Comments on: It Takes The Village To Raze the Economy: Some Notes On Krugman and the Return of Keynes http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/ Firedoglake weblog Sat, 18 Feb 2012 07:42:10 -0600 hourly 1 http://wordpress.org/?v=3.1.2 By: Mason http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1958325 Mason Mon, 17 Aug 2009 15:43:11 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1958325 <p>Oh, one more thing. Let’s drive a stake through the heart of the Milton Friedman University of Chicago school of free market enthusiasts and regulate the financial markets. Enough is enough!</p> <p>We need to get rid of the toxic assets by allowing banks to fail, tariffs, and taxes on the rich.</p> <p>Bitter medicine, indeed, but absolutely necessary to avoid financial collapse and the mother of all depressions.</p> <p>Oh, and we need to end the wars and dial down our military.</p> <p>That’s the only chance we have.</p> Oh, one more thing. Let’s drive a stake through the heart of the Milton Friedman University of Chicago school of free market enthusiasts and regulate the financial markets. Enough is enough!

We need to get rid of the toxic assets by allowing banks to fail, tariffs, and taxes on the rich.

Bitter medicine, indeed, but absolutely necessary to avoid financial collapse and the mother of all depressions.

Oh, and we need to end the wars and dial down our military.

That’s the only chance we have.

]]> By: Mason http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1958324 Mason Mon, 17 Aug 2009 15:29:52 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1958324 <p>We’re going to have to agree to disagree about switching to a gold standard.</p> <p>However, I suspect we agree that privately owned central banks like the Federal Reserve and the IMF are a bad idea because they always profit in good times and bad and they can trigger massive transfers of wealth to the mega rich by constricting the money supply. We don’t even know who owns the Federal Reserve, much less their agendas.</p> <p>I firmly believe we should abolish the Federal Reserve and allow our government to control the money supply, subject to a formula established by a panel of our leading economists, including Paul Krugman, Joseph Stiglitz, and Nouriel Roubini. The formula should be reviewed periodically.</p> We’re going to have to agree to disagree about switching to a gold standard.

However, I suspect we agree that privately owned central banks like the Federal Reserve and the IMF are a bad idea because they always profit in good times and bad and they can trigger massive transfers of wealth to the mega rich by constricting the money supply. We don’t even know who owns the Federal Reserve, much less their agendas.

I firmly believe we should abolish the Federal Reserve and allow our government to control the money supply, subject to a formula established by a panel of our leading economists, including Paul Krugman, Joseph Stiglitz, and Nouriel Roubini. The formula should be reviewed periodically.

]]> By: eggroll http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1958240 eggroll Mon, 17 Aug 2009 09:41:06 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1958240 <p>That’s a fairly simple assessment of why the Chinese hold so much US paper. First, China lacks a sophisticated financial infrastructure. For the past 20 years, monetary policy has largely meant setting intermediate targets for money growth. The PBoC had no other option given the rudimentary development of the financial system. The results have not always been pretty (imagine a person trying to drive a car with a gas pedal but no steering wheel). In the midst of 9% a year GDP growth in the late 1990s, for example, the central bank stood by helplessly as inflation held below zero from 1998 to 2002 — even as M2 expanded rapidly. Second, the dollar has had a special role in trade. Even with the 2005 2% revaluation, a de facto peg of the yuan to the dollar remains in place to this day. Holding parity with the dollar is part of a heavily subsidized export scheme that is fairly immune to real or nominal yuan appreciation. The yuan may well be quite far from its equilibrium value, but who cares? Third, even as commodity prices have moved up and down, China’s oil consumption has doubled in the past decade. We see China’s holding of $2.2 trillion in currency (mostly dollar) reserves as huge and impressive. The Chinese see it as nowhere near sufficient. Finally, China stays back from the technology frontier where the real money-burning takes place. Labor is still too unskilled and too unproductive. Corruption remains more attractive than venture capitalism as risk is still very hard to price. I would expect that when we see interest rates assume real relevance in the PBoC’s monetary policy we’ll know the situation has changed and the threat of dollar-dumping has materialized.</p> That’s a fairly simple assessment of why the Chinese hold so much US paper. First, China lacks a sophisticated financial infrastructure. For the past 20 years, monetary policy has largely meant setting intermediate targets for money growth. The PBoC had no other option given the rudimentary development of the financial system. The results have not always been pretty (imagine a person trying to drive a car with a gas pedal but no steering wheel). In the midst of 9% a year GDP growth in the late 1990s, for example, the central bank stood by helplessly as inflation held below zero from 1998 to 2002 — even as M2 expanded rapidly. Second, the dollar has had a special role in trade. Even with the 2005 2% revaluation, a de facto peg of the yuan to the dollar remains in place to this day. Holding parity with the dollar is part of a heavily subsidized export scheme that is fairly immune to real or nominal yuan appreciation. The yuan may well be quite far from its equilibrium value, but who cares? Third, even as commodity prices have moved up and down, China’s oil consumption has doubled in the past decade. We see China’s holding of $2.2 trillion in currency (mostly dollar) reserves as huge and impressive. The Chinese see it as nowhere near sufficient. Finally, China stays back from the technology frontier where the real money-burning takes place. Labor is still too unskilled and too unproductive. Corruption remains more attractive than venture capitalism as risk is still very hard to price. I would expect that when we see interest rates assume real relevance in the PBoC’s monetary policy we’ll know the situation has changed and the threat of dollar-dumping has materialized.

]]> By: goldstandard http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957908 goldstandard Mon, 17 Aug 2009 03:11:35 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957908 <p>We don’t live in a bubble and your thinking is obviously US centric. Think global. If gold were the relic you think it was, why would Central Banks feel the need to keep it as a reserve? The dollar is toast and the administration knows it. One day in the not too distant future we will wake up to find out that the dollar was devalued. That in itself will cause both gold and silver to rise rapidly. Currently physical gold stands at $950 while the dollars purchasing power continues to decline. Once the dollar is devalued a rotating series of bank closings will take place in the 12 Fed regions. Then the fun will begin as inflation will hit like a tidal wave. I’ll be more than happy to eat crow if I’m wrong, but time will tell.</p> <p> “The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises”.</p> <p> If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”</p> <p>The Atlantic<br /> The Quiet Coup<br /> By Simon Johnson<br /> May 2009</p> We don’t live in a bubble and your thinking is obviously US centric. Think global. If gold were the relic you think it was, why would Central Banks feel the need to keep it as a reserve? The dollar is toast and the administration knows it. One day in the not too distant future we will wake up to find out that the dollar was devalued. That in itself will cause both gold and silver to rise rapidly. Currently physical gold stands at $950 while the dollars purchasing power continues to decline. Once the dollar is devalued a rotating series of bank closings will take place in the 12 Fed regions. Then the fun will begin as inflation will hit like a tidal wave. I’ll be more than happy to eat crow if I’m wrong, but time will tell.

“The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises”.

If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.”

The Atlantic
The Quiet Coup
By Simon Johnson
May 2009

]]> By: letsgetitdone http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957897 letsgetitdone Mon, 17 Aug 2009 03:04:41 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957897 <p>Striling, I think this a brilliant post. I’m looking forward to more.</p> Striling, I think this a brilliant post. I’m looking forward to more.

]]> By: letsgetitdone http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957894 letsgetitdone Mon, 17 Aug 2009 03:03:11 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957894 <p>Hugh, That all might be true, but if Obama had listened to Krugman, Stieglitz, Galbraith, and Baker, about both the financial system and the stimulus we’d be a lot closer to getting out of the great recession.</p> Hugh, That all might be true, but if Obama had listened to Krugman, Stieglitz, Galbraith, and Baker, about both the financial system and the stimulus we’d be a lot closer to getting out of the great recession.

]]> By: Mason http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957826 Mason Mon, 17 Aug 2009 01:29:48 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957826 <p>BTW, inflation is not a problem now or in the foreseeable future.</p> <p>Deflation is what we’re precipitously close to being consumed by.</p> BTW, inflation is not a problem now or in the foreseeable future.

Deflation is what we’re precipitously close to being consumed by.

]]> By: Mason http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957824 Mason Mon, 17 Aug 2009 01:25:45 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957824 <p>Goldstandard,</p> <p>We are long past using precious metals, particularly gold, as a standard. That’s crazy dinosaur thinking and William Jennings Bryan drove a stake through that nonsense once and for all, I thought, with a speech at the 1896 Democratic National Convention. “Thou shalt not crucify mankind upon a cross of gold.” At that time, half the country was starving and most farmers had lost their farms behind the gold standard. The value of a nation’s currency properly depends on the strength of its economy and not on the amount of gold it hoards.</p> <p>You clearly do not understand economics and monetary theory if you believe in switching to a gold standard. Beside, our government has no gold at Fort Knox. </p> <p>And there isn’t anything inherently wrong with deficits either as long as the country can produce its way out of a deficit. Unfortunately, we no longer have the capacity to do that because we outsourced the production sector of our economy.</p> Goldstandard,

We are long past using precious metals, particularly gold, as a standard. That’s crazy dinosaur thinking and William Jennings Bryan drove a stake through that nonsense once and for all, I thought, with a speech at the 1896 Democratic National Convention. “Thou shalt not crucify mankind upon a cross of gold.” At that time, half the country was starving and most farmers had lost their farms behind the gold standard. The value of a nation’s currency properly depends on the strength of its economy and not on the amount of gold it hoards.

You clearly do not understand economics and monetary theory if you believe in switching to a gold standard. Beside, our government has no gold at Fort Knox.

And there isn’t anything inherently wrong with deficits either as long as the country can produce its way out of a deficit. Unfortunately, we no longer have the capacity to do that because we outsourced the production sector of our economy.

]]> By: iceman15 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957786 iceman15 Mon, 17 Aug 2009 00:18:38 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957786 <p>I’m been reading your posts with some interest and am a little confused about your timelines. Perhaps we can agree on the following:</p> <p>1. The easy money & balanced budget policies of the 19290’s led directly to the big daddy bubble that popped in October 1928.<br /> 2. These led to a change of direction in 1933 and direct fiscal stabilization (e.g. Social Security Act 1935), financial regulation & the relegation of monetarism to a rump Chicago School.<br /> 3. Small post-war cycles (e.g. 1958 & 1961 recessions) leading to LBJ’s gross overstimulation (Vietnam/Great Society). Bang! (goodbye gold standard & Bretton Woods)<br /> 4. Return of monetarism post-1971 leading to Reagan’s misuse of fiscal policy for upward re-distribution and a monetarist Fed after Volcker.<br /> 5. Greenspan’s see no evil/worship of M3 roughly at the same time as fiscal policy became countercyclical in 1990’s.<br /> 6. Deregulation of financial markets leading to successively larger amplitude bubbles a-popping: 1987 U.S. stock market crash, LTCM, Thailand/other Asian/Russian crashes, Enron/Worldcom, Housing, 2008. Yes I left out a few Central/Latin American wobbles along the way.</p> <p>The point is this timeline illustrates:<br /> 1. monetarist dominance appears to cause ever-larger bubbles<br /> 2. the can be compounded by mis-use of fiscal polcy.</p> <p>Thus I disagree with your conclusion that ‘we won’t have to wait long…’.<br /> Indeed I agree with Stirling’s broad thesis that Keynes’ return is very welcome. I would add in Krugman’s defence (and of others who correctly predicted the current fiasco such as Steglitz) that his pointed criticisms<br /> of Obama’s (i.e. Summers’) underestimate of the ‘demand-gap’ by at least 50% have proved spot-on. As far as Bernacke is concerned, I was never an academic economist, merely a market economist on Wall Street for many years. I have no truck for him; he is definitely not one of the good guys at the Fed.</p> <p> Worship of ‘free markets’ has proven very damaging to many economist’s reputations (ask Greenspan) and incredibly dangerous to the rest of the world as a whole!</p> I’m been reading your posts with some interest and am a little confused about your timelines. Perhaps we can agree on the following:

1. The easy money & balanced budget policies of the 19290’s led directly to the big daddy bubble that popped in October 1928.
2. These led to a change of direction in 1933 and direct fiscal stabilization (e.g. Social Security Act 1935), financial regulation & the relegation of monetarism to a rump Chicago School.
3. Small post-war cycles (e.g. 1958 & 1961 recessions) leading to LBJ’s gross overstimulation (Vietnam/Great Society). Bang! (goodbye gold standard & Bretton Woods)
4. Return of monetarism post-1971 leading to Reagan’s misuse of fiscal policy for upward re-distribution and a monetarist Fed after Volcker.
5. Greenspan’s see no evil/worship of M3 roughly at the same time as fiscal policy became countercyclical in 1990’s.
6. Deregulation of financial markets leading to successively larger amplitude bubbles a-popping: 1987 U.S. stock market crash, LTCM, Thailand/other Asian/Russian crashes, Enron/Worldcom, Housing, 2008. Yes I left out a few Central/Latin American wobbles along the way.

The point is this timeline illustrates:
1. monetarist dominance appears to cause ever-larger bubbles
2. the can be compounded by mis-use of fiscal polcy.

Thus I disagree with your conclusion that ‘we won’t have to wait long…’.
Indeed I agree with Stirling’s broad thesis that Keynes’ return is very welcome. I would add in Krugman’s defence (and of others who correctly predicted the current fiasco such as Steglitz) that his pointed criticisms
of Obama’s (i.e. Summers’) underestimate of the ‘demand-gap’ by at least 50% have proved spot-on. As far as Bernacke is concerned, I was never an academic economist, merely a market economist on Wall Street for many years. I have no truck for him; he is definitely not one of the good guys at the Fed.

Worship of ‘free markets’ has proven very damaging to many economist’s reputations (ask Greenspan) and incredibly dangerous to the rest of the world as a whole!

]]> By: goldstandard http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957697 goldstandard Sun, 16 Aug 2009 22:26:02 +0000 http://firedoglake.com/2009/08/16/it-takes-the-village-to-raze-the-economy-some-notes-on-krugman-and-the-return-of-keynes/#comment-1957697 <p>Time will tell Hugh. We won’t have to wait long for an answer.</p> Time will tell Hugh. We won’t have to wait long for an answer.

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