20 Nov 2013

Summers and Krugman: The Liquidity Trap Is Forever

Banking, Big Brother, Inflation, Krugman 69 Comments

It now looks like the War on Savings will be as eternal as the War on Terror. Previously, Paul Krugman et al. had confined their upside-down prescriptions to this apparently temporary abnormality, but once things returned to normal they would go back (we were assured) to worrying about budget deficits and the stability of the currency.

However, at a recent IMF conference Larry Summers revealed the awful truth that the U.S. economy is stuck in this Keynesian Twilight Zone for the foreseeable future–and it has been this way for decades already. Here’s Paul Krugman summarizing the dire prognosis:

[Summers] works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound…and that this corresponds to a situation in which the “natural” rate of interest…is negative.
…
But now comes the radical part of Larry’s presentation:
…
[H]ow can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’s answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest. And this hasn’t just been true since the 2008 financial crisis; it has arguably been true, although perhaps with increasing severity, since the 1980s.

…In other words, you can argue that our economy has been trying to get into the liquidity trap for a number of years, and that it only avoided the trap for a while thanks to successive bubbles.

And if that’s how you see things, when looking forward you have to regard the liquidity trap not as an exceptional state of affairs but as the new normal.
…
If you take a secular stagnation view seriously, it has some radical implications – and Larry goes there.
…
One way to [deliver a negative real interest rate] would be to reconstruct our whole monetary system – say, eliminate paper money and pay negative interest rates on deposits. Another way would be to take advantage of the next boom – whether it’s a bubble or driven by expansionary fiscal policy – to push inflation substantially higher, and keep it there. Or maybe, possibly, we could go the Krugman 1998/Abe 2013 route of pushing up inflation through the sheer power of self-fulfilling expectations.

Any such suggestions are, of course, met with outrage. How dare anyone suggest that virtuous individuals, people who are prudent and save for the future, face expropriation? How can you suggest steadily eroding their savings either through inflation or through negative interest rates? It’s tyranny!

But in a liquidity trap saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver – it’s like farm price supports, except for rentiers.
…
I could go on, but by now I hope you’ve gotten the point. What Larry did at the IMF wasn’t just give an interesting speech. He laid down what amounts to a very radical manifesto. And I very much fear that he may be right. [Bold added.]

For once, Krugman and I agree: Larry Summers’ very radical manifesto is indeed cause for very much fear. Their assault on saving and the strength of the currency is now a never-ending war.

69 Responses to “Summers and Krugman: The Liquidity Trap Is Forever”

  1. Reply
    Lester says:
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    demented Gingrich-esque “idea” there. glad this guy was not given the nod, not that it makes much of a difference

  2. Reply
    Joe says:
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    “But in a liquidity trap saving may be a personal virtue, but it’s a social vice. And in an economy facing secular stagnation, this isn’t just a temporary state of affairs, it’s the norm. Assuring people that they can get a positive rate of return on safe assets means promising them something [the fed] doesn’t want to deliver”

    Fixed that for ya, Paul.

  3. Reply
    oOooOoOOooOOo says:
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    Keynesians trying to solve a problem that they themselves created… How they have the audacity to claim “things would’ve been worse without us” is beyond me.

  4. Reply
    Bob Roddis says:
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    I smell the odor of MMT floating in the air.

    • Reply
      Major_Freedom says:
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      Nah, that stench is just DK’s blogpost on the wiki entry for liquidity preference.

    • Reply
      Charles Hayden says:
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      Negative interest rates are like a tax on dollar deposits. This is a terrible idea. And it’s all based on a failure to understand the monetary system that we have.

    • Reply
      valueprax says:
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      Good catch. The “Natural Rate of Interest is zero” is a confusing MMT notion born of fiat currencies.

  5. Reply
    Andrew_FL says:
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    Stopped reading at “our economy has been trying to.” It’s clear that Krugman (and Summers?) are suffering from a serious error in logic. This is known as the Pathetic Fallacy. And it is quite pathetic.

    • Reply
      Joe says:
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      They’re anthropomorphizing the economy. What they really mean to say is that the market forces are causing people and companies to save more and lend less than what they previously were.

      But they don’t understand people, and they don’t understand the market. It really shows:

      “Assuring people that they can get a positive rate of return on safe assets means promising them something the market doesn’t want to deliver ”

      People are saving and paying down debt because they want to. Why assume that people are saving to get a positive return? Couldn’t they just be fixing their balance sheets? As far as I can tell, this seems to be the case as household debt is decreasing and banks still allow people to grow their deposits.

  6. Reply
    Major_Freedom says:
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    It’s Shakespearean.

    They’re taking themselves and everyone else exactly where they don’t want to go, by doing their damnest to prove the free market economists wrong.

    • Reply
      Keshav Srinivasan says:
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      You think Krugman thinks of his task as proving Austrian economics wrong? I think he views his main intellectual opponents as the Chicago school, not the Austian school.

      • Reply
        Major_Freedom says:
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        Thought I said “free market economists” there Keshav.

        Austrian economics is actually wertfrei.

        • Reply
          Keshav Srinivasan says:
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          I wasn’t aware that real business cycle people were considered free market economists.

          • Reply
            Major_Freedom says:
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            I wasn’t aware I said that.

        • Reply
          Keshav Srinivasan says:
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          Concerning your comment, certainly there is a distinction between positive and normative economics, but as a practical matter, are there any Austrian economists who are communists, for instance, or who support Obamacare?

          • Reply
            Major_Freedom says:
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            As a practical matter, free market economists must be distinguished from Austrian economists.

          • Reply
            Major_Freedom says:
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            This is because there are free market economists, who are not Austrians (e.g. David Friedman)

            • Reply
              Keshav Srinivasan says:
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              But is there the opposite, Austrian economists who believe in big government?

              • Rick Hull says:
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                About as many as there are chemists who believe in the phlogiston theory, I’d venture.

              • Ken B says:
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                Isn’t that Keshav’s point?

              • Major_Freedom says:
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                Probably not, but I don’t see how that relates to my original point that started this whole tangent.

                I guess one can say that all Austrians are free market economists, but not all free market economists are Austrians.

                Still, saying free market economist doesn’t mean only Austrians. It (unfortunately) includes the “Chicago” school as well, as much as that irks me.

              • Keshav Srinivasan says:
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                Yes, your original point is fine, I was just questioning your description of Austrian economics as “wertfrei”. That might be true on paper, but it’s a bit suspicious if pretty much all Austrians are libertarians.

              • Major_Freedom says:
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                Or, perhaps it’s not suspicious at all, but a reflection of the likely truth that having intimate knowledge of praxeology encourages one and/or guides one to the subsequent knowledge that liberty is the best normative approach.

                Austrian economics is grounded on individual action. If one spends their days and nights studying individual action, then it is likely one will develop a respect for it. To have a respect for individual action makes individual liberty a stone’s throw away.

                Think about it. Imagine a cementhead oaf. Would he be more or less likely to understand how to respect other individual preferences? I say less likely. For he would be closer to a lower animal, and almost all lower animals have no regard for individual human welfare.

              • Bala says:
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                It (unfortunately) includes the “Chicago” school as well

                I guess the subtext of Keshav’s question (and much as I may hate to say I agree with Ken B, I may have to on this one) is that it all depends on what the phrase free market means when you say free market economists. While the Chicago School economists and many others may consider the former free market economists, is that term really meaningful at all when applied to Chicago School economists? Isn’t the proposition

                Chicago School economists are free market economists

                of the form

                A non-A is an A?

                Isn’t that contradiction what irks you so much? So aren’t Austrians the only real free market economists given the definition of the term free market, especially the one you would subscribe to?

              • Keshav Srinivasan says:
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                So Major_Freedom, you’re saying that people who adopt methodological individualism will naturally gravitate toward ethical individualism? OK, that’s an interesting argument, but what about people who just believe in Austrian macroeconomics (like business cycle theory stuff) without studying praxeology? Why do they also so overwhelmingly libertarian?

              • Bala says:
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                A => B does not necessitate A’ !=> B’

              • Major_Freedom says:
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                Bala:

                Again, Austrian economics is wertfrei.

                It is possible for someone to be pro-free market, but not subscribe to Austrian epistemology or methodology.

                An economist can be free market based on positivism, consequentialism, or utilitarian considerations.

                I only proposed Chicago as an example that Keshav might know.

              • Major_Freedom says:
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                Keshav:

                “So Major_Freedom, you’re saying that people who adopt methodological individualism will naturally gravitate toward ethical individualism? OK, that’s an interesting argument, but what about people who just believe in Austrian macroeconomics (like business cycle theory stuff) without studying praxeology? Why do they also so overwhelmingly libertarian?”

                I think for most of those people the tendency is the opposite direction. That is, those who tend towards an ethic of free markets, for whatever reason, find Austrian theory compelling because most Austrian economists are talking about free markets being a good thing. So it’s not that Austrianism is leading these people to libertarianism, but libertarianism that is leading them to Austrianism.

                The synergy is unmistakable. Like you alluded to in a seemingly agreeable manner, methodological individualism and ethical individualism are on the same frequency. People can be attracted from one side to the other, depending on where they started in their intellectual development.

                For me I was libertarian before I was Austrian. Austrianism taught me logical truths about my own activity, and everyone else’s activity.

              • Keshav Srinivasan says:
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                “That is, those who tend towards an ethic of free markets, for whatever reason, find Austrian theory compelling because most Austrian economists are talking about free markets being a good thing.” That’s exactly what I meant when I said “suspicious”. It seems like people are drawn to the Austrian school for mainly ideological reasons, which raises several questions to outsiders, like whether some Austrians actually believe in Austrian economics, or just pretend to to justify their political views. And also whether some work done by Austrians is akin to some work done by think tanks, designed merely to back up ideological priors. Now those charges may be baseless, but the lack of big-government Austians does lead to suspicions like that.

              • Keshav Srinivasan says:
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                To put it another way, why are there more small-government Keynesians than big-government Austrians?

              • Rick Hull says:
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                The conundrum goes away if moving from big government solutions to free market solutions is in fact the “right” way.

                One story could be that Austrians have a key bit of insight that lets them see command economies as a form of primitive alchemy that should be discarded.

                If scientists were able to discard alchemy as a useful concept, can’t Austrians (or economists generally) discard command economies as a useful concept?

              • valueprax says:
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                No, because then Keshav wouldn’t get to make his Very Valuable Point that we’re all just ideological liars rationalizing our class interests.

                Thanks, Keshav Marx!

              • Ken B says:
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                “No, because then Keshav wouldn’t get to make his Very Valuable Point that we’re all just ideological liars rationalizing our class interests.

                Thanks, Keshav Marx!”

                Keshav, welcome to FreeAdvice.

              • skylien says:
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                Keshav:

                “OK, that’s an interesting argument, but what about people who just believe in Austrian macroeconomics (like business cycle theory stuff) without studying praxeology? Why do they also so overwhelmingly libertarian?”

                It shouldn’t be surprising. Someone who thinks ABCT to be true would need to be a masochist or sadist or both to argue for a Central Bank induced credit expansions, since according to ABCT this would lead to misallocation of capital, recessions and a lower living standard.

                The same counts for a Keynesians. Someone who thinks a Central Bank is the only way to avoid or mitigate recession and unemployment and a lower living standard due to “lower output” in terms of GDP would need to be a sadist, masochist or both to be against central banking.

                Do you know any Keynesian who wants to end the Fed and argues for competing currencies?

              • skylien says:
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                Unfortunately it is not that easy as you want to make it. You can never tell for sure if someone just chooses the theory to justify his preconceived notions of politics or if he honestly tries to find out what is the truth and based on this forms his political opinion.

              • skylien says:
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                The game of character assassination is one that is completely futile in trying to find truth. No matter which way.

              • valueprax says:
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                Ken B,

                I enjoy your contribution because you are the Perfect Man Of Perfect Reason. You take everybody at their word (except Rothbard-bots like me, you know I am a sinister, duplicitous fiend deep down) and because of this you are willing to patiently tolerate the time-honored troll tradition of people like Keshav who come by and are TOTALLY SURPRISED about Bob’s take on everything and like to subtly, never openly and honestly because that’d be too easy to dismiss, but subtly accuse all their opponents of ideological bias that they themselves are above the fray on.

                In your own snide way, you provoke everyone you don’t like, like me, with your same style of BS, and then when someone responds to your goading you chime in with a predictable, “See, everyone’s crazy around here, welcome to the loony bin!”

                What are you doing here, guy? We’re all liars. And people of low moral character. Why wallow in the mud with us?

                THAT’S the real question we should all be examining. But then, if we were to do that we’d get into the same EXPLICIT ad hominem game that you and Keshav are implicitly engaged in 24/7, and you’d cry foul. And no one has fun when Ken B cries foul.

              • valueprax says:
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                I hope Ken B will now spend the next few hours finding and pointing out all the subtleties in Keshav’s replies, that we all missed (ideological blinders!), that show that he was NOT accusing everyone here of being ideological lairs. He was just engaged in a really subtle, really rational and scientific endeavor to explore our view of the issues.

                Nope, playing gotcha and proving-by-not-explicitly-proving we’re all ideological liars was definitely not his game this whole time.

              • Ken B says:
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                The simple answer is that Keshav is not calling you liars. He is calling you mistaken.

              • valueprax says:
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                Ken B,

                Wow, I must not be as good at reading as I thought I was because I did NOT get that but somehow got just the opposite. But since you are a Perfect Man of Perfect Reason I will go out on a limb and trust your judgment on this one.

                Until I get some empirical evidence that suggests otherwise, of course.

              • Ken B says:
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                OK VP, maybe we are referring to different things.
                Keshav is questioning whether AE is really wertfrei. The extreme preponderance of libertarians amongst them, and the near absence of big govt types suggests it’s not. That is not the same thing as calling all austrians liars.
                I do agree he did say there seem to be some who choose their economics on the basis of politics and aren’t honest about it. I’d say that’s true of a lot of Keynesians too, isn’t it? Choose their economics to fit their politics? But I concede Keshav’s wording does suggest this is particularly so with austrians. So I can see where you are coming from.
                I just think you are reacting like he’s saying “Austrianism is a sham” and I’m reacting like he’s saying “Austrianism isn’t wertfrie and that’s really why it attracts so many libertarians.”

              • Major_Freedom says:
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                Keshav:

                Is there any Keynesian who believes in no government?

                OMG, we just exposed a “suspicious” ideological motivation of Keynesians!

                “That is, those who tend towards an ethic of free markets, for whatever reason, find Austrian theory compelling because most Austrian economists are talking about free markets being a good thing.”

                “That’s exactly what I meant when I said “suspicious”. It seems like people are drawn to the Austrian school for mainly ideological reasons, which raises several questions to outsiders, like whether some Austrians actually believe in Austrian economics, or just pretend to to justify their political views.”

                Same thing is true for Keynesianism, using your logic.

                Here is a lesson that everyone should learn Keshav:

                Even if every single last one of those who are partial to Austrian economics or Keynesian economics are partial because of ideological reasons, this alone is not in any way sufficient as refutations of those schools.

                Only discursive reasoning can make or break theories. A scientist who is motivated by ideological reasons to create a nuclear bomb, can only be refuted using science. He can’t be shown as wrong based on his psychological or ideological motivations.

                “And also whether some work done by Austrians is akin to some work done by think tanks, designed merely to back up ideological priors. Now those charges may be baseless, but the lack of big-government Austians does lead to suspicions like that.”

                “To put it another way, why are there more small-government Keynesians than big-government Austrians?”

                Because there are more Keynesians than Austrians of course.

                Why are there more Keynesians than Austrians? Because most people are pro-government, and their priors lead them to the school that encourages those priors?

                There are more big government Keynesians than small government Keynesians. Those who are already big government tend to be attracted to the Keynesian school, because the Keynesian school encourages, indeed requires, government activity.

                Would you say that it is “suspicious” that people become partial to the Keynesian school because they’re already ideologically pro-big government?

                I see you questioning the motivations of Austrians even though by symmetry the logic should apply to Keynesians and big government priors as well.

                Seems like your ideologically biased in such a way that you use different approaches to pro and anti-government arguments. You only seem to question ideological motivations for the latter.

                Can people not be ideologically pro-government, in which they find Keynesianism attractive, to “justify” their ideology, hmm?

              • valueprax says:
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                Ken B,

                Thanks for reconsidering. For the record, I am having trouble figuring out what the subtle difference is between

                “Austrian econ is a sham”
                and
                “Austrian econ isn’t wertfrei and my evidence is many Austrians are also libertarians”

                because the moment it is NOT wertfrei, it is not scientific. And since it aspires to be a scientific theory, it’d therefore be a sham.

                It’s funny. I have found a plainfaced way to communicate. So much so that when I don’t even say “I love Rothbard!” you somehow figure that out anyway.

                Yet with Signor Keshav, everything is wrapped in subtle nuance and provocative innuendo-that-just-isn’t-so. I wonder what would happen if Keshav tried communicating in a simplistic form of the English language that even a crude Austrian moron like me could understand?

                One prediction: you wouldn’t show up to correct my impressions because you’d be too embarrassed to see I have been right.

              • Bala says:
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                Keshav is questioning whether AE is really wertfrei. The extreme preponderance of libertarians amongst them, and the near absence of big govt types suggests it’s not.

                Someone who says this cannot claim to know Austrian Econ. At the very least, he just does not grasp the methodological foundations of Austrian Econ. However, considering it’s Ken B saying this, it’s not surprising, leave alone shocking. What’s irritating is that he does not bother to learn but wishes to pontificate and challenge endlessly.

              • Keshav Srinivasan says:
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                valueprax, I was NOT trying to say that Austrians don’t believe what they say. All I was trying to say if people are drawn to a subject for ideological reasoning, it makes people wonder whether the subject is wertfrei, or even whether it’s being conducted in good faith. I didn’t mean to say that such charges were correct, merely that the fact that there are so few big-government Austrians is what’s responsible for such charges.

              • Keshav Srinivasan says:
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                Major_Freedom, I am readily willing to concede that a lot of Keynesians were drawn to the school for ideological reasoning. For instance, a lot of liberals support stimulus because they favor more government spending in general. So yes, that definitely raises the same sort of suspicions concerning Keynesian economics (again, whether those charges are baseless or not). I wasn’t trying to single out Austrian economics. (Although the lack of ideological diversity of Austrians compared to Keynesians is something that should be a addressed.)

                And yes, I agree with you wholeheartedly that the cause of someone acquiring a belief need not have anything to do with the truth of the belief.

              • Keshav Srinivasan says:
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                valueprax, when I was suggesting that Austrian economics may not be wertfrei, that doesn’t mean that it’s a sham. It could just be that being human, its practitioners may have fallen somewhat short of the ideals they’re aspiring to (like people in other sciences), so they may need to apply more effort in making their arguments wertfrei. And if they did that, they might get some open-minded big-government types to at least take a look at the Austrian school.

                In any case, since you seem to have taken my comments as impugning you and your motivations, I sincerely apologize for that. That wasn’t my intention.

              • Ken B says:
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                Keshav
                What I find interesting was that my motives were impugned when I was simply trying to explain what you meant. And I didn’t even offer an opinion.

              • Bala says:
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                Ken B,

                In your first sentence, you cite Keshav. In the next, you express your understanding. So, your attempt to evade taking responsibility for your own statements is very interesting indeed.

              • Ken B says:
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                No Bala. Imputed speech.

              • Bala says:
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                Ken B,

                You sure are very demanding on anyone who reads your comments. The word suggests carries an implicit secondary object, a person. The question is to whom it suggests. To me your wording indicates that it is to you and that you are expressing agreement with Keshav. You are claiming it is otherwise. I just find this very interesting because a person wanting to be clear would probably have added a to him after suggests.

              • Bala says:
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                Keshav,
                It appears to me from this statement of yours

                It could just be that being human, its practitioners may have fallen somewhat short of the ideals they’re aspiring to (like people in other sciences), so they may need to apply more effort in making their arguments wertfrei.

                that you haven’t bothered or had the time/opportunity to understand the methodological foundations of Austrian Econ. For had you done so, you wouldn’t try to deduce the wertfrei status of AE from statistics the way you are doing.

                A occurs every time B occurs does not necessarily mean that A caused B or B caused A. There could be a third C that caused both. That C, in this case, happens to be the methodological foundations of Austrian Econ.

  7. Reply
    skylien says:
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    “I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. …

    Thus we might aim in practice (there being nothing in this which is unattainable) at an increase in the volume of capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus;…

    At the same time we must recognise that only experience can show how far the common will, embodied in the policy of the State, ought to be directed to increasing and supplementing the inducement to invest; and how far it is safe to stimulate the average propensity to consume, without foregoing our aim of depriving capital of its scarcity-value within one or two generations.”
    Keynes GT (Chapter 24)

    There you have it. They actually did it. Their aim to deprive capital of its scarcity value is finally reached, and even within few generations!

    Keynes you are the Man! ZIRP forever!

    • Reply
      Bob Roddis says:
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      Great (and creepy and scary) quote. But why stop there?

      It may turn out that the propensity to consume will be so easily strengthened by the effects of a falling rate of interest, that full employment can be reached with a rate of accumulation little greater than at present. In this event a scheme for the higher taxation of large incomes and inheritances might be open to the objection that it would lead to full employment with a rate of accumulation which was reduced considerably below the current level. I must not be supposed to deny the possibility, or even the probability, of this outcome. For in such matters it is rash to predict how the average man will react to a changed environment. If, however, it should prove easy to secure an approximation to full employment with a rate of accumulation not much greater than at present, an outstanding problem will at least have been solved. And it would remain for separate decision on what scale and by what means it is right and reasonable to call on the living generation to restrict their consumption, so as to establish in course of time, a state of full investment for their successors.

      http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm

      • Reply
        Andrew_FL says:
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        “In this event a scheme for the higher taxation of large incomes and inheritances might be open to the objection that it would lead to full employment with a rate of accumulation which was reduced considerably below the current level.”

        What jibberish. Higher taxation on large incomes and inheritances *reduces* the ability of those earners to employ people. It would not lead to any kind of employment at all, hardly “full employment.”

      • Reply
        Bob Roddis says:
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        Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.

        I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.

        I don’t see any mention of prices as information. And it sure sounds like a strange belief in an homogenized lump of “capital”.

    • Reply
      Dyspeptic says:
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      If the scarcity of capital can be abolished by printing colorful little pieces of paper and calling them money, then why can’t we abolish the scarcity of medical resources by producing an unlimited amount of sugar pills and calling them medicine? Based on the placebo effect this would work at least 30% of the time, and if it results in the euthanasia of diabetics, well, you have to break a few eggs to make a utopian omelet anyway.

    • Reply
      Ken B says:
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      I am not sure if you’re being ironic here. Personally I doubt you can ever deprive capital of its scarcity value but surely it must be a good goal. The only way It can lose its scarcity value is if it is not scarce. Are you confusing capital with printed money?

      • Reply
        skylien says:
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        Ken B, of course I am ironic/sarcastic about this, so it is certainly not me who is confused about printing money and the problems of creating the right heterogeneous capital. It is of course as much of a good goal as it is to deprive heterogeneous shoes of their scarcity value. And in my view the market does it best by directing capital into profitable lines of production und pulling it out of unprofitable lines of production. Apart from the ridiculous notion to deprive capital of its scarcity value Keynes completely fails to explain how the state (he) would achieve directing capital into actual profitable (in accordance with subjective preferences of market participants) lines; he just assumes it as a given!

        However this shows me that you are a much better economist than Keynes was.

        • Reply
          skylien says:
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          And by heterogeneous shoes I don’t just mean a left and a right.

          😉

  8. Reply
    skylien says:
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    Bob,

    Why did you choose “Big Brother” as a search tag? It is not really about the NSA or Snowden or something similar. Please don’t tell me that Krugman is actually your..?

  10. Reply
    Capt. J Parker says:
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    Per capita real consumption is at an all time high:
    http://research.stlouisfed.org/fredgraph.png?g=oJ3

    Consumption as a fraction of disposable income is not at an all time high but, it’s pretty much at the pre recession level and that level represents a very high value by historical standards:
    http://research.stlouisfed.org/fredgraph.png?g=oIX

    I would think this kind of demand is the stuff of Keynesian nirvana.
    So, why, exactly, are we in come kind of new economic funk?
    And if the answer is capital has displaced labor, wouldn’t MORE capital displace even MORE labor?

  11. Reply
    Bob Roddis says:
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    They will do and say ANYTHING so as avoid the self evident problem of distorted prices. It’s beyond bizarre.

    • Reply
      Major_Freedom says:
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      Street thugs who counterfeit money distort prices………..ergo statism and state induced distortions of prices is fully justified.

      • Reply
        Bob Roddis says:
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        Other than LK who distorts, our basic concepts are Kryptonite to the entire horde of them.

        I would think that when I say “None of you guys know anything…..”, the response would be “Oh yes I do” and they’d at least take a shot at it.

        Instead, it’s always nothing but name calling. I continue to be flabbergasted.

        • Reply
          valueprax says:
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          The incomparable success of Marxism is due to the prospect it offers of fulfilling those dream-aspirations and dreams of vengeance which have been so deeply imbedded in the human soul from time immemorial. It promises a Paradise on earth, a Land of Hearts Desire full of happiness and enjoyment, and — sweeter still to the losers in life’s game — humiliation of all who are stronger and better than the multitude. Logic and reasoning, which might show the absurdity of such dreams of bliss and revenge, are to be thrust aside.… It is against Logic, against Science and against the activity of thought itself.
          ~The Great von Mises

          See? I can Mises-bot, too.

        • Reply
          valueprax says:
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          This one is apropos (or is that, a priori? Haha, Austrian joke…) too:

          Marx and Engels never tried to refute their opponents with argument. They insulted, ridiculed, derided, slandered, and traduced them, and in the use of these methods their followers are not less expert. Their polemic is directed never against the argument of the opponent, but always against his person.
          ~The Great von Mises

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