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It didn't get the most votes, but it has the clearest argument.

http://krugman.blogs.nytimes.com/2009/08/28/the-burden-of-debt/

 
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Sep 1, 2009
Another thing that ended *our* Depression is that we had the only economy left standing after WWII.

Somehow I don't think that's really an option this time.
 
 
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Aug 31, 2009
Funny how Krugman was singing a different song when it was Bush overspending.....

"Basically we have a world-class budget deficit not just as in absolute terms of course--it's the biggest budget deficit in the history of the world--but it's a budget deficit that as a share of GDP is right up there. It's comparable to the worst we've ever seen in this country. It's biggest than Argentina in 2001. Which is not cyclical, there's only a little bit that's because the economy is depressed. Mostly it's because, fundamentally, the government isn't taking in enough money to pay for the programs and we have no strategy of dealing with it. So, if you take a look, the only thing that sustains the U.S. right now is the fact that people say, 'Well America's a mature, advanced country and mature, advanced countries always, you know, get their financial house in order,' but there's not a hint that that's on the political horizon, so I think we're looking for a collapse of confidence some time in the not-too-distant future."--former Enron adviser Paul Krugman, interview with "Lateline," ABC (Australia), Nov. 3, 2004
 
 
Aug 31, 2009
Substitute the word inflation for growth, and his column starts to make a little more sense.
 
 
Aug 31, 2009
Spot on shagbark.


Also, people use the line "WWII got us out of the Great Depression" equally dubiously. WWII made the unemployment numbers better, but people can't eat bullets and live in Tanks. The civilian economy actually shrank.
 
 
Aug 31, 2009
So Krugman solution is to "stabilize debt" until '50s-style economic growth leads us to a recovery? Count me as one more vote for the "we're all doomed" category.

I'm all for the stabilizing debt part, but who in Washington has shown any progress towards this point? If anything, the government seems hell-bent on increasing, not stabilizing, the debt.

As for the economic growth of the '50s, that in itself was a bubble. Remember, by the end of World War II, Japan, China, England, and Germany were all bombed-out shells of countries. A good part of the reason that the United States was such a dominating manufacturing force after WWII was that we were the only country that had any factories left. Once those countries rebuilt their infrastructure, our level of growth slowed. Counting on that level of expansion to pull us out of deficit spending is foolish at best.
 
 
Aug 31, 2009
I am tired of hearing that deficit spending ended the Great Depression. Roosevelt rejected Keyne's advice and did not do any great deficit spending during the depression. There was a big bank rescue program in 1929 that failed, and some deficit spending from 1933-1936. This probably improved GDP and unemployment in the short term; but the economy was still in awful shape in 1938. The US did not start major deficit spending until 1942, by which time we were well out of the Depression. What brought us out of the Depression was not deficit spending by the US government, but the spending by other governments such as the British, who bought much of their armaments from us, starting in 1938.

Now, you can point to unemployment and GDP figures for 1934-1938 and show that spending more stimulated the economy, and spending less doesn't. *Of course* that happens in the short term. Duh. The question is whether it will still be a net win after the backlash from the debt hits you. That was never tested in the Great Depression. We never suffered the consequence of any deficit spending in the 1930s, because at the end of the war, the rest of the world owed us much more money than we owed ourselves. In 1945, we were in a position of economic strength unprecedented in all of history: We were the only great power left standing, because we were the only great power whose homeland (outside of Hawaii) was never attacked. The rest of the developed world was in ruins, literally just piles of rubble; and would have been totally unable to compete with American industry, even if they hadn't already owed us huge sums of money.
 
 
Aug 31, 2009
Ironically, the link in your post isn't a link at all.
 
 
+4 Rank Up Rank Down
Aug 31, 2009
Sorry Scott, jimglass' post blows Krugman out of the water:

Krugman 2003 [deficit at 3% of GDP, 10-year deficit projection $1.8 trillion]: "I'm terrified ... we're looking at a fiscal crisis that will drive interest rates sky-high ... the conclusion is inescapable ... the task is simply impossible ... the fiscal train wreck, is already under way." Or,

Krugman 2009 [deficit at 11% of GDP, 10-year deficit projection $9 trillion]: What's to worry? The Ozzie & Harriet era of government finance will be easy enough to bring back. Just stabilize the debt in terms of GDP and be happy!

Just another Party Hack.
 
 
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Aug 31, 2009
I must say I am quite surprised! No funny extra blog entry to promote the new SHOP? Or haven't I just not noticed the shop being there earlier :-( ?
Anyway, congrats on teh Saint Dogbert Sweater.
 
 
Aug 30, 2009
Anyone who has ever played SMAC or watched Star Tek knows that the development of solar power in space will result in the end of economies. Virtualy free, unlimited power equals no more need for money.(or economists).
I'm with Krugman. Relax and enjoy the ride. All the rules are going to change in only a few decades.
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There will always be need for economists and some form of market. Energy will never be limitless, as new energy infrastructure will always be needed to expand energy capacity. Also, there will always be materials required to produce things. Even with unlimited energy, you still have limited copper, zinc, steel, etc. There will always be some sort of incentive necessary to coordinate human labor. People need incentives to organize for whatever purpose. Without a market, people may just continue to behave more and more randomly, wasting resources in the process. There will always be opportunity costs as resources COULD have been used to produce something that somebody values more than what the resources were used for.

This is not to say that resources may not become plentiful enough to be cheap or ALMOST free. We may one day never worry about energy usage, but there will be some other such bottleneck. It could be the cost of materials or human labor (or machine labor). Needless to say, a market will always be necessary.
 
 
-2 Rank Up Rank Down
Aug 30, 2009
Anyone who has ever played SMAC or watched Star Tek knows that the development of solar power in space will result in the end of economies. Virtualy free, unlimited power equals no more need for money.(or economists).
I'm with Krugman. Relax and enjoy the ride. All the rules are going to change in only a few decades.
 
 
-1 Rank Up Rank Down
Aug 30, 2009
Michigan and California dug their own graves. The rest of the US is not Michigan and California.
 
 
-2 Rank Up Rank Down
Aug 30, 2009
The truth is that bailing out the banks and stimulating the economy was the only thing that kept the US (and for that matter, the entire Western world) from a repeat of the Great Depression. If you really want to learn from history, learn about how the US government let hundreds of banks collapse and tried to keep a balanced budget after the 1929 crash, and thank your lucky stars that the Bush administration wasn't stupid enough to try that strategy again (not that they weren't considering it - but the reaction to the Lehman Brothers collapse put the frighteners on them, thankfully).

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I'm sorry, but the Great Depression had many other causes. We were also living under a gold standard back then that tied the hands of central banks to stimulate the economy through lower interest rates. Only a small number of economists ever predicted another great depression, and here in Texas, without any stimulus spending, the economy was doing just fine. This recession began in California, Michigan, Florida, and New York. What do all of those states have in common......... Bankruptcy is not the same thing as liquidation, and there were several major downturns before the Great Depression that did not have the same results. Our reaction to the Great Depression and the rise of Keynesian economics created a whole new situation of our own creation.




As for Krugman's supposed hypocrisy, I can only agree with what several other comments have said: it's one thing to run up deficits in a recession, and quite another to do the same in a time of growth. The current government's policies are as good as we can hope for in these horrible times. The previous government's economic policies were wilfully reckless in a time of plenty.
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Ohhhhhhhhhhhhhhhhhhhhhhhh! So now the Bush years were the BOOM years! Okay, I was confused after all of those congressman walked around with charts declaring the post dotcom crash recovery "the slowest since Hoover." I'm sorry, but all that I heard until 2006 was doom and gloom and more illusions to "another Great Depression." I swear, if the left wants to win an argument they just mention the depression. Same !$%* different year.


"The current government's policies are as good as we can hope for in these horrible times."

Really? Well, Obama did put the stimulus bill online for 5 days before he.... oh wait, no he didn't. But at least recovery.gov...... oh wait that's been delayed..... Well, at least the best minds got to weigh in about how the money would be spent..... oh no wait, we're living under one party rule and the bill was written by special interests. Well, this is needed infrastructure spending that we would have to spend someday anyway, right? Well actually most of it and the omnibus were pork and funding for various departments and activities that aren't really "infrastructure" in the traditional sense.......


Best policy. Yeah, right. We could have given every household in the US a voucher to buy a fiber optic internet cable for about 50 billion (probably less!). Is there anything in the stimulus package that I'll ever see! I don't think so.
 
 
-1 Rank Up Rank Down
Aug 30, 2009
There are too many keynesian economists on this forum. Drives me nuts.

We did not NEED the stimulus spending. Most of the stimulus was not needed infrastructure spending, but TAX CUTS and PORK. Texas was doing just fine without it. Their is no evidence that this spending staved off "another great depression." Stimulus spending without lengthy cost-benefit analysis cannot be relied upon anyway. If there is no known benefit over the cost of spending, than it is just make work spending (akin to "stimulating" the economy by having an army of workers mow the white house lawn with scissors and a ruler for each of them). The great depression had other causes that everyone is conveniently ignoring to further the agenda of stimulus and bailouts.

http://www.allbusiness.com/government/782284-1.html

I like how the argument keeps returning to, "Well this is necessary stimulus spending! Without it the ecomony would just crash!" I completely disagree. Most of the stimulus hadn't even been spent by the time the market bottomed. Every analyst predicted a bottom or end of the recession. I don't know of any analyst that can point to any real data saying that a second great depression would occur without stimulus, nor how stimulus "saved" us exactly.


Those who are saying that Bush's deficit spending was all wars and tax cuts for the rich and Obama's stimulus is all needed infrastructure are lying to themselves once more. Bush spend a lot of money on stupid things, but a lot of money was already going towards other programs, and he increased federal education spending dramatically (to no effect! But Obama will still try to outdo him!). Obama's "stimulus" packages are such a joke, too. What's the difference between Tax cuts for the rich and the bailouts and pork of the Obama administration? THis is insane.
 
 
Aug 30, 2009
Krugman also seems to ignore the difference between total debt and the annual deficit.
The total debt is currently over $11 trillion. At a certain point, the amount of money being paid in interest simply to service the debt will be more than any other item in the federal budget.
It's like having a credit card and paying interest-only. The debt is still there, and we're still spending.
How long before the bank (China) tells us we've reached our limit?
 
 
+2 Rank Up Rank Down
Aug 30, 2009
The problem with economics is that, like all sciences, it contains many true but counter-intuitive results. It's counter-intuitive that the US should spend big when a recession hits, and it's not surprising that people with no economic training get worried about it. Even less surprising is that political hacks will exploit this fear for their own ends.

The truth is that bailing out the banks and stimulating the economy was the only thing that kept the US (and for that matter, the entire Western world) from a repeat of the Great Depression. If you really want to learn from history, learn about how the US government let hundreds of banks collapse and tried to keep a balanced budget after the 1929 crash, and thank your lucky stars that the Bush administration wasn't stupid enough to try that strategy again (not that they weren't considering it - but the reaction to the Lehman Brothers collapse put the frighteners on them, thankfully).

As for Krugman's supposed hypocrisy, I can only agree with what several other comments have said: it's one thing to run up deficits in a recession, and quite another to do the same in a time of growth. The current government's policies are as good as we can hope for in these horrible times. The previous government's economic policies were wilfully reckless in a time of plenty.
 
 
Aug 30, 2009
For me, as I'm not U.S. citizen, the more important is value of dollar. In result of higher money supply, inflation and deficit budget, dollar is going to be weaker and weaker (in last century dollar lost 99 % of its value) and because I earn some portion of my income in $$, I don't like it. Obvious solution for me is to try convert (it is not easy) to other, more stable currencies (probably Euro, but I see that Eurozone has similar problems like USA). If others in the similar situation will be incline to do the same, it can result in the very swift transition form dollar. Of course, for "izolacionalists" it could be fine.
You can learn from history, try Google "economic problem of Roman Empire" and compare... for example: http://everything2.com/title/Economic problems in the Roman Empire - you cannot solve real problems by printing more money.
 
 
Aug 29, 2009
I missed yesterday's blog posting or would have probably submitted that link. That link is a good one, but is one in a series, I would recommend (to anyone interested) in reading a little forward and backward in Krugman's blog's archives.

It's a classic confusion though. People equate the economy with their household budget. When times are tough tighten your belt. When you're flush, spend big. But on a national scale, when the economy is in the crapper, that's when you should spend and spend to help get things going again (or at least consider it). And when times are good you should pay down the debt. I'm oversimplifying greatly, but that's the gist. People are getting hammered and it looks like their government is profligate wastrel - no wonder they're not happy. It's merely unfortunate that this logic doesn't actually hold up.

But hey, at least we a representational democracy and not a direct one or we'd be really screwed, right?
 
 
Aug 29, 2009
Yes krugman is correct in in his logic. But the same argument can be made anytime an administration borrows money. "Oh don't worry about it, future economic growth will bail us out." It might even be true, but explain to me why the democrats were not saying this when Bush was in office. I recall tv ad campaigns featuring children working in hotels to "pay off the Bush debt." True! Republicans have flip flopped on this issue, also. But you are lying to yourself if you don't think that OBama is borrowing much more than Bush ever did. You are lying to yourself!

Both the Republicans and Democrats are wrong on this issue. But two wrongs don't make a right.
 
 
Aug 29, 2009

"...but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits."

Paul Krugman, 3/11/03, The New York Times, a Republican President.
 
 
 
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