Ecnomists Posts of Interest...

[RDR]

Unit Roots Greg Mankiw is drawing fire and rousing the ire of Professors Krugman and Delong.

The Temptation for Protectionism: Lessons from the Great Depression

G20: The US can't go it alone The summit's failure to produce an international stimulus package is disappointing, and could lead to protectionism

Creating a World Without Poverty: Social Business and the Future of Capitalism Author: Muhammad Yunus

David Warsh on John Geanakoplos

Tea Parties Never? David Henderson

[RDR]

That ’30s Show
By PAUL KRUGMAN
Published: July 2, 2009

O.K., Thursday’s jobs report settles it. We’re going to need a bigger stimulus. But does the president know that?

Let’s do the math.

Since the recession began, the U.S. economy has lost 6 ½ million jobs — and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we’re about 8 ½ million jobs in the hole.

And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren’t the only bad news in Thursday’s report, which also showed wages stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone?

Wait — there’s more bad news: the fiscal crisis of the states. Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from directly creating a great deal of misery, these cuts will depress the economy even further.

So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3 ½ million jobs by late next year. That’s much better than nothing, but it’s not remotely enough. And there doesn’t seem to be much else going on. Do you remember the administration’s plan to sharply reduce the rate of foreclosures, or its plan to get the banks lending again by taking toxic assets off their balance sheets? Neither do I.

All of this is depressingly familiar to anyone who has studied economic policy in the 1930s. Once again a Democratic president has pushed through job-creation policies that will mitigate the slump but aren’t aggressive enough to produce a full recovery. Once again much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.

So have we failed to learn from history, and are we, therefore, doomed to repeat it? Not necessarily — but it’s up to the president and his economic team to ensure that things are different this time. President Obama and his officials need to ramp up their efforts, starting with a plan to make the stimulus bigger.

Just to be clear, I’m well aware of how difficult it will be to get such a plan enacted.

There won’t be any cooperation from Republican leaders, who have settled on a strategy of total opposition, unconstrained by facts or logic. Indeed, these leaders responded to the latest job numbers by proclaiming the failure of the Obama economic plan. That’s ludicrous, of course. The administration warned from the beginning that it would be several quarters before the plan had any major positive effects. But that didn’t stop the chairman of the Republican Study Committee from issuing a statement demanding: “Where are the jobs?”

It’s also not clear whether the administration will get much help from Senate “centrists,” who partially eviscerated the original stimulus plan by demanding cuts in aid to state and local governments — aid that, as we’re now seeing, was desperately needed. I’d like to think that some of these centrists are feeling remorse, but if they are, I haven’t seen any evidence to that effect.

And as an economist, I’d add that many members of my profession are playing a distinctly unhelpful role.

It has been a rude shock to see so many economists with good reputations recycling old fallacies — like the claim that any rise in government spending automatically displaces an equal amount of private spending, even when there is mass unemployment — and lending their names to grossly exaggerated claims about the evils of short-run budget deficits. (Right now the risks associated with additional debt are much less than the risks associated with failing to give the economy adequate support.)

Also, as in the 1930s, the opponents of action are peddling scare stories about inflation even as deflation looms.

So getting another round of stimulus will be difficult. But it’s essential.

Obama administration economists understand the stakes. Indeed, just a few weeks ago, Christina Romer, the chairwoman of the Council of Economic Advisers, published an article on the “lessons of 1937” — the year that F.D.R. gave in to the deficit and inflation hawks, with disastrous consequences both for the economy and for his political agenda.

What I don’t know is whether the administration has faced up to the inadequacy of what it has done so far.

So here’s my message to the president: You need to get both your economic team and your political people working on additional stimulus, now. Because if you don’t, you’ll soon be facing your own personal 1937.

[RDR]

Keynesianism Worked
BarefootGen, thanks for posting this link.
I know that maybe this is pretty esoteric but this confirms my suspicion that while we both identify with "Keynesian" economic theories we distinguish ourselves from Big Government Keynesians like Krugman. So this brings us back to our discussions about the archaic terms I brought in between original Keynesians and the more balanced approach of Neo-Keynesian. We clearly are in the Neo-Keysnesian group, if I may be so bold to include you also.

We understand that yes Fiscal policies can stimulate the economy but we also do not deny the ability of monetary policy to influence the economy over the short to medium term. If we go back a year to year and an half we can see the Fed was busy pumping money into the economy which some of this improvements could be from that also. And strangely Krugman has no mentions about those efforts, which shows his ideology to support "big government". The original Keynesians considered big government was good. Instead the Neo-Keynesians were not necessarily supporters of bigness but the potential that the Federal Government could be a counter cyclical spending stream to boost incomes in recessions and to tamper an overheated economy.

But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year.

So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.

Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.

Those really are not counter cyclical applications of the Federal Government just ordinary outlays. Just like most businesses have a "fixed" cost structure that can not change over the short term like leases. What he should have touted was the counter cyclical like UE.

The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.

Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall.

But at least Krugman is right about one thing that the government did not do enough to help troubled banks out in the beginning of the Great Depression.

Unfortunately, Krugman again shows his big government bias as he clearly can not see that it was plenty big enough but it was too small too soon. It should have been majorly front loaded and spent as quickly as possible up the the amount that was felt necessary. Not as it has been implemented with some outlays coming years later. That clearly is not counter-cyclical when by the time they are spent the economy would be well on its way to recovery. If the measely 80 billion that was out the door by the second quarter would have been closer to at least the 160 billion that Bush with the Demz in congress then maybe the effects would have been better. Of course like parrots, Krugman wants stimulus II and III.

All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution.

And aren’t you glad that right now the government is being run by people who don’t hate government?

Again Krugman shows his Keynesian touch by criticizing Reagan without even understanding that government was the solution by getting out of the way. Deficits went up, duh??? I actually love the fact that the Tinbergen instrument policy rules were used and each tool {monetary and fiscal policies} took on the target that it was most able to affect in the short to medium term. Reagan just knew that in the long run Big Government is just as much the problem as too small a government.

Really I am not sure whether I am glad the "haters" are out compared to the fetish Big Government lovers.

We don’t know what the economic policies of a McCain-Palin administration would have been. We do know, however, what Republicans in opposition have been saying — and it boils down to demanding that the government stop standing in the way of a possible depression.

I’m not just talking about opposition to the stimulus. Leading Republicans want to do away with automatic stabilizers, too. Back in March, John Boehner, the House minority leader, declared that since families were suffering, "it’s time for government to tighten their belts and show the American people that we ‘get’ it." Fortunately, his advice was ignored.

Well considering that McCain was dealing with a Demz congress, I am sure it would have been a stimulus package. It could not have been any worse at least. But when are Boehner and Republicans the same as McCain? Why not quote him? Maybe because even McCain gives Obama credit for the stimulus.

Lastly, just because there is talk of "belt tightening" does not mean that it eliminates automatic stabilizers. Making the government more efficient can mean belt tightening while still providing a fiscal stimulus. But in the end Krugman like all Keynesians have a fetish for "Big Government".
Averting the Worst

[RDR]

The Value of Human (?) Capital

Can Economists Learn from Tao's Example? Will Academic Economics Become Open Source?

Efficient Market Theory and the Crisis Neither the rating agencies' mistakes nor the overleveraging by financial firms was the fault of an academic hypothesis.

The Utility and Justice of TARP by Will Wilkinson on November 20, 2009

Coyote Blog » Blog Archive » Water Prices
Coyote Blog » Blog Archive » I Can Fix the Water “Shortage” in Five Minutes

Coyote Blog » Blog Archive » GWB: Leftish Icon?

On abolishing private property
Only in Russia…

Ironies of Avatar « Organizations and Markets

Potentional Problem with the Wikipedia Oligarchy - Jeffrey Tucker - Mises Economics Blog

What's Wrong with the Utility Function? - Predrag Rajsic - Mises Institute

But the thought mechanism that leads Jim to position the gamble above all other alternative uses of his time and resources is outside of the Austrian area of concern. In other words, it is not important why he likes the game. For example, Murray Rothbard, in Man, Economy, and State, describes gambling as a purposeful attempt to create uncertainty just for the fun of it.

The First Rule of Good Business: Don't Kill Your Customers by Don Boudreaux

econstories.tv

Tea Parties Never?, David Henderson | EconLog | Library of Economics and Liberty

Op-Ed Contributor - How to Reform Our Financial System - NYTimes.com

Coyote Blog » Blog Archive » Bigger Oil

Smackdown: Keynes vs. Hayek With Poll

[RDR]

Want to Prevent Piracy? Privatize the Ocean - Peter T. Leeson - The Corner on National Review Online

One suggestion that isn’t being considered, but should be, is to privatize the seas — especially those off Somalia’s coast. As the old adage (at least among economists) goes, “What nobody owns, nobody takes care of.” This is as true for oceans as it is for anything else. Piracy is just one manifestation of nobody taking care of what nobody owns when that “what” is the sea.

Feingold Calls on President to Personally Engage in Addressing Root Causes of Piracy Off Somali Coast

[RDR]

Economist's View: "In Defense of Deficits"

Economists Argue Small-Business Concerns Overblown

GDP Report Points to Concerns About State and Local Governments - Real Time Economics - WSJ

Does the World Bank have a sense of humor?

Environmental Economics: It's always (and by always I mean never) fun when economists are caught contradicting themselves

The Tax Foundation - Honestly, Who Doesn't Love Free Money?: Lessons From "Dollars for Dishwashers" in Iowa

Famous Comedians Try to Rescue CFPA in Star-Filled Sketch - Real Time Economics [url=http://slate.com/blogs/blogs/xxfactor/archive/2009/04/08/quiverfull-feminism.aspx]The XX Factor : Quiverfull Feminism- WSJ[/url]

Taxation of Unemployment Benefits, David Henderson | EconLog | Library of Economics and Liberty

McKinsey & Company - Report Debt and deleveraging: The global credit bubble and its economic consequences - January 2010

Baby Bust! The world is panicking over birthrates. Again.

The XX Factor : Quiverfull Feminism

The London Summit: The London Summit 2009 - Growth, jobs and stability

Short Papers on the Financial Crisis, Arnold Kling | EconLog | Library of Economics and Liberty

Management Theory Is Not to Blame - Nicolai J. Foss - Mises Institute

Coyote Blog » Blog Archive » I Need Some Help on Alternative Energy Subsidies

Blog Action Day: Poverty — Mises Economics Blog

Fukuyama's Perfectly Horrifying Example, Bryan Caplan | EconLog | Library of Economics and Liberty

Stumbling and Mumbling: Ownership in question

most enduring myths in sports economics

Krugman's Hoover History - Robert P. Murphy - Mises Institute

Big Shakeouts, Arnold Kling | EconLog | Library of Economics and Liberty

Sovereign debt: This time probably isn't different | The Economist

Economist's View: "Maybe Debt Doesn’t Matter After All"?

Worthwhile Canadian Initiative: Shouldn't Taylor Rules include Fiscal Policy? The Fiscal exit strategy.

Daily Kos: State of the Nation

I Loved Free-Range Kids, Bryan Caplan | EconLog | Library of Economics and Liberty

Hearing Problems at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics

[RDR]

Greg Mankiw's Blog: The Value of Human (?) Capital {Scientist Monkeys Around With the Economy}

CARPE DIEM: Exhibit A: Increased Worker Productivity

Food stamps and incentives «  Modeled Behavior

Marginal Revolution: Zero marginal product workers