10
Aug
2011
Big Deficits and Easy Money Have Failed
That was the title I had given it, but at Mises they called it “End This Agony.” For what it’s worth, I consider this the single best critique of Krugman I have written.
I realize it will not convince those of you who believe in bigger deficits and more quantitative easing, but I don’t know what else I could do to snap you out of it than what I tried in this piece.
On CPI, I have been meaning to post that your 2008 predictions were not necessarily wrong if I can add some caveats. I wish we could go back in time and realize when we finally understood the significance of paying interest on reserves. I think if you had said CPI will go up ceterus paribus you might of gotten it. But, I think we were very slow to realize the very strong effect interest on reserves likely had in keeping money parked at the fed.
Also, if we include asset price inflation, I think you might have a good argument. You played against your foes on their playing field by using CPI and I don’t like when you say you were wrong. I think you were wrong to use CPI and we were slow to understand the effects of interest on reserves.
Would you please write a piece on Alchian on asset prices in inlfation and why you do or do not agree with him? Thanks
Von Pepe, you were the voice of wisdom back then and I ignored you, such was my confidence. Regrets, I’ve had a few…
In retrospect it seems obvious that if the Fed injects a trillion dollars into bankers’ hands, while the average Joe is unemployed and underwater, that gold, stocks, bonds will go up, while bread and sneakers will stay tame. But I couched my predictions in terms of non-adjusted CPI, just to be specific, and I was wrong.
On CPI, I have been meaning to post that your 2008 predictions were not necessarily wrong if I can add some caveats.
Here’s what Bob said: “If the non-seasonally adjusted CPI rises at less than a 5% annualized rate in 4q 2009, I will admit I have been a fool for my warnings, and that I clearly don’t know what I am talking about.”
Source
How do you add a ceterus paribus caveat to that prediction without totally vitiating it?
Well, von Pepe was not wanting to hold constant the assumption that it’s bad to be foolish.
Bob,
This is why I made the psychic remark about predictions a couple of days ago.
I am very optimistic about the economy. If the economy starts growing again, overly gloomy Keynesians and Austrians will not admit any mistake, they will continue to point to all the things that confirms their biases – as the reasons for “recovery”.
My ceterus paribus would of involved not understanding or being late acknowledging paying interest on reserves.In other words, I think Bob made his CPI call not knowing, or not understanding, the interest on reserves point. So, I am not sure the theory he was appyling is wrong once you acknowledge he was wrong on interest on reserves.
I don’t know when the interest on reserves started (I am at work and do not have time ot look up) and am being generous, I am not sure when Bob understood the relevance of paying interest on reserves.
I don’t know when the interest on reserves started
The beginning of October, 2008.
Although Richard North sometimes gets into the realm of crazy talk, I think today he is firing on all cylinders and well worth a read.
http://eureferendum.blogspot.com/2011/08/corrupt-and-decaying-from-top-to-bottom.html
Wow, excellent piece.
IMHO, I still think that in terms of short blog type posts, your sushi article is your best take down of Krugman ever, because it goes into comparing the Keynesian and Austrian theories head to head, and why the Keynesian theory is wrong. After all, your sushi article riled Krugman up so much that he had to address it in his column.
I am afraid that by staying in the empirical interpretation world, Krugman and his ilk can always, like you said, just claim that spending and printing weren’t enough, despite the parabolic, near vertical charts on deficit spending and inflation. Even if spending and inflation had been triple what they were, Krugman will still just say it wasn’t enough, if unemployment and a sluggish economy persisted.
I’m with von Mises and Rothbard in holding that the only way to conclusively settle economic disputes is by judging competing theories against the common standard of rationalism, of economic logic. Without it, we’d be forced to use rather rhetorical style of arguments like “Oh come on, are you really going to say that spending and printing were not enough? Just look at these charts!” People who ascribe to the Keynesian view will always say it’s not enough, as long as there is widespread unemployment, unless they change their theory. Yes, you and many others are rational enough to know how to best interpret the charts, and you know why the economy is not recovering despite the printing and spending, but people like Krugman will scoff at such charts no matter what they looked like, because their mindset, their theory, is totally different.
We’re all here talking about this because of the power of Mises’ and Rothbard’s economic logic. They don’t have the influence they do by being good chart interpreters.
Big deficits have failed? No way, they just were not big enough!!
Did Easy money fail? Heck no!! Money wasn’t easy enough!!!
Come on now, don’t you Austrians get it?
Oh and I forgot, 7 in new debt over the next ten years instead of 8 trillion, and cutting one half of one percent of the budget next year amounts to “austerity.” Right? That’s the problem?
I can’t wait for these MMT clowns to come in here and “set us strait” by enlightening us as to why we should love big deficits. Because isan’t reducing the deficit going to take away our savings?
You can’t make this stuff up. I swear this sounds like stuff strait from the Onion.
“The “quasimonetarists” (who blamed Bernanke for his allegedly tight money policies) and Paul Krugman were completely wrong about gold and silver prices”
What do you mean completely wrong? How can they be completely wrong about things they haven’t made predictions about? Can you point me to an article where Krugman and these quasi-monetarists made strong predictions about the direction of the price of gold? And I don’t quite understand why gold specifically matters all that much, especially compared to interest rates. The economy revolves around interest rates, not around the price of an arbitrary mineral. Predictions about the interest rate are far more valuable than predictions of gold when it comes to the condition of the economy. Sure, gold made a good investment. It was good call. But Krugman is an economist, not an investment manager. Tell what useful information has the price of gold conveyed about the economy? More specifically about the US economy. Inflation is still low despite increases in the price of gold. If it doesn’t say anything inflation, why should we care about the price of gold?
“and not at all with the Keynesian “it’s all about demand”
Demand from emerging countries doesn’t coincide with the Krugman-quasimonetarist view? How so?
Inflation is still low despite increases in the price of gold. If it doesn’t say anything inflation, why should we care about the price of gold?
Excellent point. Is fetishism the answer?
Fetishism for money printing.
I hate it when I accidentally skip words.
>It was a** good call.
>doesn’t say anything about** inflation
As far as Austrians getting it right, I would like to point towards Robert Wenzel. I think I now understand your annoyance whenever Krugman pats himself on the back because I feel the same way whenever I read Wenzel.
Dan linked this Wenzel post in your Christima Romer post.
http://www.economicpolicyjournal.com/2010/09/administrayion-keynesian-speaks-of.html
You see, if only everybody understood the “Austrian perspective”, we wouldn’t have been “fooled by the disastrous Keynesian attempt to pull the economy of the Great Recession.” But conveniently enough, Wenzel leaves out everything he said between September 2008 and August 2009. For over half a year, Robert Wenzel continually said both recovery and high inflation was just around the corner.
Such predictions include:
January 2009
“The money supply is growing at double digit rates. This will result in “turning the economy around”, and ultimately lead to major near hyper-inflation.”
—
“Clearly, Ben Bernanke is serious about his “quantitative ” approach to monetary policy. This will reverse the economy and cause eyeball numbers such as GDP and unemployment to flash that the worst is over, much faster than most expect. However, the price inflationary impact of this money printing will be astounding. ”
April 2009
“the unemployment rate rose from 8.1 to 8.5 percent…
In summary, there is nothing in the current numbers that suggests we aren’t in the early stages of recovery. Of course, if Obama was still a fear monger he would be jumping all over this number, there are other fear mongers out there, but Obama appears to have departed that camp. ”
May 2009
“US unemployment climbed to 8.9 per cent in April, the highest level since 1983…
Bottom line: There is nothing in the current numbers that is not in line with a recovering economy. ”
—
“Now that the recession is winding down, the flight to “quality” is reversing, and the trends for the dollar and Treasury securities are headed down again, and this time they will get an added push from the $800 billion in new money (M2) that Fed chairman Bernanke has created since January 2008.
What will all this mean:
A crashing dollar.
A crashing bond market.
Huge inflation down the road.”
Sure looked fooled to me.
It’s pretty hilarious some of the titles those guys come up with at LRC and Mises.org. I remember there was some talk that Robert Higgs gave that they named ‘Death Fuel’
You wrote:
“The things that matter are the ones that he correctly predicted and the WSJ did not, namely interest rates and CPI inflation. Soaring commodity prices — which of course are consistent with the Peter Schiff view of the world, and not at all with the Keynesian “it’s all about demand” view — just “muddied this issue to some extent.” But we can just throw that out because we just know, deep down, that the Keynesian models are right and the right-wing models are wrong.”
But did you check at all for what he’s written about commodity prices?
First – emphasis on a recent upswing seems tenuous anyway, given how volatile commodity prices are: http://krugman.blogs.nytimes.com/2010/12/27/commodity-prices-and-inflation/
Second – why in the world are you thinking that commodity price behavior is unrelated to demand?: http://krugman.blogs.nytimes.com/2011/01/29/commodities-this-time-is-different/
Whether you agree with him or not, I don’t think it’s fair to say he ignores it because it doesn’t fit with his theory.
First – emphasis on a recent upswing seems tenuous anyway, given how volatile commodity prices are: http://krugman.blogs.nytimes.com/2010/12/27/commodity-prices-and-inflation/
In other words, he did just what Murphy wrote about. He scoffs at counter-evidence and rationalizes it away.
Second – why in the world are you thinking that commodity price behavior is unrelated to demand?: http://krugman.blogs.nytimes.com/2011/01/29/commodities-this-time-is-different/
I didn’t read Murphy as saying that commodity prices have nothing to do with demand. I read him as saying that because the Keynesians have been claiming that there is not enough aggregate demand, that deflationary pressures persist, that there is no explanation in the Keynesian “it’s all about demand” worldview why commodity prices are soaring. Krugman chalks it up to emerging market demand and emergent market hoarding and speculating (reduced supply). In other words, nothing to do with central bank inflation. If commodity prices didn’t rise, then we’d see Krugman write that he was right about deflationary pressures and stagnating “aggregate demand”. But because commodity prices have soared, he had to come up with a non-inflation explanation.
Is China consuming an increasing amount of commodities or not? Is it a particularly large consumer of the commodities that are showing the highest price increases or not? Does it make sense that commodities in high demand will have growing prices or not? While commodity price growth is vigorous, is it unprecedented or not?
M_F you can wave your hands and make insinuations and guess at counterfactuals till the cows come home.
Let me know when you come up with a reason for me to think that central bank actions which should increase general price levels provide a better explanation than quite clear demand explanations that should increase the relative prices of commodities.
Think of it this way – if it wasn’t Krugman who made this argument, how would you respond to it?
Is China consuming an increasing amount of commodities or not? Is it a particularly large consumer of the commodities that are showing the highest price increases or not? Does it make sense that commodities in high demand will have growing prices or not? While commodity price growth is vigorous, is it unprecedented or not?
M_F you can wave your hands and make insinuations and guess at counterfactuals till the cows come home.
I giggled out loud, because it is precisely inflationistas who are guessing at counter-factuals in order to explain away commodities rising in price.
We don’t need to use counter-factuals to know why the prices of commodities is rising. We can use economic logic.
If inflation is NOT the reason why commodities are rising in price, then ANY increased demand and thus of prices of commodities must be financed by savings, since those buying rice and oil and gold from the original producers must abstain from consuming in order to make available money to buy such capital goods (commodities from the original producers are capital goods to the extent that consumers aren’t going to the gold mines directly to buy their gold).
Thus, if inflation is not the reason, then a rise in the demand for commodities must be accompanied by a decrease in demand for consumer goods. If the rise in demand for commodities is not accompanied by a decrease in the demand for consumer goods, then only more money and spending could have enabled that, which means inflation. But we’re testing whether inflation is the reason, so we have to presume that there is no inflation.
But if you look at the demand for consumer goods in China, India, and other emerging economies, there is NO decrease in demand for consumer goods. The demand for consumer goods is rising across emerging market economies.
Therefore, because the rise in demand for commodities is not accompanying a fall in demand for consumer goods, it MUST be the case that the rise in the demand for commodities is only possible because of more money and spending in general, i.e. inflation.
You and other inflationistas who are desperately trying to propagate deflationary fears, find yourselves trapped into ex post rationalizations to explain away rising prices for various specific economic goods. No matter what goods increase in price, even if house prices increase by 10-fold, the answer is always some non-inflation argument of this or that excuse. If it’s not savings glut from China, it’s because more poor people are becoming more wealthy and want more gold teeth.
Anything and everything to explain away reckless central bank behavior.
Your confusion on how money works leads you to make absurd claims like central bank inflation should increase the price of everything equally like some crude video-game designer. That’s not how inflation works. Inflation does NOT raise the price of everything equally. Inflation can and does raise the prices of some things more so than other things, and in some cases, inflation can even lead to a decrease in prices for particular goods. Inflation leads to a revolution in the real economic structure, and that has an effect on production in various industries and hence on relative prices.
For example, after the central bank created Nasdaq bubble popped, the Greenspan-led Federal Reserve System flooded the economy with over $2 trillion in new credit money, and a LARGE portion of it went into the housing market specifically, which kept the price pressure on other goods down. The money that went into the housing sector then was used in large part to finance consumer expenditures from Chinese manufacturers. The dollars then had to go the Chinese central bank, who then bought US treasuries, which then went to finance the government’s profligacy, when then enabled more overseas spending.
The world is accumulating US dollars as the Fed System creates it, and that is how US made goods can rise by only a smaller percentage relative to the percentage increase in total money creation.
You monetary cranks just cavalierly glance at the government’s reported CPI, see 2%, and then say there is no inflationary reason why commodities are rising in price.
Instead of reverse projecting onto me some alleged Krugman hate-fest, you should instead look in the mirror and ask yourself why you have a Krugman love-fest.
You admire Krugman, which is why you confuse my smack-down of his nonsense to be the product of emotion instead of economic logic.
re: “You admire Krugman, which is why you confuse my smack-down of his nonsense to be the product of emotion instead of economic logic.”
Oh please.
Your post specifically attributed rationalization and weaseling to Krugman, and speculating on what he’d do in other cases. If you’re going to be that blatant about it don’t try to backtrack immediately afterwards.
Great, more love-fest for Krugman. Can you get any more obvious?
YES, I admit that I did attribute ex post rationalization and weaselling to Krugman. I am not trying to backtrack from that.
Saying he’s weaselling out of inflation being the reason, has nothing to do with why he’s wrong. The two are distinct.
I was going to add a caveat to my last post, the main contents of which you completely ignored, for obvious reasons, so I’ll just add it here.
In case anyone would like to challenge my last post on the basis that it is theoretically possible for there to be no inflation, and a rise in demand for commodities, and no decrease in the demand for consumer goods, on the basis that people can consume the same, but invest less in non-commodity assets and more in commodity assets, then
this chart
will show that commodities and non-commodity investments are correlated, so the recent soaring of commodities is not on account of people investing less in non-commodity assets.
Not only can we say that because consumption spending did not decrease, that commodities are due to inflation, but the last bull market in stocks is also on account of inflation.
Can someone smack down this article exonerating Alan Greenspan? Thanks.
http://www.forbes.com/2009/04/03/dont-blame-greenspan-opinions-columnists-housing-bubble.html
The article did not mention the role that regulation played to channel resources into the housing sector. The Bailout Reader on mises.org has a lot of good articles on this topic.
Krugman predicted that the low interest rates would provide a disproportionate boost to housing, in comparison to other sectors. This is why he thought a housing bubble would be the quickest way out of the 2001 recession. You can find some good stuff on his blog about this, and also warnings to Greenspan that the housing bubble was getting out of hand.
To my knowledge, no school of economic thought predicted all of the major trends back in, say, January 2008.
Blimey, MMT did!
MamMoth, you were predicting gold would go up 90% in 3 years, back in early 2009? And that oil would double?
Citations needed please.
If GDP were back on its 1984 to 2007 trend, and real GDP and employment were more or less at current levels (12% and 10% below those trends respectively,) then I would agree that there would be strong evidence of the view that demand isn’t the probelm.
But the reality is that money expenditures on output (GDP) remains 14% below that trend.
While I believe that a fiscal stimulous package could, given the right ceteris paribus assumptions, get GDP back to that level, I don’t consider such an effort desirable and don’t worry about it much.
I also believe that it is possible that bailing out the banking system could get GDP back up to that path as well. I have always described this approach (which was the misnamed QE1) as rebuilding the house of cards that was loan securitization. Get people back to holding claims on mortgage backed securities rather than money, then the demand to hold money falls, and GDP rises. Why can’t clever financial manipulations by the Fed get it all back to where it was in 2007? My view was possible, but not likely.
I am more confident in more conventional monetary policy. Don’t pay interest on reserves (that was about rebuilding the house of cards) and use open market purchases. If interest rates on some securities (short T-bills) are driven to zero, then buy other securities.
You have argued that this would raise GDP. You have constantly been over-predicting inflation. It is just around the corner. If that had happened, then we would be back at the issue I described above. If GDP returned to its previous growth path, and real GDP and employment were more or less unchanged, then we quasimonetarists would be wrong. It would count against our view that stabilizing the growth path of GDP is important. At least this time, the decrease in output and employment would have been due to some other, supply side factors, the drop in GDP would be shown to be fortuitous, keeping spending inline with the reduced productive capacity of the economy, and the policy quasimonetarists prefer would be shown to just result in a higher level of prices (maybe including wages) that otherwise.
Now, there may be some other theory that says that an increase in the quantity of money beyond the demand to hold it will not raise money expenditures on output, but it isn’t the Austrian monetary theory.
And that is why you have been predicting inflation. The quantity of base money has risen a huge amount, the quantiy of money (by most measured) has risen a more modest amount. It is evident that the demand for base money has rise a huge amount and the demand for other measured of moeny have risen a modest amount–at least temporarily. Quasimoentarists aren’t saying that there have been permanent increases in the demand to hold base money or some broader constellation of monetary assets. I think the more common assumption is that these are temporary.
It is hard to see how any self-respecting Austrian economists would deny that sufficiently large quantitative easing would outstrip any increase in the demand to hold money and increase GDP, money expenditures on output. We would again be back to the first issue, does it impact output, or just prices.
And yes, if it did impact output and employment, and then, when GDP remains on that 1984-2007 trend, output and employement fall adn the price level rises (because it takes ever accelerating inflation to maintain the malinvestments) then there would be evidence for the Austrian view. That is, if the ever accerating inflation is taken off the table, and we just get slow growth in money expenditures on output, and that is inconsisent with maintaining a structure of production based on a market rate lower than the natural rate, then capital production will shrink, consumer good production will rise, but be constrainted by a lack of adequate capital goods, the prices of consumer goods will rise because of shortages–as above. Production falls back to 12% below trend and employment to 10% below trend, and the price level rises to something like 12% above trend.
P.S. Who cares about gold and silver prices–oh, hard money investors–is economics just marketing for gold and silver dealers?
Good article. My only criticism is that I would have liked you to linger a little longer on the topic of inflation. Quoting Krugman crowing about the WSJ getting it wrong on inflation almost demands a little fun be had with his persistent doom mongering over deflation these last two plus years.
Your article is perhaps the most pathetic I’ve ever read on the subject of economics. Again, you focus on Krugman, whom you seem to be obsessed over, and post just couple of graphs while failing to provide your readers anything close to the appropriate background on what Keynesian and quasi-monetarist theory says about changes in government net saving and the adjusted monetary base.
With respect to Keynesianism, you fail to mention the output gap as Krugman calculated it, and how increases in government spending fell well short of closing it, as Krugman predicted before the Obama stimulus was even passed. Why don’t you present all of the relevant infomation on Krugman’s model and predictions? They were all laid out in his blog.
Then, you go on to butcher his perspective on monetary policy, and then sloppily include Cowen’s name, and then suggest the increase in the monetary base is the variable each would choose to reflect the strength of monetary stimulus. Neither has argued that. In fact, each focuses heavily on expectations and looking at changes in the markets generally, which is what really matters.
Conveniently, you leave out how right may Keynesians, including Krugman, and quasi-monetarists have been about inflation, interest rates, lack of AD, etc., as well as your own piss poor record in this regard. Then you have the audacity to mention gold at the end, which is hardly a relatively important market versus, say that of US treasuries, when you’ve been nearly dead wrong yourself about the reasons even gold’s been rising. The gold supply’s been falling for about 10 years Bob, as retail and industrial demand have soared. Read all about it:
http://www.gold.org/investment/statistics/
This is not exactly obscure data. You know, it’s supply and demand data, which economists are supposed to look at and not argue price without mentioning.
Anyone who actually pays attention to the economic models you’re criticizing knows that there hasn’t been nearly as much fiscal or monetary stimulus as they call for, and there’s certainly no evidence your “model” has any validity at all. You’ve been wrong about just about everything. You’re not an economist or even an honest commentator.
David S. wrote:
Conveniently, you leave out how right may Keynesians, including Krugman, and quasi-monetarists have been about inflation, interest rates, lack of AD, etc., as well as your own piss poor record in this regard.
Anyone who has read my article, and your comment above, realizes you are just making stuff up. I explicitly said Krugman was right about inflation and interest rates, and that I was wrong about CPI in 2009 and 2010. And I have handled all of the things you mention in other articles; there’s only so much you can do in one article.
Bob, you made brief mentions at the end, instead of laying out the evidence carefully. Instead, you showed two graphs that aren’t even relevant to the arguments the people you criticize make. that’s my point, and it’s very misleading. There is anything, but balance in that article, because if there was, it’d have to be titled “I Admit I’ve Been a Huge Fool, but Continue to Be One.”
David S., you made brief mentions at the end, instead of laying out the evidence carefully. Instead, you referred to output gaps that aren’t even relevant to the arguments the people you criticize are making. That’s my point, and it’s very misleading. There is anything but balance in your post, because if there was, it’d have to be titled “I Admit I’ve Been a Huge Moron, but Continue to Be One.”
You are wrong about gold.
Mine production is actually increasing. The only reason supply is said to be down is that there is less recycling, which is a demand story.
Speaking of which, investment demand is up 26% for Q1 2011, as compared to 7% for jewellery demand. Industrial demand is actually down.
But of course the most important point is that gold is not wheat or some other consumable commodity. Even it were true that production had dropped by, say, 40 tonnes, that would not account for the rise in price. Mankind has mined approximately 170,000 tonnes of gold and I don’t think much of it has been released into orbit.
lmao Really Bob. Show me your data indicating that mine production is increasing on the net worldwide, and that production is also increasing. Mine production can increase, but if enough mines close, the gold supply can still fall. I won’t be surprised if you don’t have a shred of evidence for anything you write.
And then there is your laughable claim about less recycling, of which you offer no evidence, of course. Whether gold is recycled or not says nothing about the supply of gold. It certainly doesn’t say it isn’t falling. We agree demand’s increasing, but that means production increases have to keep up, and they aren’t. Production’s falling.
And then your last paragraph….lol Apparently you’re completely unfamiliar with the fact that after a certain point, in a sufficiently tight market, price rises non-linearly with demand.
Obviously you aren’t a worthy participant in a serious conversation. Thanks for the laughs though.
You utter gibbering imbecile. All the data and facts – except the total tonnage of gold mined in the history of mankind – are at the link you provided!
Mine production can increase, but if enough mines close, the gold supply can still fall.
Jesus Christ on a bicycle! I was obviously not talking about mine productivity. If I were I would have used the word “productivity” instead of the word “production”!
Whether gold is recycled or not says nothing about the supply of gold.
Er… even when one measure of supply (the only one that shows a decline) includes gold that has been recycled? It really says nothing?
We agree demand’s increasing, but that means production increases have to keep up, and they aren’t. Production’s falling.
No it isn’t.
Apparently you’re completely unfamiliar with the fact that…price rises non-linearly with demand.
Normal person: Oh wow, all the ACME Supply stores were crazy busy all over the nation today. Did you see those queues at the checkouts on TV? There must have been way more customers than normal!
David S: That must be the stupidest thing I ever heard. Are you not aware that there were 1,424 cashiers working today, instead of the usual 1,425?
Normal person: Huh? A difference of one cashier out of 1,425 caused those queues? That doesn’t make sense.
David S: Oh my God! Apparently you’re completely unaware that queue lengths increase non-linearly with the number of cashiers!
Normal person: Well I’m not actually, but…. Oh eff it. You really are as mad as a box of frogs, aren’t you?
Obviously you aren’t a worthy participant in a serious conversation.
Projection?
lol You’re actually only citing data from just the last quarter? lmao This is a 10 year-old story, at least, as I mentioned about the falling supply and the rising retail and industrial demand in India and China.
No point you made is relevant at all and you’re just a waste of time.
The production of gold has made the supply continually increase. The supply is not decreasing.
http://goldnews.bullionvault.com/files/gold_mining_production.png
you fail to mention the output gap as Krugman calculated it, and how increases in government spending fell well short of closing it
There is no such thing as the “output gap”. In the first place, “output” is not generic like pie filling. Further, “output” is not mechanical and dollars spent by the donut-eaters are not the equivalent of goods and services produced and exchanged voluntarily. As such, government spending and debt cannot “close it”.
“Output gap” is a baseless and preposterous concept intended to fool the weak-minded. All that government spending and debt can possibly accomplish is to further misdirect resources away from the goals and dreams of free people creating further impoverishment while providing the vile donut-eaters with further excuses for enslaving us.
Your post is perhaps the most pathetic I’ve ever read on the subject of economics. Again, you focus on Murphy, whom you seem to be obsessed over, and post just a couple of comments while failing to provide your readers anything close to the appropriate background on what Austrian theory says about changes in government net spending and the adjusted monetary base.
With respect to Austrianism, you fail to mention the economic distortions that are created by fiscal deficit spending as Murphy calculated it, and how increases in government spending rose well beyond what the market could repair, as Murphy predicted in August 2008 before the Obama stimulus was even passed. Why don’t you present all the relevant information on Murphy’s model and predictions? They were laid out in his blog.
Then, you go on to butcher his perspective on monetary policy, and then sloppily include Krugman’s name, and then suggest the increase in aggregate demand as the variable Murphy should choose to reflect the strength of monetary stimulus. He didn’t argue that. In fact, he focuses heavily on expectations and looking at changes in the markets generally, which is what really matters.
Conveniently, you leave out how right many Austrians, including Murphy, have been about employment, productivity, stock market, etc., as well as your own piss poor record in this regard. Then you have the audacity to mention US treasuries at the end, which is hardly a relatively important market versus, say that of gold, when you’ve been nearly dead wrong yourself about the reasons even gold’s been rising. On record, the gold supply’s been rising for almost 200 years David S., as retail and industrial demand have soared. Read all about it:
http://goldnews.bullionvault.com/files/gold_mining_production.png
This is not exactly obscure data. You know, it’s production data, which economists are supposed to look at and not argue supply without mentioning.
Anyone who actually pays attention to the economic models you’re criticizing knows that there has been far too much fiscal and monetary stimulus as Austrians call for, and there’s certainly no evidence your “model” has any validity at all. You’ve been wrong about just about everything. You’re not an economist or even an honest commentator.
now that’s pretty funny
Even the establishment now admits that the problems of 2008 were much more serious than first understood. Further, we haven’t lived through deflationary times since the early 1930 and have no practical experience with them. Still, everything turned out pretty much like the Austrians said except that the inevitable deflation dragged down prices a bit more than expected and, because things were so bad, the subsequent artificial “boom” was merely a flat-line. Because of the anti-deflation policies, the bad times got drawn out longer than we might expect having only theory to go on.
David S. is always amusing because it’s clear he has absolutely no understanding of Austrian methodology or concepts.
I’ve got a comment awaiting moderation above from this morning – perhaps because of the links.
Anyway, my point was I think you’re wrong about Krugman on the commodity prices. He doesn’t dismiss this – he’s got a lot of detailed posts on it. One discusses the high volatility of these prices which – if you look at it over many years – makes the recent uptick look a lot less related to monetary policy. It’s not an unprecedented increase. The other link was a detailed explanation of what was and wasn’t the source of the commodity price increase. I’m not sure how you can say that it’s not consistent with demand-side views. It’s completely a demand-side story. The reason why commodity prices are increasing where other prices aren’t is Chinese demand trends. Just because we don’t have inflationary pressures in this economy doesn’t mean that those pressures are absent from every economy, and with fungible commodity markets that’s going to impact our commodity prices.
Krugman on quantitative easing (the bold is mine):
http://krugman.blogs.nytimes.com/2010/10/27/the-worst-economist-in-the-world-102710/
Commodities rose in real terms. No recovery happened. Krugman could not have been more wrong, so of course he plays the “blame the Chinese” card.
He’s been relying on the same speculation/real demand logic for 2000/2001, 2005, 2007-2008, and 2010-2011.
If your argument is that Krugman should have noted that real demand for commodities could increase outside the U.S. in this particular October 2010 post, then I agree with you. It would have made it a better post.
If your argument is that his failure to note that in this post means that all subsequent citations of Chinese demand are an ex post rationalization, I don’t think you have a leg to stand on.
But I’ll humor you – let’s say he is, for his own part, rationalizing ex post. You still have to engage the argument. That doesn’t make the argument wrong.
You are trying to introduce a level of ambiguity that simply is not there in what Krugman wrote.
But yes DK, we can debate the subsequent argument that commodity price increases were resultant from only an increase in demand that happend to be coincidental with the QE2 period. I think that the following put a dent in that hypothesis.
The USD decreased in value relative to most other currencies.
The USD decreased in value relative to consumer prices.
Margin debt increased.
re: “You are trying to introduce a level of ambiguity that simply is not there in what Krugman wrote.”
No I’m not. I’m agreeing it is unacceptably unambiguous. And I’m also pointing out that this is one blog post that is unacceptably unambiguous and it’s not evidence that later references to a logic he’s employed many times before is some kind of ex post rationalization.
DK sloppily writes: There are a lot in the Mises crowd that really consider Krugman and Keynesians to be a threat to western civilization.
http://tinyurl.com/3b7yj3y
Wrong, DK. Not just western civilization. All civilization.
That’s the plan. So we can really get down to what really matters: growing coconuts.
To the uninitiated, this “coconuts” theme is Mam-mouth’s rigorous attempt to refute the undeniable existential fact of life in the universe that goods and services ultimately trade for other goods and services.
You mean if I trade away all my real wealth, my home, my car, my factory, my claims to wealth of firms (stocks and bonds), and took my money and went into the wilderness, I wouldn’t have a higher standard of living? I mean come on! I have all that paper to…uh…increase my “net savings” with!
I was trying to think of something useful for you to do with all of your net savings. Somehow your story made me think of the lovely nude Catherine Spaak covered with money in 1963. I know, I’m old.
http://1.bp.blogspot.com/_f-1pzESgzHM/TTz-jRBN-CI/AAAAAAAAAoA/tz63wRg4vlw/s1600/noia28.jpg
If that’s not an argument for gold coins over fiat money, I don’t know what is…
lol
Thanks to the miracle of youtube, the entire scene can be found here:
http://www.youtube.com/watch?v=dIvjJKgguqM&feature=related
That scene is a perfect metaphor for MMT government printing and spending.
The government takes the shirt off your back, you end up with depreciated paper money.
Not a metaphor. This times 1000 is how are morally degenerated orgies are.
Is that what you are calling inflation now?
No, that’s growth in real terms.
Ah, so “growth in real terms” is what you are calling growth in money.
My mistake Bob 🙂
Don’t miss English Bob’s takedown of MMT here:
http://english.economicpolicyjournal.com/2011/07/sorry-mmters-economy-doesnt-exist-and.html
Some real interesting stuff on Keynes, WWII and national accounting constructs.
“Just because we don’t have inflationary pressures in this economy doesn’t mean that those pressures are absent from every economy, and with fungible commodity markets that’s going to impact our commodity prices.”
Daniel, our central bank created those inflationary pressures. Ronald McKinnon at Stanford has been trying to explain this for sometime now. Yes, go ahead and blame it on the Chinese for choosing to continue their crawling peg, but the commodities price run-up has been fueled by U.S. money printing. The dollar must be the chief suspect in this story.
And that brings up another issue. A real problem with both the quasi-monetarist and Austrian stories is that they both assume a closed container when looking at the demand for money. In the real world, the money container leaks. The more dollars that are printed, the higher the demand for dollars under the current international system of exchange.
Even as the demand for cash balances is satiated in the United States, so long as the Fed continues to print money, the money barometers will continue to indicate an increasing demand for money. Rather than entering directly into the bloodstream, the “overflow” of money bypassing circulation in the U.S. was simply being exported outside the U.S. due to the dollar’s position as the world’s reserve currency. Otherwise, the enormous expansion of base money would indeed have spilled out of the banks by now, and into circulation in the U.S. economy.
The excess money (QE2) was instead siphoned off outside U.S. borders.
Now someone will protest that I’m talking about a simple balance of trade issue, and not monetary economics. I would counter that this is only partially true. Due to hot money outflows, more and more dollars are purchased on the monetary exchanges and held in reserve in foreign central banks. This amount has recently far exceeded the trade surplus for these developing economies. The demand for dollars is very large and proportional to the amount of dollars being printed.
At the end of the day, the Chinese desperately want off this treadmill, but do not know how to jump off without getting hurt. Once they exhaust sterilization methods, they will be forced to eventually wean off the dope, or worse, go cold turkey.
This whole story has lengthened the already long and variable lags in the United States. However, it can’t keep inflation from eventually showing up back in the United States. The high inflations in the emerging markets is the early warning sign.