Charting Fun with Krugman - Robert P. Murphy

habaker91 · 2012-05-25T16:07:21.123617+00:00

Write plainly as I don't know what your vague "the speculative implications of contextually distant Krugman factoids" refers to.

This whole thread is about one economist challenging Krugman's claims about the severity of financial crises before the Fed was created compared to after. Krugman made the initial comparison, so if you have a problem with someone making a causal link between a comparison of a factor in these two eras, then take it up with him.

TheGhostOfNoLibs · 2012-05-25T15:50:23.348358+00:00

By mobilizing idle resources, it funds private wealth-creating activity.

That's assuming that the loss in future productivity from capital being used in private activity being diverted to government-directed activity doesn't outweigh the mobilizing of idle resources that the government stimulus spurs, something I strongly disagree with.

Ok, then structures demanded by investors will get built by the idle construction firms. There is no crowding out when there is excess capacity.

There isn't it going to be a 1:1 ratio between resources a stimulus program makes use of, and reductions in the amount of resources that are left idle. There is no guarantee that those construction firms that are idle are capable of doing the work that the private investors demand.

This is a false premise. Markets and private enterprises fail all the time.

Your argument is based on a false premise: that markets and private enterprises failings all the time means that private activity is not generally much more productive than government funded activity.

Markets are terrible at delivering things like infrastructure, health care, social safety nets, clean air and water.

Markets are extremely good at providing health care. The two fields of medicine least affected by government regulations and subsidies: laser eye and cosmetic surgery, are the only two fields of medicine that have seen costs go down over the past decade, while quality has advanced tremendously.

Markets don't provide social safety nets of the government-variety, meaning with guaranteed income for every one that has income below a certain level, because they're inefficient and harmful, and markets generally don't do things that are inefficient and harmful.

It's true that markets are not good at providing public goods like infrastructure and police protection (which includes policing against pollution), which is why governments need to exist. This is not due to the inefficiency of markets, but the lack of a market existing for these goods.

If it were being utilized, we wouldn't have a need for the stimulus to begin with. That's the problem.

There is no homogeneous "it". Most resources are being utilized, and some aren't. Government stimulus will divert some of those resources already being utilized for private sector activity to government directed activity, and this will generally reduce future increases in productivity.

The blind spot in your reasoning is that the government isn't some alien force interfering with what would otherwise be a market utopia.

Government intervention beyond the provisioning of public goods reduces the role of the market in the economy.

Terran_it_up · 2012-05-25T15:32:49.552294+00:00

Every one doesn't pay the same amount of taxes, or get the same amount of government services back. 60 percent of the American population gets back more in government services than it pays it taxes.

Even if they received government services equal in value to what they paid in taxes, the taxation would still be picking their pocket, since it would be paid under compulsion.

TheGhostOfNoLibs · 2012-05-25T15:17:11.403557+00:00

The part of the economy where goods and services are produced and consumed, is the real economy.

It's not useful economic activity, which is why I'm describing it as not part of the 'real economy'. I'm defining 'real economy' as activities that lead to greater productivity in the future. My terminology might not be the most accurate.

Your remarks on lending to government and repayment with "someone else's private savings" miss the big picture. The government isn't funding constrained in its own currency.

You're missing the bigger picture, which is that the government cannot just magically get wealth through money printing, and endlessly pay back debt like that. The wealth a government acquires through printing money comes out of the value of the currency holdings of its citizens. It's a transfer of wealth from those holding currency to those who acquire ownership of the newly printed currency.

The very idea of borrowing against future earnings is only applicable under a solvency constraint.

This is not the case. All government loans are paid back with wealth that the government takes from the people's income or savings (in the case of printing).

The doesn't happen when capacity is under-utilized.

I've addressed this and you have not addressed my counter-point:

The government is not capable of limiting the effects of stimulus to only capital that is idle.

If a government commissions a large construction for example, it's not only going to be construction firms that would otherwise be idle that will get the work that results from the project. It will also be construction firms that otherwise would have been building structures for investors.

I reject the idea that government funded activity is inherently non-productive and the implied corollary that private activity always is.

Private activity is generally much more productive than government funded activity. The market rewards the most productive users of capital, whereas government funded activity is chosen by politically appointed committees who are not under competitive-pressures and haven't been vetted by natural selection in the market.

This means that government spending/stimulus that diverts capital that was being utilized for private activity will generally reduce gains in future productivity.

Nothing undermines future productivity like present idleness, there's a role for government to play in taking up the slack.

I strongly disagree. Present idleness, absent government measures that interfere with price discovery, is a temporary phenomenon. Long term diversion of large percentages of economic resources to inefficient government-directed, as opposed to market-directed activity, severely undermines future productivity.

snappedapic · 2012-05-25T15:06:15.728604+00:00

Gay marriage IS allowed in public. Gay marriage is legal in every state. "Not officially sanctioned" and "illegal" are different things. Gay marriage is not officially sanctioned in many states. Marijuana use is illegal in every state.

It's insulting to those sitting in prison for drug-use, which is actually illegal, for people to be claiming that gay marriage is illegal.

Terran_it_up · 2012-05-25T14:42:02.339908+00:00

It doesn't pick your pocket since their revenues don't belong to you. When you successfully vote in a politician that taxes them to fund some massively expensive government program, you are picking their pockets.

The idea that a tax break is someone picking YOUR pocket is a demonstration of the socialist thinking that is common in the r/atheism subreddit.

Terran_it_up · 2012-05-25T14:31:58.085743+00:00

The only problem is a lot of people in r/atheism, especially teenagers, also want to pick your pocket, because they believe some amount of socialism is helpful to a population and that those who disagree are just indoctrinated Fox news viewers.

habaker91 · 2012-05-25T06:29:50.765036+00:00

Take it up with Krugman, who made the comparison.

TheGhostOfNoLibs · 2012-05-25T06:26:50.921020+00:00

Companies selling goods and services isn't a bubble. That's the real economy. When demand for goods and services draws in investment in jobs and fixed capital, that's the real economy.

It is not a real economy at all. If companies are selling nails to create a giant statue commissioned by the government, or build empty houses in the middle of a housing bubble, that is not a "real economy". Those sales are not going to contribute to increases in future productivity.

I argue that's not true. A government deficit spending in a currency it also issues is never constrained in such a fashion.

This contradicts what we know about basic human psychology. People only lend to a government if they believe the money they will be paid back will be worth more than the money they give the government. This means they only lend to a government if the government has to make loan repayments that are worth more than what it received initially in the way of the loan. The government will have to get the funds to repay the loan by taxing the economy, so yes, the nation will have less disposable income, all other things being equal.

The accumulated debt... is private savings.

Of course it's private savings. The point is, the government will have to tax the nation in order to make the loan repayments. The loan repayments are what make the government's debts someone else's private savings. If there was no loan repayments, the debt would not be private savings. It would just be a loss for the lender.

The only time it is harmful is if a deficit exceeds the capacity of the economy to absorb it in the period when the money is spent.

It's harmful if

1) the cost of the loss of credit in the private sector from the private sector having the government borrow against its future earnings,

AND

2) the cost of the loan repayment

exceeds the benefit of the spending that the loan enabled, which in my opinion, is almost always the case.

As long as there is slack in real resources--labor, energy, materials--there is room to deficit spend without it being inflationary.

I've addressed this, and you are not addressing my counter-point. Whether it's inflationary or not, any kind of economic activity spurred by government stimulus will divert capital that was already being employed for productive purposes ('productive purposes' means activities that boost future productivity), to the stimulus activity, which does not contribute to future productivity.

habaker91 · 1 day

There are significantly more regulations, and more government guarantees of securities now, than at any time in US history.

habaker91 · 1 day

Growth and contraction dynamics existed before the 'great moderation' too. The existence of these dynamics doesn't explain why growth and contraction phases were more moderate in the 'great moderation' phase.

habaker91 · 1 day

The author was using Krugman's own data to dispute Krugman's own argument of correlation equaling causation, so if you have a problem with the correlation = causation argument, take it up with Krugman, you moron.

habaker91 · 1 day

Krugman himself argued that financial crises were more frequent before the Fed was created than in the Federal-Reserve era, so he himself was comparing apples to oranges, and then later admitted that financial crises were actually not as bad in the pre-central bank days.

So which is it, was Krugman wrong to claim a comparison between the frequency of financial crises in these two eras was relevant, or was he just wrong to claim the pre-Fed era had worse financial crises?

salvia_d · 1 day

Yea I guess we should encourage more piracy. Holding innocent people ransom and shooting them if a company doesn't pay up is a small price to pay to give poor Somalis jobs.

TheGhostOfNoLibs · 1 day

You're right. However it does boost aggregate demand which leads to firms seeing sales & orders, which pulls investment and demand for private credit.

But boosting aggregate demand, when that aggregate demand is just companies selling more goods/services bought to invest in a bubble, does not boost future productivity.

When I talk about scarcity of fiat, I mean in the sense of the federal government being revenue constrained.

Deficit spending is the government increasing present consumption at the expense of the country's future disposable income. It's not a given that it's an economic good. In my opinion, it's economically harmful in every case but that of total war, where the government must succeed in a war effort to avoid the nation being physically destroyed.

Perhaps but how big a bubble will it actually produce when the inflation being hedged against fails to materialize?

The size of the bubble is dependent on inflation expectations not how much inflation actually materializes, but any way, if people expect no inflation to materialize, and the bubble is small, then the boost to aggregate demand will be minimal, and the government will have failed to encourage people to make use of idle capital.

My point is that stimulus that causes idle capital to be used will also lead to employed capital being used. The government is not capable of limiting the effects of stimulus to only capital that is idle.

cp3woo · 1 day

By that logic, "stupid women" who don't use contraceptives should have it harder too. Right now only stupid men are punished by the laws, and not stupid women. It's extremely sexist.

Any group that professes to strive for equal rights is going to have a contingent that really wants superiority, that's the way it is.

Yes exactly. That is why men should reject feminism, since it is dominated by the contingent that wants superiority, and is completely against their interests.

cp3woo · 1 day

Holy shit I hope you're trolling.

Orangutan · 1 day

I wouldn't consider using a Chase credit card to be "investing" in JP Morgan (Chase).

Because it's not investing. It's them lending to you.

I have a problem when JP Morgan uses profits from the credit card (or any other) arm of the bank to turn around and leverage those profits on its investment arm of the bank.

The profits belong to them, not you. If you don't like how they use their profits, don't use their credit card..

It does matter what JP Morgan is doing with their money, and we should be regulating the shit out of them since they are the world's largest public company.

There are many companies that are much larger than JP Morgan. In any case, you haven't demonstrated why you have a right to restrict their activities. Their size doesn't mean their shareholders have fewer rights. JP Morgan belongs to its shareholders, and no one else. If you don't like how they act, don't use their services. This seems like a straightforward principle for a nation to operate by, instead of every one running to the government to interfere with every one else's actions.

Orangutan · 1 day

The answer to that is to stop giving them government funds..

TheGhostOfNoLibs · 1 day

In times of war, we do in fact operate as though the only limits are scarcity of real resources. In times of peace, we do in fact leave real resources idled as though we're limited by scarcity of fiat currency.

Now I will follow that with a subjective, ideological, moral value judgement: it's an insane way to run an economy. It is wasteful and tragic that potential prosperity is sacrificed in such a fashion. It would indeed be superior to operate a monetary regime in such a fashion as to fully employ a nation's productive capacity at all times.

This is based on the faulty assumptions that resources are left idle because of "scarcity of fiat currency" and that there is no downside to using artificial stimulus (e.g. inflation) to encourage economic agents to utilize idle resources.

Regarding the first point, there is never such thing as "scarcity of fiat currency". There is such a thing as "scarcity of banknotes and small change" (e.g. 18th century Britain, when private mints cropped up to meet the demand for small change created by inadequate production of official small change by the British government), "scarcity of liquidity" and "scarcity of credit", but these are very very different from lack of currency.

Liquidity break downs occur due to the destruction of credit and economic shocks, and credit destruction can be caused by numerous factors. Printing more money does NOT increase the aggregate amount of credit. Credit in an economy is built up between individual parties through a very slow process of developing a positive reputation in the repayment of debts, and has nothing to do with the number of banknotes floating around.

Regarding the second point, artificial stimulus does much more than encourage idle capital to be utilized. It also creates an incentive to fly to inflation hedges (e.g. houses), which creates bubbles, and encourages individuals to divert capital from productive uses, to trying to gain wealth in speculative bubbles. This reduces long term productivity, since the wealth produced in bubbles is zero sum.

Orangutan · 2 days

First, your AIDs analogy is flawed when viewed in the context of my argument. If AIDs were being spread to individuals who were not voluntarily consenting to engage in high risk behavior it would be more accurate.

The AIDS epidemic is a perfect analogy for a bank-panic/financial-crisis. In both cases, you have only people who consent to entering into relationships with other people being at risk, and in both cases, the percentage of the population that you can safely interact with decreases as the percentage that engages in high risk behavior increases.

Do you think you would be no less safe from HIV if there was no homosexual community increasing the percentage of the popuation that is infected with HIV? Of course you would be. Your odds of contracting HIV in any random sexual encounter increase as the percentage of the population infected increases.

If AIDs were being spread to individuals who were not voluntarily consenting to engage in high risk behavior it would be more accurate.

AIDS, just like a bank collapse, does not just affect those who consent to high-risk behavior. It can also affect those who limit the risk they expose themselves to.

Blood transfusions, homosexual intercourse with condoms, heterosexual intercourse, accidental stuck needles, etc, are routes through which people have been infected with HIV while not engaging in high risk behavior.

Likewise, the odds that you will be adversely affected by a bank collapse is directly proportional to what percentage of the population has deposited their money with that bank.

That is not the case, however it is interesting to note that the government does reserve the right to quarantine those who are contagious to others through means other than voluntary contact.

I would argue that infectious diseases expose many more parties to risk they did not consent to (due to things like blood transfusions, accidental needle pricks) then poorly run banks. With financial arrangements, there is always a chain of consent from the poorly run bank to the person affected.

You choose who you deal with in business, based not just on the risk they take in their actions, but the risks they take in who they form relationships with and become dependent on. The market in general rewards people who make the right decisions. There is of course plenty of luck involved in who fails and succeeds in a free market, but over the long run, luck averages out for people, and competence decides who becomes relatively more wealthy. This is exactly what an economy needs to operate better over the long run. The automatic increase in economic influence of the competent is a natural result of market rewards for making the correct bets and decisions, and leads to a better managed economy.

Regarding the idea that an unregulated market will inevitably become more efficient over time I will say the following: It will nearly always be the case that consumers will be operating based on incomplete, and in some cases, deliberately misleading information.

And voters won't be? Whether it's voting or consumer purchases, people can only be guarded from exploitation by being informed. I trust consumers focusing their attention on a specific product they're looking to buy, over a voter casting one vote every four years from a handful of candidates handpicked by powerful special interests. The political process is an exceedingly inefficient way to manage an economy. People should be free to manage their own capital, without interference from politicians who more often than not are working for the benefit of a select few, and not for the public good.

It is my position that markets exist to facilitate successful societies, not the other way around.

Markets mean freedom. Real freedom, in the sense of people not having their individual decisions intruded upon by other parties through coercive force. A successful country is one in where the people are not just materially successful (which the automatic corrective processes of the market enable more than any other form of economic management) but also free.

Market efficiency that is predicated on the externalization of both risk and cost to parties who have not consensually engaged in market activity is anathema to a sustainably functional society.

Efficiency gained through externalization of risk and cost to other parties is not "market efficiency". A free market is defined as one where there is no externalization of costs or risk. Under free market laws, financial firms cannot externalize risk through things like engaging in fraud. Regulations limiting high risk contractual agreements is not about preventing externalization of cost/risk, it's about protecting people from their own decisions, which violates people's freedom, and in my opinion, does much much more economic harm (in the way of lost efficiency due to poorly designed regulations) than good.

Orangutan · 2 days

I agree that should be between the depositor and the bank.

I'm glad we agree on this.

Under current rules a bank can use funds I deposit in a commercial account for speculative purposes without my consent.

I'm not aware of any rule that allows a bank to do this. I think what constitutes consent for a bank to use deposits of retail customers for speculative purposes should be determined by a court of law. Legislation really has no place in determining what obligations a particular contract places on the involved parties.

I understand your point about the government leaving it up to the participants in the contract, but I think it is an oversimplification. Given the potential of malfeasance in the financial sector to devastatingly effect virtually every aspect of the society that the government is tasked with protecting they absolutely have the right,

I strongly disagree with this argument. Any government restriction could be rationalized with this reasoning. Homosexuality is linked to a 80X greater risk of HIV contraction, so someone could say that the effects of male homosexuality are devastating enough to the population that an outright ban on homosexuality is morally acceptable.

Of course, banning actions leads to more harm than good (even ignoring the harm to liberty that it does) in the long run, by creating a costly cat and mouse game between citizens and the policing authorities, by creating underground/black markets and criminals that operate it, and by creating avenues through which special interests can exploit others through these types of restrictions (e.g. large banks regulating small competitors out of their market by successfully lobbying for onerous regulations).

Banking would be better off if customers were exposed fully to the risks they subjected themselves to. The market is an evolutionary process, since customers gain knowledge on which firms provide the best service over time, and better firms gain market share. Those who are careless with their savings lose wealth over time, and those who are competent gain wealth, leading to an economy where an increasingly larger share of the wealth is under the control of competent managers of capital. That's the only way an economy will become more efficient and well-managed in the long run.

Trying to micromanage other people through government restrictions because you think some actions are too risky for them to undertake is not a morally valid argument, and will not produce greater productivity and material prosperity in the long run.

TheGhostOfNoLibs · 2 days

Oh yea, the US is going to be able to cut later, when the demographic situation is much worse, and Social-Security/Medicare expenses are much higher.

5minuteconsult · 2 days

I was kind of joking. I can't imagine any one thinking that being good looking gives people a free pass to do any thing they want. I was just pointing out that women's perceptions of sexual advances are often dependent on how attractive the guy making the advance is.

Orangutan · 2 days

The 2008 bailouts were theft against the tax payer. The tax payers should not be at risk for what private companies do, and private companies should not be restricted in what they can do as long as they're not violating the contracts they entered into and not polluting/damaging other people's property.

You're arguing that since tax payers are robbed by the government to bailout banks, banks should be controlled by tax payers in what they can do, instead of calling for more liberty, and advocating that banks never be bailed out, and that government stay out of micromanaging the economy.

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