How exactly is “business investment” defined? What I see is a lot of asset speculation and not much actual investment (i.e. clothing capital in actual physical assets and operating capital).

I call it princeton BS harvard BS.

Really we have a rigged monetary system and we need to fix it. Until we do that all this is BS. FDL seems more and more everyday to be posting articles from MSM and then arguing about them. instead we should be focusing on what needs to be done starting with the corrupt fractional banking system a debt based paradigm.

let MSM focus on the BS while FDL focuses on what the real issues are

#krugmanisright

The idea that we should put a VAT in place, raising prices on everything, is just another blow at average Americans, and will crush demand for years until people figure out how it actually affects their finances.

But it’s what the people are demanding. At least, some people.

It’s time for a financial speculation tax in the US.

God, yes.

mz! mz! I just got my membership letter! I’m now an official card-carrying member of the Professional Left! Where is my laptop! I need to put a sticker on it!

As a marketing slogan, I would suggest, “When Wall Street needed help in 2008, Main Street bailed them out. Today, Main Street needs help and Wall Street can bail them out with a Tobin Tax. The revenue can go to infrastructure.

Capitalists are currently using their capital to

invest

in shorting the stock market. Its the new American way.

It’s getting about time to short gold. Pump and Dump. The new American Way. New World Order. The Earth Is Flat.

Can’t raise taxes on the rich for they create jobs. What jobs, you say? The jobs are in China, India, Malaysia, Saipan and Eastern Europe. Don’t pay much, but they’re jobs!

Cut their taxes more, they’ll create more of these jobs!

some people are drooling down thier starched white shirts at this opportunity to steal the 3/4 of the pie which they havent taken thier eyes off since the guest list for desert was expanded to include those other people. if the other people dont get all over some people like a nasty rash, and very soon, they are going to get away with it..assisted and abetted by an amoral, incompetent, hugely overly self regarding president and a news media which has brazenly become a propaganda and misinformation ministry in service of the some people.

Heh. I just got mine a few minutes ago too. *Snoopy Dance*

So much for Hahvahd elitists and economic elistists.
As much as I am a Pollyanna, I am also a person who is skeptical of born again anyones.
Just the way I react to things. Fire me, if you will. I do not acknowledge youz.

I don’t think we should dismiss Krugman’s efforts. I’m reminded of a Black Rose Lecture I attended in the 80s. Noam Chomsky was speaking about the CIA’s involvement with drug running (from OSS days onward). After, during questions, a man arose in the audience and urged Chomsky to abandon his office at MIT, and join “the real fight in the street, alongside the homeless”. Chomsky said he respected what the man was doing, but that everybody has to find their own way to contribute, and that his was by working within Academia.

I think we need to accept that some, like Krugman have a gift that can still be used for good by fighting within Academia and the NYT opinion pages. We don’t have to restrict ourselves to only reading what such people have to say, but there is nothing wrong with being aware of it.

Speaking as someone who has read many of your posts with great approval since I noticed you posting here, I would appreciate it if you would click on “reply” at the bottom left when you reply to someone. It makes it much easier to know who and what you are replying to.

Just sayin’

Oh, and please keep up the good work. I don’t have a lot of time to post comments, but I find that you represent my POV in many cases – and very well.

Absolutely. Double the tax for speculation on food.

Duh!

Bottom right.

“I call it princeton BS harvard BS.”

EXACTLY!

Trying to “stimulate” the economy back to 2007 levels is a fools errand because that economy was built on debt, the housing bubble, and financial flim flam.

And I really wish FDL would stop acting as an echo chamber for MSM pundit food fights – they’re all full of shit.

I was chit-chatting about these matters over the weekend at the annual Confab of Economic Historians in Boston (Christie Romer was there to introduce Barry Eichengreen, and she was radiant!). I argued (and got agreement) that the current problem in the economics espoused by Mankiw (who’s become a hack) and Barro (who was always an ideologue)is that the conventional teaching in first year theory courses imposes rational expectations (i.e. extremely far seeing predictions and equilibrium states resulting from them) on all modeling involving individual choice.

This is a matter of pure logic. Suppose you think the world is going to end in five years. Would you wait until it is just about to end before you took action (whatever that might be)? No. You would incorporate that knowledge in current actions.

Now the logic of that simple parable is infinitely extensible. Barrow extended it to infinity by the parable of ‘overlapping generations’ (invented by Paul Samuelson), in which parents make decisions based on the wealth they want to leave to their children, which creates an infinite chain, since they will want to assess possible events in their children’s lifetime and make provision for them. Other economists just do it straight out and assume an ‘infinitely lived agent.’

Now, when you do this stuff, and first-year grad students do a lot of complicated problem sets incorporating it), you start to believe that people actually do look infinitely far into the future. I asked one of my better informed colleagues what the evidence was on time horizons — I guessed that at most they go out about five years — and he said, nobody’s done the research. Nobody nows. But no one looking at economic events over the past 40 years would suggest that our investors have long time horizons (Warren Buffett excepted). In a financial system that makes it possible to take the money and run, you take the money and run.

The point is that the reason why Barro and Mankiw’s argument has a missing link (setting aside other flaws in their model) is that the missing link requires postulating a superstition — or perhaps more generously, a religious belief — that people or the market are forward-looking to the point that any wriggle 15 years down the pike will give them a fit of flu.

The only group who were like this really in our history were slave-owners, who feared that someday down the pike (they didn’t now when), slavery would be abolished, which would affect the present value of their biggest asset. That’s what this is all about. Fear-ridden economics.

And high five!

If you’ve read many of her posts, you’ll notice that for the majority of her posts, she does speak in Reply.
Welcome to the Lake. Nit pick if you will, but if you are trying to Lift Someone Up, perhaps a kind look aside to a few misshaps.
Just saying. We all have feelings, including you. And, I’m sure you want to be forgiven without being called out. Kapesh?

Investment is a national income category that covers current expenditures on productive assets including residential housing (but not consumer durables, which are logically like residential housing). It is a flow concept. The confusing thing is that investment is also used in the context of portfolio management (you invest in a stock, by exchanging money for it). This is a matter of stocks, not flows.

I’m having trouble with the reply feature… and with the edit feature to add @number when the reply isn’t working. The lake has been glitchy lately.

“On The Sunny Side Of The Street” – The Manhattan Transfer (2008)

Thanks for the illuminating post.

You give us a personal perspective that I find invaluable.

Thanks

Very much so.
Still, I prefer not to see people calling each other out for something inoculous or something that just might be a glitch in the system.
It takes a minute to join, but a while after that to consider how to play fairly.
What was that book called? How To Make Friends And Influence People?

I was thinking as I wrote that it was odd for Mankiw to cite Keynes’ animal spirits, because it is almost the precise opposite of rational behavior. Here is the Keynes quote; the last sentence makes it plain that animal spirits aren’t about reason, but about, I don’t know, endorphins or oxytocin or adrenalin driving an urge to action.

Even apart from the instability due to speculation, there is [market] instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

No problem, I’m sure I do forget from time to time :)

This afternoon I noticed that my reply function wasn’t working and I needed to actually insert manually something like #44.

I wonder if some of my comments that were intended to be replies and weren’t might have been because I didn’t notice that until later?

And thanks for the nice compliment. Look forward to seeing you soon.

It’s ok :) Thank you for sticking up for me. I don’t think it was meant unkindly, truly. You are someone I am definitely glad to have my back.

Me, too, but I probably didn’t notice until after I had fired off some comments. Caught it later.

…nobody’s done the research.

Not even the students of Vernon Smith???? Amazing!!!

The only group who were like this really in our history were slave-owners, who feared that someday down the pike (they didn’t now when), slavery would be abolished, which would affect the present value of their biggest asset. That’s what this is all about. Fear-ridden economics.

There is that irrational fear of labor gaining any power in government.

I looked back up above, and I don’t think I even did hit reply. The first followed directly below the comment I was answering, and the second I addressed to mz.

I can see how it could be confusing, though.

I think it was on the Obama jobs post that the reply button wasn’t working.

It’s all good :)

That was great. Didn’t it make you want to dance? Although I don’t know what kind of step that would be. But I could fake it.

Fox News talking points have now converged with Harvard Univ. talking points. As Chris Hedges points out, the right wing mantra now eminates from many more of our “top” universities than it ever did before.

My question (which remains unanswered) to all the dipshits who advocate a “value added tax” as the fair taxation model is this:

You want to tax everything purchased, correct ?
Yes, everything purchased !
Well, then are you in favor of the value added tax being applied to purchases of securities, commercial property, annuities, government bonds, money market accounts, life insurance policies, CD’s ?

my question is usually met by a blank stare, and I guess therein lies the answer: We want to tax everything that rich people don’t buy !!!

Either that or they are of the opinion that all of those add no value to the economy.

Yes, and the entire economic conversation is based on “growth,” which implies that resources are infinite. At this point in the destruction of the earth, you’d think that the whole economic model would be based on “sustainability.” The field of economics is largely irrelevant until the basic assumption that all economic growth is desirable is discarded. Without a full accounting of the destructive costs of that growth, such as pollution, enslavement, climate change, then their whole reason for being is unapparent. Capitalism might have worked ok in a country with large natural resources and a small population, maybe it still does somewhere.

In response to TarheelDem @35:

Both: it’s plausible cognitive dissonance or whatever the f*** you want to call it.

Reminds me of a Marxist University History Prof. back in the antiwar days. We students asked him to march with us in a an anti-war demo we were cooking up and he told us he’d love to but he already had a date for tennis that afternoon. That was the end of my Marxist days right there. Most of the academic Ivory tower types are as establishment as they come. We can’t expect any of them to be next to us the barricades if it every comes to that. They wouldn’t want to miss tennis would they or the faculty tea.

Economist such as Greenspan, Bernanke and the slew of others at the Federal Reserve and investment institutions have become the modern day version of the Magi, that advise the ruling class. These modern day illusionist and fortune tellers are no better than the ones who used the movement of the stars and planets to predict the fortunes of empires.

Capitalism is failing.

Our capitalistic notion of our society/economy refutes cooperation. The myth of competition is the best form of allocating scarce resources is ingrained in us sometime after childhood. Even as the our environment deteriorates to the point where it won’t be surprising that you will see people walking around with small tanks of oxygen to breath clean air as we do today to buy a bottle of clean water to drink today at a convenience store .

Aren’t animal spirits what ranchers raise? Nothing better for a rational expectation than some steak tartare.

Keynes had to assure that he was one of them.

That chapter in Keynes is one of the deepest pieces of economics ever drafted. It is a direct attack on the (as yet unborn, but Keynes saw the logic) rational expectations hypothesis. Keynes was, among other things, a probability theorist with a fine appreciation of the connection between psychology and subjective probability. This was a burning issue in the 1920s and 1930s, and still is to some extent in the literature on the foundations of probability measure.

The point about ‘animal spirits’ is that there is no way to evaluate the true present value of an investment that will last 25 or 50 years (think buildings, railroads, aircraft frames). So what determines the investment decision is a leap of faith influenced by very short-run influences. It is impulsive. Hence the reference to Locke’s ‘animal spirits.’

You could with the dances of the period (1920s and 1930s; Swing, Lindy Hop, Charleston, tap) but I would go with a Swing without lifts or tap sequences.

Here are the greats demonstrating but doing it at a faster tempos:

Lindy Hop by the Shorty Snowden Dancers

Swing Time with Rogers and Astaire

In reply to Knut @ 42:

My imputation about “animal spirits” is that Keynes provided that condescending label to the “irrational expectations” which he blamed for market instability. “Rational expectations” were the liberal’s protection against both the unregulated market (inhabited by wild animal spirits) and bureaucratic management (with partial knowledge.)

The joint market estimation from all rational expectations provided the best possible estimation and the “animal spirits” were blamed for market bias. And one needed “animal spirits” because they fueled our “spontaneous optimism”.

Convenient sophistry, no?

To we prey of the purveyors of “rational expectations”, it is, rather, perfectly clear that they prey on the bias. Keynes surely knew this in his time as well. That is the necessity of “animal spirits”. Keynes was implying the bad husbandry practiced by the capital class and blaming all misestimations on the “animals”.

It was a polite evasion of the truth.

Anytime you hear a right-winger touting a value-added consumption tax (or claiming that the poor are paying too little in taxes or the right-winger wants to “expand the tax base”), you can bet that this is code for their wanting the so-called “Fair” Tax instituted.

I don’t think Republican candidates were asked if they support the “Fair” Tax in last week’s debate. What about during tonight’s debate? I doubt if this will come-up, but I would bet that almost all the Republican candidates on stage would raise their hand.

In other words, doublespeak.

You can try to short gold all you want. The fact remains that gold IS money. All the rest of it is pieces of paper, and electons flowing through wires.

If you take profit and do not create value like so many financial transactions you are ripping off. P Krugman did a nice job off taking the scammers to task with 9 11 excuses to create homeland security, and grow war industry at the cost of needed investments to keep America strong. Thank you Paul for courage under fire.

Thank you Massacio…always interested in bread and butter issues that you write about. I do not speak economics but I really understand that austerity is the end of recovery. Government investments in a recession can save the private investor by getting the economy going again. If as John Donne said in the Hemingway quote prologue For whom the bells tolls..”No man is an island, entire of itself; every man is a piece of the … If a clod be washed away by the sea … own were: any man’s death …
If you watch others go without to enrich your selfish self then that kind of “Animal Spirits” will end in revolution.

You suppose the men in their islands do not “really understand that austerity is the end of recovery.” You misunderstand.

1) The “recovery” was abandoned long ago.
2) Individualism was a cover story.
3) This is euthanasia of the espiritus animales by the “rational men”.

I am not sure why people are paying attention to economists, who are nothing more than tools of the politicians, or whoever needs an “expert” to give a policy a stamp of legitimacy.
Krugman is also unable to focus on what really matters, and what really matters is that capital needs security, certainty. I am not going to build a new factory, nor invest in anything if I feel that I am unable to make a similar product for same price or less. Since our lowest cost products are coming from offshore, there is no way I am going to open a factory here to manufacture it. If you want anyone to invest in American economy, you have to make a level playing field first. We have an economy in this country where the government imposes costs on you, but then it allows competition from low cost areas to compete with you. No one, in their right mind, will create jobs in this situation. If you look at certain costs, like health, Obama had a chance to fix, but refused. These are taxes in another form, for they make American product more expensive.
So, to have a level playing field, you have to have tariffs. There is no other way to bring back investment. Why doesn’t someone pick up the phone and make some calls to find out what is stopping companies from investing domestically. Instead, the current situation is great for mental masturbation, which is the kind of stuff great economic theories are made of. Truth is simple, but it obviate the need for experts.

Good point – the GOP seem to move between the two definitions in the same sentence with supply side saying we need less consumption and more savings (called “investment”) while saying that investment is the engine of growth.

I agree – and add that your “capital needs security” is true and it is US taxes that provide worldwide security making off-shore production safe, so a tariff is a logical way to recover the cost of providing that security.

masaccio – Excellent post

Which our media editorial page writers could read charts.

Nitpick? Forgiven? Mishaps? Called out?

WHOA!

Did you catch my respectful tone AT ALL? On another thread, she replied to me and I almost missed it (since I search for my handle and scan down). I thought she was new here and tried to give a bit of helpful advice – I could use a bit of that myself as I haven’t figured how to make a link in my Diaries.

Maybe you could back it off a notch or two yourself.

Didn’t mean to start this tempest in a teapot, here.

Mainly I wanted you to know that I’ve been noticing your comments lately as the work of sheer genius (since all the ones I’ve seen dovetail exactly with my own opinions, lol). I haven’t caught them all and don’t doubt that we’ll respectfully disagree at some point, but I have been impressed with what I’ve seen so far.

I’m a stay-at-home dad with a 21 mo old son and just don’t always have time to comment, so it’s nice to see your comments as I often feel that the opinion in need of expression – as I see it – has already been posted by you.

Stupidly, I never even considered the possibility of a glitch in the FDL posting system as I was having no such problem.

Take care and keep it up – please.

Mucho congrats. Groucho Marx notwithstanding. (“any club that would have me as a member” lol.)

Capitalism might have worked ok in a country with large natural resources and a small population, maybe it still does somewhere.

It also works in countries with large populations working at slave-like wages and conditions. Conditions and wages so bad that the often used protest is to commit suicide at the factory! Yes, that’s China! What the motu’s want ot turn us into, and are.