Just seems like straight up broken windows fallacy. If we spent 18 months preparing for war with aliens we might all be employed but we'd end up with a bunch of weapons pointed at the sky. Otherwise we could have spent the time making ipods, cars or whatever good or service you might want. Doesn't what he's saying just sound wrong? It clearly would not be a good thing for the world to spend 18 months that way..

Actually I think he might be misremembering the twilight zone (at least if he's talking about the 1980s one which had an episode that sounds almost like that). In the episode, aliens actually land, go to the UN and tell the world that they are disappointed with our stockpiling of weapons of mass destruction. Everyone panics and in 24 hours world-peace is declared. Then the aliens show up and pretty much laugh their asses off after we tell them we declared world peace. They then explain that they were disappointed that our weapons were just so sucky, not that we had them. Basically, they go around the universe creating life and hoping they develop excellent weapons for war... or something like that

>> ^pyloricvalve:

Just seems like straight up broken windows fallacy. If we spent 18 months preparing for war with aliens we might all be employed but we'd end up with a bunch of weapons pointed at the sky. Otherwise we could have spent the time making ipods, cars or whatever good or service you might want. Doesn't what he's saying just sound wrong? It clearly would not be a good thing for the world to spend 18 months that way..


I think that's the real problem with the broken window "fallacy" -- it assumes that as your starting point you already have full employment and no idle infrastructure or capital.

That's not true in our situation at all. Unemployment is around 10%, factories are being left idle, and companies are sitting on mountains of cash.

The idea here is to get people back to work doing something, because even if they're producing things there isn't a high demand for (windows, alien-fighting spaceships), it's not like those things come at the cost of the other things they would've otherwise been producing, since they're not producing anything at all right now.

Oh, and in the case of alien-fighting spaceships, there's a pretty high chance that the technology and industrial infrastructure that's developed to build them will be able to be re-purposed for consumer goods once the alien threat is shown to be fake.

Ideally instead of faking an alien invasion, we'd just have the government go and invest directly in our infrastructure (transportation, education, power generation), but without the alien threat it doesn't seem like Congress is willing to engage in any more fiscal stimulus, no matter how economically sound it would be.

Sorry, my head's still here.

That's a good summary of the Keynesian response. I guess my answer would be that even supposing the 10% unemployed were neatly then employed in building these weapons this would just be temporary. Later they will eventually all be unemployed again having wasted time and money in training for "fictional" work. Even if that work had some beneficial side effects, making unnatural economic growth will still be a net cost to the economy versus spending time finding real jobs. These are what they really 'should' in some sense be doing. To do this would surely be better unless you claim the 10% will continue unemployed permanently.

A typical argument against my response is that the economy is like a pump and that this is pump priming. Demand from these people's fictional labour will create the new jobs. The Austrian reply to that is that the pump metaphor is simply not valid and the economies grow organically. If you force a branch to grow with artificial sunlight, when that fake light gets turned off the branch will wither and all the people involved in its support spend a lot of time looking for what they should have been doing. I think Hayek would claim this type of fake labour policy is what causes the 10% unemployment to begin with.

These arguments can be seen in the two Hayek/Keynes rap videos. There are two inconsistent models of the economy. How can we decide which one is right? This argument is very old so I guess it's not that easy... Maybe look at long run growth in more and less interventionist countries? I suspect growth will be faster in the less interventionist nation.


>> ^NetRunner:
>> ^pyloricvalve: Just seems like straight up broken windows fallacy. If we spent 18 months preparing for war with aliens we might all be employed but we'd end up with a bunch of weapons pointed at the sky. Otherwise we could have spent the time making ipods, cars or whatever good or service you might want. Doesn't what he's saying just sound wrong? It clearly would not be a good thing for the world to spend 18 months that way.. I think that's the real problem with the broken window "fallacy" -- it assumes that as your starting point you already have full employment and no idle infrastructure or capital. That's not true in our situation at all. Unemployment is around 10%, factories are being left idle, and companies are sitting on mountains of cash. The idea here is to get people back to work doing something, because even if they're producing things there isn't a high demand for (windows, alien-fighting spaceships), it's not like those things come at the cost of the other things they would've otherwise been producing, since they're not producing anything at all right now. Oh, and in the case of alien-fighting spaceships, there's a pretty high chance that the technology and industrial infrastructure that's developed to build them will be able to be re-purposed for consumer goods once the alien threat is shown to be fake. Ideally instead of faking an alien invasion, we'd just have the government go and invest directly in our infrastructure (transportation, education, power generation), but without the alien threat it doesn't seem like Congress is willing to engage in any more fiscal stimulus, no matter how economically sound it would be.

@NetRunner

The 10% unemployment rate is a fiction... it doesn't include hidden unemployment that doesn't get counted in the official government statistics: people who want work but have stopped looking, and people who have part-time jobs but want full-time jobs. Also, people living off of disability payments soars during economic downturns because they tend to work when it's easy to find a job, but rely on the government when it's difficult to get a job.

In general, working to counter a fictional alien threat isn't as comparatively inefficient as it sounds, because our economy is already a fiction... many people have jobs that don't really need to be done, but we figure we might as well pay them for it anyway. For example, the US doesn't use labor-saving agricultural innovations that are used in other parts of the world because we have endless supplies of workers who can't easily be trained to do 21st century work.

In Silicon Valley, the unemployment rate is about as low as possible because the world can never have enough talented 21st century workers.

1. WWII is a bad example b/c USA had no economic competition after WWII.
2. Are you assuming some level of debt after the 'space alien boost'?
I think you are. Or maybe you assume inflation doesn't hurt or something. War buildups destroy economies. Period, no exceptions. it's called the "guns or butter" choice.

my 2 cents: Iceland politicians took on their banks, we didn't and now they're recovering while we aren't.

>> ^NetRunner:

>>we'd just have the government go and invest directly in our infrastructure (transportation, education, power generation).


I was just looking at recovery.gov and to speak plainly, 80 billion worth of education looks like the proverbial drop in the bucket. I'm serious. I doubt that any amount of spending could 'fix' the economy. Instead, you'd have to borrow-spend continuously, like pumping air into a burst balloon.

>> ^pyloricvalve:

That's a good summary of the Keynesian response. I guess my answer would be that even supposing the 10% unemployed were neatly then employed in building these weapons this would just be temporary. Later they will eventually all be unemployed again having wasted time and money in training for "fictional" work.

It seems to me that building real military spaceships would require real skills, real work, real factories, real technology, and there's no particular reason why if the demand for military spaceships evaporated, that they wouldn't just pivot into trying to serve a different market, like, say, commercial spacecraft.

That's the kind of adaptation free markets are supposed to be good at, right?

>> ^pyloricvalve:

Even if that work had some beneficial side effects, making unnatural economic growth will still be a net cost to the economy versus spending time finding real jobs. These are what they really 'should' in some sense be doing. To do this would surely be better unless you claim the 10% will continue unemployed permanently.

There's no reason to think additional idleness accelerates the process of someone finding their "right" job. That also presupposes that there's a right and a wrong job, and that there's inherently some economic damage being done by seeing someone doing real work producing real goods rather than having them stay idle and wait for Godot.

>> ^pyloricvalve:

These arguments can be seen in the two Hayek/Keynes rap videos. There are two inconsistent models of the economy. How can we decide which one is right? This argument is very old so I guess it's not that easy... Maybe look at long run growth in more and less interventionist countries? I suspect growth will be faster in the less interventionist nation.

Actually, it's not really a persisting argument amongst actual trained economists. The Austrian theory of economics has been invalidated time and time again by facts, but it lives on because it's a branch of economics that appeals to the ideological right.

That's not to say everything Hayek ever said was wrong, but the Hayekian idea that Keynesian fiscal and monetary policy will inevitably lead to utter ruin has definitely not been borne out by the facts. Also, no country that has followed a Hayekian prescription for recessions (keep money tight, and implement fiscal austerity) has ever done anything but deepen their recession and prolong their recovery.

>> ^chilaxe:

The 10% unemployment rate is a fiction... it doesn't include hidden unemployment that doesn't get counted in the official government statistics: people who want work but have stopped looking, and people who have part-time jobs but want full-time jobs.

True, but I didn't wanna pad my argument by citing the U6 unemployment numbers. 10% is significant enough for driving home the point that we're nowhere near full employment.

>> ^marinara:

1. WWII is a bad example b/c USA had no economic competition after WWII.

Nations aren't businesses. Most of what's produced in the US is sold in the US, always has been, and likely always will be. Exports alone don't account for the rise in prosperity post-WWII. A lot of it was that we'd build up a huge industrial infrastructure that pivoted from making bombers and tanks to making refrigerators and cars.

>> ^marinara:
2. Are you assuming some level of debt after the 'space alien boost'?
I think you are. Or maybe you assume inflation doesn't hurt or something.

I think you're assuming all debt leads to inflation. Have you looked at the stats on debt and inflation recently? Debt's going up fast, but inflation has stayed flat and long-term bond interest rates have fallen, even after S&P tried their best to make them spike by downgrading our credit rating.

>> ^marinara:
Iceland politicians took on their banks, we didn't and now they're recovering while we aren't.


Incidentally, Iceland followed textbook Keynesian macroeconomic policy. Now they're better off than the countries who just tried to stick to austerity and tight money (the former by choice, the latter not).

>> ^marinara:

I doubt that any amount of spending could 'fix' the economy. Instead, you'd have to borrow-spend continuously, like pumping air into a burst balloon.


I think first you have to commit to a theory about what's wrong with the economy now -- not symptoms, like unemployment is high, but what the underlying root cause is.

There are a lot of things it's not being caused by. It's not been caused by any physical damage to our country's industry or infrastructure. It's not been caused by people suddenly waking up one morning having forgotten how to make things. We didn't suddenly lose all our natural resources. What, in terms of real economic capacity did we lose? Anything? Anything at all?

The other half of the "fake alien invasion" thing is that it tends to focus our minds on what's real (factories, workers, materials), and what's not (debt, money, inflation), and helps us realize how ridiculous it is that we would let concern about debt or inflation stand in the way of us putting our resources to work to save ourselves from being turned into some alien race's dinner.

Once you realize that, all you need to do to get the rest of the way is to realize that the best way to save yourself from problems with debt and inflation is to put your resources to work making as much stuff as possible, you start to see why Keynesians are annoyed that they might need to fake an alien invasion to get people to do the sensible thing...

Would this persuade you there is still debate on this? Perhaps not.. Not even the rap video convinced you there was a debate?
.
I thought this was also an interesting analysis.
.
My links disappear for some reason.. Anyway there's a long list of economists that don't support stimulus at Cato Fiscal Reality. The other is How economists analyze the stimulus by Arnold Kling.

>> ^NetRunner: Actually, it's not really a persisting argument amongst actual trained economists. The Austrian theory of economics has been invalidated time and time again by facts, but it lives on because it's a branch of economics that appeals to the ideological right.

Dammit people! You are all arguing about JOBS when clearly the issue at hand is that he misrepresented that Twilight Zone episode!!!

Krugman is Ozymandias from Watchmen. A central planner.

http://www.comicsalliance.com/2011/08/15/watchmen-paul-krugman-alien-invasion/

[thanks to @gwiz665 for the link]

*promote the ideological sham that is Krugman.

Promoting this video back to the front page; last published Tuesday, August 16th, 2011 12:17pm PDT - promote requested by blankfist.

Ha, this is the first thing I thought of as well.

>> ^blankfist:

Krugman is Ozymandias from Watchmen. A central planner.
http://www.comicsalliance.com/2011/08/15/watchmen-paul-krugman-a
lien-invasion/
[thanks to @gwiz665 for the link]

Very REPUBLICAN thinking. Waste LIMITED resources on weapons (and death) to kick start the economy.
How about a new space race ? Or reversing global warming ? Or improving standards of life for the rest of the planet ?

This is the quality of Nobel Prize winners.

Obama won one also.

>> ^hpqp:

Ha, this is the first thing I thought of as well.
>> ^blankfist:
Krugman is Ozymandias from Watchmen. A central planner.
http://www.comicsalliance.com/2011/08/15/watchmen-paul-krugman-a
lien-invasion/
[thanks to @gwiz665 for the link]



That's actually the whole reason I sifted this clip.

I didn't really expect people to come and talk about the actual economics, I expected people to blather on about Ozzy and Watchmen and the NWO and Agenda 21 and the NAFTA Superhighway...

Maybe I'm pointing out the obvious here, or being overly layman about it but I see a difference between government borne stimulus and business borne stimulus.

In times like these the government may try stimulus or austerity but both have benefits and drawbacks that (in a general sense) cancel themselves out. The money that has to go somewhere, has to come from somewhere.

Corporation borne stimulus is different; the money doesn't always have to come from anywhere - the rich already have it. Look at Apple's $76 billion stockpile for example. Or the billions of dollars of banker bonuses when everyone else was getting screwed.

What we need is a culture shift; where the rich and the system value themselves and their businesses not on the amount of money they have; but instead on how many people they employ and how much they pay them.

People talk about the fallacy of trickle down economics and this is the cause of why it can't work. A business looks at it's bottom line and it's only goal is to increase it. You can only do this by increasing sales and/or reducing operating costs.

Reducing operating costs is the business version of austerity, and it's like being a vampire sucking the shit out of everyone who ever did you a favour. Sure your bottom line was protected, but a thousand people who made you good money are thrown out on the street. Your sales go down because nobody has any money, so you go ahead and reduce operating costs again; into a futile spiral chasing after impossible growth.

Ironically people lobby for reduced taxation of the rich to stimulate trickle down economics; but if you actually did the opposite and (for example) imposed a 100% tax over a certain earnings threshold THEN you'd have trickle down as businesses are forced to invest internally to avoid taxation. Increasing, not reducing taxes on the rich forces them to spend their fucking money instead of withhold it from the economy.

>> ^pyloricvalve:

Would this persuade you there is still debate on this? Perhaps not.. Not even the rap video convinced you there was a debate?
.
I thought this was also an interesting analysis.
.
My links disappear for some reason.. Anyway there's a long list of economists that don't support stimulus at Cato Fiscal Reality. The other is How economists analyze the stimulus by Arnold Kling.
>> ^NetRunner: Actually, it's not really a persisting argument amongst actual trained economists. The Austrian theory of economics has been invalidated time and time again by facts, but it lives on because it's a branch of economics that appeals to the ideological right.


My accusation is that Austrian economics is the hobbyhorse of people pushing an ideological agenda, and not dispassionate people looking for objective truth. Anything you might cite from CATO in support of Austrian economics will just add weight to that argument.

In any case, one doesn't need to adopt the Austrian view of economics to disagree with the stimulus. There is a segment of the Chicago school economists who have their own theories about why the stimulus would be ineffective. I think they're wrong, but at least there's a real honest-to-god debate going on amongst actual economists happening there.

>> ^NetRunner:

>> ^hpqp:
Ha, this is the first thing I thought of as well.
>> ^blankfist:
Krugman is Ozymandias from Watchmen. A central planner.
http://www.comicsalliance.com/2011/08/15/watchmen-paul-krugman-a
lien-invasion/
[thanks to @gwiz665 for the link]


That's actually the whole reason I sifted this clip.
I didn't really expect people to come and talk about the actual economics, I expected people to blather on about Ozzy and Watchmen and the NWO and Agenda 21 and the NAFTA Superhighway...


Oh, I get it. Krugman says something Orwellian and now we're all the wingnuts.

Like Russ Roberts, I would agree that people's biases tend to drive the economics they believe in. But I think it's as true of the left as the right. Free marketers like Hayek and redistributionists like Keynes. I don't think you or I are free of these bias. In this case, the best thing is to try to argue the actual case rather than just dismissing people's arguments ad hominem style. Can you dismiss Russ Roberts congressional testimony? Do you deny he's an actual trained economist?
.

>> ^NetRunner:
>> ^pyloricvalve: Would this persuade you there is still debate on this? Perhaps not.. Not even the rap video convinced you there was a debate? . I thought this was also an interesting analysis. . My links disappear for some reason.. Anyway there's a long list of economists that don't support stimulus at Cato Fiscal Reality. The other is How economists analyze the stimulus by Arnold Kling. >> ^NetRunner: Actually, it's not really a persisting argument amongst actual trained economists. The Austrian theory of economics has been invalidated time and time again by facts, but it lives on because it's a branch of economics that appeals to the ideological right. My accusation is that Austrian economics is the hobbyhorse of people pushing an ideological agenda, and not dispassionate people looking for objective truth. Anything you might cite from CATO in support of Austrian economics will just add weight to that argument. In any case, one doesn't need to adopt the Austrian view of economics to disagree with the stimulus. There is a segment of the Chicago school economists who have their own theories about why the stimulus would be ineffective. I think they're wrong, but at least there's a real honest-to-god debate going on amongst actual economists happening there.

I thought of Ozymandias as well.

>> ^blankfist:

Oh, I get it. Krugman says something Orwellian and now we're all the wingnuts.


Who else would be paranoid enough to think it's something anyone would actually try, and not just a silly, nerdy way to make a point?

>> ^NetRunner:

>> ^blankfist:
Oh, I get it. Krugman says something Orwellian and now we're all the wingnuts.

Who else would be paranoid enough to think it's something anyone would actually try, and not just a silly, nerdy way to make a point?


No one thinks Krugman is entertaining this idea seriously. It's that he thinks it would be a good idea to manufacture a catastrophe with potentially huge life-loss that makes us wonder why people like you think he's the best thing since sliced bread.

Paul Krugman could make millions if he licensed his likeness for a plush toy.

"Paul Krugman, The World's Most Huggable Economist!"

Does anyone else think he looks coked up?

>> ^pyloricvalve:

Like Russ Roberts, I would agree that people's biases tend to drive the economics they believe in. But I think it's as true of the left as the right. Free marketers like Hayek and redistributionists like Keynes. I don't think you or I are free of these bias. In this case, the best thing is to try to argue the actual case rather than just dismissing people's arguments ad hominem style. Can you dismiss Russ Roberts congressional testimony? Do you deny he's an actual trained economist?

Honestly, I'm happy to litigate out the actual reasons why I think Austrian economics is wrong, but I don't really care to get into a contest of who's got the bigger expert parroting their pet theory.

If you'd rather debate my feelings about Austrians, that's fine too, but it's entirely derived from my belief that Austrian macroeconomic theory is demonstrably false. Given that it's demonstrably false, my only theory for why people, even people who should know better, still believe in it is because they're letting their ideological beliefs color their judgement.

To change my mind about self-identified "Austrians", you'd need to either change my opinion about the theory, or you'd need to point me to an indisputably left-wing Austrian economist.

I agree with you, about political views though. I think people arrive at their politics for reasons that have very little to do with objective analysis, and largely just latch on to whatever theory justifies the action they already wanted to take.

Me, I'll happily admit that I wanted stuff like more aid to the poor, better unemployment benefits, more investment in education, more infrastructure investment, etc. all long before I knew anything about economics at all. But I favor those things as a matter of morality. If they also turn out to be economically beneficial, then all the better.

If anything, learning Keynesian economics has moved me to the right. But then again, that should be no surprise, considering there's nothing particularly left wing about Keynesian economic theory. It's only left wing if you're viewing it through the lens of some right-wing ideologue who doesn't think government should have the ability to control monetary policy, or invest in infrastructure.

>> ^blankfist:

>> ^NetRunner:
>> ^blankfist:
Oh, I get it. Krugman says something Orwellian and now we're all the wingnuts.

Who else would be paranoid enough to think it's something anyone would actually try, and not just a silly, nerdy way to make a point?

No one thinks Krugman is entertaining this idea seriously. It's that he thinks it would be a good idea to manufacture a catastrophe with potentially huge life-loss that makes us wonder why people like you think he's the best thing since sliced bread.


Why would an entirely hypothetical, fake alien invasion lead to life-loss?

Like I said, it's a silly, nerdy way to make a point. Why are you pretending it's something worth getting even slightly upset about?

Is it any worse than Perry talking about Texans roughing up Ben Bernanke or accusing him of treason for doing the job the previous Governor of Texas appointed him to do?

We may be getting distracted by the name Austrian which may mean different things to different people. I think there are views skeptical of stimulus held by respectable economists. I put forward Russ Roberts as one example. You seemed to say earlier that these kind of views don't constitute a continuing argument against stimulus-type policy. If that's right, could you explain why? They seem very reasonable to me.

I would also be curious if you have a criticism of the Hangover theory of this recession (that it was caused by malinvestment due to artificially low interest rates.) Krugman criticised it by saying that if unemployment results from frictional problems reallocating workers to new industries, "why doesn't the investment boom—which presumably requires a transfer of workers in the opposite direction—also generate mass unemployment?"

Krugman seems to think that's a slam-dunk against the theory but surely there are simple explanations for why friction could happen one way and not the other. When an industry booms it takes place over a long period and is a beacon attracting loose labour to it. When the collapse comes it is much faster than the boom and there are no obvious beacons for where the misplaced labour is to go. It seems normal to me that the reverse process is more difficult and leads to more unemployment. If you've an answer to that I'd be interested to hear it.>> ^NetRunner: Honestly, I'm happy to litigate out the actual reasons why I think Austrian economics is wrong, but I don't really care to get into a contest of who's got the bigger expert parroting their pet theory.

>> ^NetRunner:

>> ^blankfist:
>> ^NetRunner:
>> ^blankfist:
Oh, I get it. Krugman says something Orwellian and now we're all the wingnuts.

Who else would be paranoid enough to think it's something anyone would actually try, and not just a silly, nerdy way to make a point?

No one thinks Krugman is entertaining this idea seriously. It's that he thinks it would be a good idea to manufacture a catastrophe with potentially huge life-loss that makes us wonder why people like you think he's the best thing since sliced bread.

Why would an entirely hypothetical, fake alien invasion lead to life-loss?
Like I said, it's a silly, nerdy way to make a point. Why are you pretending it's something worth getting even slightly upset about?
Is it any worse than Perry talking about Texans roughing up Ben Bernanke or accusing him of treason for doing the job the previous Governor of Texas appointed him to do?


Krugman thinks wars are excellent ways to stimulate the economy (even jovially alludes to it with his comment about WWII). The bigger the war, the bigger the stimulus. He's kidding about aliens invading, but follow his logic here. What's bigger than a war against another nation? Answer: a war against another planet.

Krugman doesn't care about the casualties, it's about the numbers. To him war is good because it creates jobs and stimulates the economy. Peace is bad.

This is why Keynesian economics is such bullshit.

@blankfist, now you're just stuffing all kinds of words into Krugman's mouth, and making baseless accusations.

@NetRunner, On reflection I would be interested in your criticism of the Austrian School. Probably to long too go into here but could you recommend any links? (If it's just Bryan Caplan's criticisms I would accept those already)

>> ^NetRunner:

@blankfist, now you're just stuffing all kinds of words into Krugman's mouth, and making baseless accusations.


You're right, especially when he champions WWII as a "positive example" of stimulating a weak economy in this article he wrote two days ago titled "Oh! What A Lovely War!"

>> ^NetRunner:
Exports alone don't account for the rise in prosperity post-WWII. A lot of it was that we'd build up a huge industrial infrastructure that pivoted from making bombers and tanks to making refrigerators and cars.


so you're saying the postwar boom was not because Americans were making money on exports, but because factory production was so profitable. If you think 18% of world exports wasn't the reason for the boom, then I have nothing
http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/shareworldexports.html

>> ^NetRunner:

I think you're assuming all debt leads to inflation. Have you looked at the stats on debt and inflation recently? Debt's going up fast, but inflation has stayed flat and long-term bond interest rates have fallen,
The debt can't go up forever, period. I agree w/ you on this: you can grow your way out of a huge debt. What reason do you have to think that we're going to go back to huge GDP growth here in the USA? I'm saying, either we need to grow, or control the debt. Don't you agree? also... http://money.cnn.com/2011/02/02/news/economy/interest_national_debt/index.htm

I can't find any evidence that the recovery in iceland was "Keynesian "

You're saying we need deficit spending to grow. We've had lots of deficit spending, and where is the growth? I'm talking over the last decade. I don't disagree that extra spending will help. I do assert that interest rates change, that you can't just spend X and get outcome Y. Rather, we have to fix what's wrong before we can recover.

>> ^marinara:

>> ^NetRunner:
Exports alone don't account for the rise in prosperity post-WWII. A lot of it was that we'd build up a huge industrial infrastructure that pivoted from making bombers and tanks to making refrigerators and cars.


so you're saying the postwar boom was not because Americans were making money on exports, but because factory production was so profitable. If you think 18% of world exports wasn't the reason for the boom, then I have nothing
Read my comment again. I'm saying the higher exports was a part of it, but not the entire reason.

You're taking position that the one and only reason America got more prosperous was because exports were higher, and to support this argument that this alone was the cause, you just provide a chart showing that they were higher back then.

Seriously, think about it. Would the American standard of living improve if the only change in the economy post WWII was that we sold a larger portion of what we produced to other countries? Wouldn't we have to have consumed more domestically to make our standard of living go up?

>> ^marinara:
The debt can't go up forever, period. I agree w/ you on this: you can grow your way out of a huge debt. What reason do you have to think that we're going to go back to huge GDP growth here in the USA? I'm saying, either we need to grow, or control the debt. Don't you agree?

I do agree. My position is that our debt isn't a problem right now, and that most of the expected problem in the future would be fixed if we got unemployment and GDP back up to trend.

>> ^marinara:
You're saying we need deficit spending to grow. We've had lots of deficit spending, and where is the growth? I'm talking over the last decade.

But what did we spend it on? Tax cuts for the wealthy, a couple wars, and a prescription drug benefit that was tooled mostly as a payoff to big Pharma.

We also did that in a period of expansion, which is when Keynesian prescriptions sound positively right-wing -- according to it we should've engaged in fiscal austerity during the expansion (like Clinton did), rather than trying to engage deficit spending aimed entirely at the supply side of the economy.

>> ^marinara:
[W]e have to fix what's wrong before we can recover.


I can't argue with that. So what's wrong, and how do we fix it?

PS: Krugman on Iceland vs. Ireland. Revisiting it, he never calls it Keynesian, but Iceland is talking a considerably more left-wing tack than Ireland, and Iceland is recovering a lot faster.

>> ^blankfist:

>> ^NetRunner:
@blankfist, now you're just stuffing all kinds of words into Krugman's mouth, and making baseless accusations.

You're right, especially when he champions WWII as a "positive example" of stimulating a weak economy in this article he wrote two days ago titled "Oh! What A Lovely War!"


Have you read the article you linked? How about this?

Still think that's what he meant?

>> ^NetRunner:

>> ^blankfist:
>> ^NetRunner:
@blankfist, now you're just stuffing all kinds of words into Krugman's mouth, and making baseless accusations.

You're right, especially when he champions WWII as a "positive example" of stimulating a weak economy in this article he wrote two days ago titled "Oh! What A Lovely War!"

Have you read the article you linked? How about this?
Still think that's what he meant?


I know he doesn't "want" war, but he certainly lauds it as a successful way to stimulate a weakened economy. That's exactly what I wrote above. Go reread my comments.

The point still stands. To him, war has positive benefits, and he keeps bringing them up in various articles. If he doesn't want to be misquoted, then maybe he should join the rest of the sane society that thinks war is bad even if it springs forward the occasional benefit of compulsory employment/skill training from the draft.

>> ^pyloricvalve:

@NetRunner, On reflection I would be interested in your criticism of the Austrian School. Probably to long too go into here but could you recommend any links? (If it's just Bryan Caplan's criticisms I would accept those already)


I had to look up Bryan Caplan's criticisms, I assume you mean this? If so, that's a much more exhaustive dismantling than I was going to link to.

Since this is a Krugmania thread, I was going to dust off Hangover Theory, and add to it Tyler Cowen's thin skull criticism.

But returning to Caplan, he seems to incorporate both of those criticisms, and a raft of others. Let me mine out what I think is essentially the money quote:

What I deny is that the artificially stimulated investments have any tendency to become malinvestments.

The Austrian theory predicts a decline in employment in some sectors, but an increase in others; thus, it does nothing to explain why unemployment is high during the "bust" and low during the "boom."

@NetRunner
Thanks for the reply. There were things I really didn't understand about Krugman's Hangover Theory article, especially that very point that you quote. In fact I tried to ask in a post above about this but maybe you missed it. To me it seems only natural that there is no unemployment in the boom and there is some in the bust. Both are big reorganisations of labour, it is true. However, to start with the boom is much slower and longer so adaptation is easier. Also the booming industry can afford to pay slightly above average wages so will easily attract unemployed or 'loose' labour. As it is paying above average, there will be little resistance to people changing work to it. The boom is persistent enough that people will train and invest to enter the work created by it. The information for entering the boom industry is clear and the pay rise makes the work change smooth. I see no reason for unemployment.

The bust however is short and sudden. There is no other obvious work to return to. That information of what the worker should do is much less clear. The answer may involve taking a small pay cut or on giving up things in which people have invested time and money. Many people wait and resist doing this. They may well not know what to do or try to wait for opportunities to return. Thus there is plenty of reason for unemployment to be generated by the bust.

If I hire 100 people it can probably be done in a month or two. If I fire 100 people it may be a long time before they are all employed again. For me this difference seems so obvious I have a real trouble to understand Krugman's point. I know he's a very smart guy but I can't make head nor tail of his argument here. Can you explain it to me?

>> ^blankfist:

I know he doesn't "want" war, but he certainly lauds it as a successful way to stimulate a weakened economy. That's exactly what I wrote above. Go reread my comments.

Your comment:

>> ^blankfist:

Krugman doesn't care about the casualties, it's about the numbers. To him war is good because it creates jobs and stimulates the economy. Peace is bad.
This is why Keynesian economics is such bullshit.


In any case, you're still making the same mistake. Krugman isn't advocating going to war. Krugman isn't "laud[ing] it as a successful way to stimulate a weakened economy." He doesn't think war is a net positive for human welfare.

He's saying fiscal stimulus is a successful way to stimulate a weakened economy. He wants us to do it without fighting anyone, but the right-wing is standing in the way of all non-defense government spending.

So he's daydreaming of a scenario in which the right is tricked into going along with stimulus, without actually needing to kill anyone.

...and you're trying to make it into "Paul Krugman wants recommends a war to fix the economy!"

>> ^pyloricvalve:

Thanks for the reply. There were things I really didn't understand about Krugman's Hangover Theory article, especially that very point that you quote. In fact I tried to ask in a post above about this but maybe you missed it. To me it seems only natural that there is no unemployment in the boom and there is some in the bust. Both are big reorganisations of labour, it is true. However, to start with the boom is much slower and longer so adaptation is easier. Also the booming industry can afford to pay slightly above average wages so will easily attract unemployed or 'loose' labour. As it is paying above average, there will be little resistance to people changing work to it. The boom is persistent enough that people will train and invest to enter the work created by it. The information for entering the boom industry is clear and the pay rise makes the work change smooth. I see no reason for unemployment.
The bust however is short and sudden. There is no other obvious work to return to. That information of what the worker should do is much less clear. The answer may involve taking a small pay cut or on giving up things in which people have invested time and money. Many people wait and resist doing this. They may well not know what to do or try to wait for opportunities to return. Thus there is plenty of reason for unemployment to be generated by the bust.
If I hire 100 people it can probably be done in a month or two. If I fire 100 people it may be a long time before they are all employed again. For me this difference seems so obvious I have a real trouble to understand Krugman's point. I know he's a very smart guy but I can't make head nor tail of his argument here. Can you explain it to me?


I'm trying to think how to connect what you're saying to the point Krugman's making (at least as I understand it).

At a minimum, he're Caplan making the same point in less space:

The Austrian theory also suffers from serious internal inconsistencies. If, as in the Austrian theory, initial consumption/investment preferences "re-assert themselves," why don't the consumption goods industries enjoy a huge boom during depressions? After all, if the prices of the capital goods factors are too high, are not the prices of the consumption goods factors too low? Wage workers in capital goods industries are unhappy when old time preferences re-assert themselves. But wage workers in consumer goods industries should be overjoyed. The Austrian theory predicts a decline in employment in some sectors, but an increase in others; thus, it does nothing to explain why unemployment is high during the "bust" and low during the "boom."

Here's the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn't that mean that they must be deciding to spend more on consumption goods—implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?