fact, debt saturates every segment of society.
    That is what Germany and the republicans would have you believe, but that is not a proper diagnosis of the American economy or even the EU right now.

    The bond markets are telling the US to borrow and invest - that is why we are seeing the very lowest US bond rates in history.

    The bond markets are pushing up rates on Spanish and Italian government debt because Spain and Italy can't print their own money.  In contrast, the US, the UK, Japan, Sweden, etc., each can, and all have low rates on their bonds.  They could theoretically print all they wanted and retire the debt (that is what Krugman means in your quotes above).

    I don't dispute that Krugman is offering suggestions that do more to maintain a status quo than not, but in the face of obstructionists who want to do nothing to help, that does not strike me as a perverse strategy.  Let's stop the bleeding before we move to a new paradigm.

    Hey, Republicans, the whole world is watching.

    by TAH from SLC on Tue Jun 12, 2012 at 02:20:15 PM PDT

  •  Okay (0+ / 0-)

    You say there are more than two choices.

    I kept reading, hoping, and was disappointed.

    Because you NEVER

    MENTION

    WHAT

    THE OTHER

    CHOICES

    ARE!!!!

    Now that, unlike what you posted, would be worth reading . . .

    "Some ... facts are true for no reason. They are accidental, lacking a cause or deeper meaning." Gregory Chaitin

    by Noziglia on Tue Jun 12, 2012 at 02:39:38 PM PDT

  •  What? (0+ / 0-)
    I just think that people are missing the most important idea here: massive amounts of debt are the cause of this economic mess, so why would even larger amounts of debt be the solution?
    Massive amounts of debt are NOT the cause of this economic mess.

    Massive amounts of debt are a result of the causes of the economic mess.

    The previous administrations did several things to create our current mess.  They deregulated finance, allowing major financial institutions to simply become gambling pits, and then they slashed revenues by instituting tax cuts for the wealthy at the same time they were taking on 'off the books' debt by starting multiple unfunded wars of choice.

    They created the massive debt, but the debt itself is not the root cause of our problems, any more than taking out a mortgage is 'an economic mess' for Joe Citizen.

    Spending that generates jobs for the poor and middle class is key to getting money turning over in the economy again.  You're right, though, that it shouldn't be 'credit card spending'.  We should raise revenues to offset the spending, letting those who have benefited obscenely from creating our financial woes pay back what they took.

    Good on BondDad if he saw through the Republican obsession with 'debt', as opposed to focusing on increasing revenue collection while putting money in the hands of the poor - who spend it, getting taxed on pretty much every single transaction.

    While 'debt' can become a problem if it gets big enough that the interest payments crowd out everything else in one's budget, a government has an option that private citizens generally do not - it gets to decide how much income it's going to get to pay down that debt.

  •  Great diary. (0+ / 0-)

    Usually I'm not a fan of your diaries but I do like this one. First of all, we agree that Krugman has blind spots and that there's a broader range of choices out there than just Chicago versus Krugman. We disagree that bond markets are saying public debt is too high. The bond markets for non-Eurozone countries (US, UK, Japan, Switzerland) and Germany are at historic highs. The bond markets for some countries trapped with huge trade deficits and political paralysis are coming apart, with good reason. But I am more willing to accept your broader point there that high public debt is not a good thing, and even more so that high debt in general (public and private, although most of it is private- with the sole exception of Japan where it is about 50/50) is deeply problematic. The problem to my mind is not just high debt in general, but a growth model of the economy where nominal debt is growing faster than nominal output, as prevailed from the late 1970s to the late 2000s. Additionally, economic models that do not take into account the levels of private debt and how it is created (as Keen explains) are problematic. Finally, I would agree that Krugman, while he is deeply frustrated by the political dimension, can't fully account for them in the neoclassical models he relies on. Thank you for this interesting diary.

    "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

    by randomfacts on Tue Jun 12, 2012 at 06:44:28 PM PDT

  •  Shenanigans (0+ / 0-)

    I call, forthwith, from the very first line:

    "...It is worth noting that not only did Krugman not win the debate, he was pretty convincingly defeated. Businessinsider, which didn't have a dog in this race, explained it as thus:"

    Blog exchanges do not a debate make.  And one pull-quote from a (for-profit) business web site is pretty unconvincing evidence of 'defeat'   Ferinstance, from the very end of the same article: "Is Krugman's neoclassical model ideal? Probably not.  Does Minsky have a point? Yeah, probably.  But Keen's avowal that the Fed has little power is also short-sighted."  

    See; it was Krug won the debate - or was it?!?  DUM-DUM-DUUUUUM!
    Pull-quoting is fun - so and easy to do!

    Screw the Debt Jubilee; just give people free money.  Rebuild a few hundred crumbling bridges before we lose more drivers on I35W-like disasters.  Launch those two mini-Hubble satellites the NSA just happened to find gathering dust in a broomcloset...  Or possibly land a base on the F&%$ING MOON BEFORE THE CHINESE!

     

  •  Diary is totally off the mark (0+ / 0-)

    By misrepresenting Krugman, you essentially set up a strawman, making pointless arguments that don't reflect reality. More to the point, this is nothing but a hit piece on Krugman.

    You aren't suggesting what should be done, just jeering at Krugman and lionizing Keen, for some weird reason.

    massive amounts of debt are the cause of this economic mess, so why would even larger amounts of debt be the solution?
    Interesting stat came out this week, a significant number of states are seeing their revenues increase. It's modest, on the order of 5 to 7 percent growth.

    Well that money isn't coming from Washington, it's coming from more employment and income taxes, and business taxes, and firming real estate prices. The speculation on NPR's Marketplace was that the increases are due to recovery and improvement in consumer sentiment.

    Increased confidence means more large ticket and durable good orders.

    Per Krugman, additional strong stimulus right now would improve this virtuous cycle and restore stability so we could stop the loss of public (and private) sector jobs, and beat down unemployment further, faster.

    This in itself strengthens government coffers and reduces demand for government safety net services. Effective enough on a wide scale, it pretty much winds up paying for itself. That's what Krugman is getting at.

    His "I don't care" remark re: Keynes was a very strong statement. He's saying that he's not a Keynes groupie, a fetishist such that if Keynes said such and such, or meant this and that, he doesn't give a shit. He's not beholden to Keynes or anyone else.

    He has his own ideas. And they're good ones.

    Also - huge plus here - what he does recommend is fully thinkable and achievable in the current framework, if the will for it is there. You label it "status quo," I call it realistic.

    Oh yeah, sure gjohnsit, what we really need is a complete re-think and reworking of our entire economy, and get rid of money and private property and revise the banking system and let major financial institutions collapse and all that other good stuff.

    In some fairy dream. Ain't gonna happen. Not now, not ever. So Krugman proposes solutions that will work and are realistic in scope. They are also short term, immediate solutions. Not long-term, permanent policies.

    When the economy is back on a solid footing, then we can turn to debt and deficits and deal with them at that time. Nobody's saying we don't do that, but like Krug says, we don't do it at the very moment the economy appears to be recovering.

    Every day's another chance to stick it to the man. - dls

    by The Raven on Wed Jun 13, 2012 at 05:08:53 PM PDT

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