[Gfranc]

Here is what is most interesting. The "outrage is over the government subsidizing the banking industry", which is purely a Keynesian phenomena. This is the primary problem with Krugman's beloved Keynesian economics, it looks great in theory, but is horribly corrupt and fallible in practice. As long as one believes that governments don't make mistakes and bureaucrats are "for the people", Keynesian economics would likely work. When people are purely self interested and flawed it rewards the wrongdoers and punishes the masses. I firmly believe that people are always self interested...therefore Keynesian economics has no real world application.

The Inflationists like Krugman can never be proven wrong, as the answer always is "the stimulus wasn't big enough", "the stimulus wasn't properly targeted", it's always that their was a small error in calculation rather than the philosophy is completely bogus. In circles we go.

[MaysonL]

I guess you weren't paying any attention back in 2008 or so, when Krugman was vehemently arguing, not for subsidy of the banks, but for nationalizing them.

[trevelyan]

Agree. He also doesn't seem to know the difference between monetary policy and fiscal policy. Pretty much par for the course for right-wing Krugman attack-hacks.

[Gfranc]

Perhaps you can enlighen me. Let me oil the conversation. From wikipedia. Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. In economics, fiscal policy is the use of government expenditure and revenue collection (taxation) to influence the economy.

So we lower interest rates and print money. Then we tell banks to loan and we use revenue (or printed money) to invest in "infrastructure" or to just drop money from helicopters. So what happens when debt gets so high from spending that you'll never repay it in several generations? What happens when all this doesn't work? What happens when the savers get wiped out? Did they write that part in the economics textbooks?

I guess we just reset? And start all over at 1913? I'm seriously asking. What? I wonder if the #OWS gang understands that by reseting they wipe out their parents and their grandparents... are they ready for that?

I'm far from right wing, I believe tax is essential to prosperity, I also believe in infrastructure spending, and social security to a point. I do however believe that government (both right and left) is eternally corupt. I also believe the taxes will never be high enough to give everyone everything they want. It's like talking to my 16 year old niece. She wants to live at home, play on her IPad, party till 2 in the morning, drink herself stupid, and has no idea where her dad is coming from when he says it will end one day if she doesn't wise up. It will end well, or very very poorly. She just riots in the street and talks about all the things that are owed to her for existing.

I guess this is just frustrating because this really was simple. We should have forced people (banks) to bare the burden of their decisions (loans!). We force investment banks and investors to do the same. The market really does regulate itself...but when politicians tinker...bad things happen. Nationalizing the banks? Why the hell would any right minded fed chairman do that? Like I say, great in theory, horrible in practice. Krugman is pure theory.

The bottom line is that Kenyesanism has been a disaster due to it's constant corruption from political parties and the revoloving doors. Krugman always provides the answer, straight from the textbook. In the end, we all end up like Greece. And I'm sure Krugman will be along saying, well the text book says....

[trevelyan]

Gfranc,

Keynesian models like the IS-LM model are more credible than their competitors at this point because they predicted a protracted recovery while others suggested (working from different assumptions) that no stimulus was needed because inflation was just around the corner or claimed that stimulus was fiscal suicide because the United States is facing a debt crisis.

Inflation - of course - has not been just around the corner despite an unprecedented increase in the money supply. And there has been no debt crisis: the cost of borrowing has actually fallen for the the United States with thirty year Treasury bonds priced at about 1 percent per year. This is a great time to be the US government since assuming there is a way to invest that money to grow the economy at more than 1 percent per year, it is essentially free money.

You confuse fiscal and monetary policy when you talk about the implications for US government debt. Theoretically, there is no debt problem from monetary policy since the money is created out of thin air through leverage by the banking industry and can be destroyed again as quickly as it is created by raising interest rates or reversing open market operations. The possible consequences of increasing the money supply are: (1) inflation happens as more money is pumped into the economy and chases the same number of goods, or (2) the value of the US currency drops internationally as the supply of dollars for sale increases. The thing to remember is that in neither of these cases will problems happen while the economy remains in depression. Inflation is a sign that the economy is at or close to full production. A devalued currency would likewise stimulate exports and reduce the trade deficit with other countries like China, promoting growth and full employment in the process.

People like Krugman are complaining because they don't see the US using either monetary or fiscal policy to seriously address the unemployment crisis. Krugman is angry with monetary policy because the bailout of the financial sector is following the "Japanese" model: banks are not being forced to realize their losses but are instead forcing the government into an endless loop of subsidization while using the funds not to strengthen their balance sheets so much as engage in the sorts of arbitrage that do not create jobs or promote recovery. If you consider yourself capitalist or believe that business should not be dependent on the government you should agree with him.

Krugman also advocates stronger fiscal policy since it is needed. Despite what you may think, it is worth remembering that government spending has FALLEN since 2008 (see: http://www.economist.com/blogs/freeexchange/2011/09/fiscal-p...). This is tragic for the employment prospects of your niece since the costs of creating an economy that can employ her are - as pointed out above - practically non-existent. The long-term carrying costs of another 500 billion in fiscal stimulus is around 200 billion, while that amount of spending would increase GDP somewhere between 1 and 1.5 trillion USD. That would create a lot of jobs. If these jobs were financed by issuing more 30 year Treasury Bonds, the cost would total 270 billion in 2042 when they would need to be paid back. And if that seems like a lot of money, remember that the government is paying banks tens of billions more EACH YEAR simply by lending them money at low interest rates and then borrowing it back at higher rates of interest. The fact that the country gets very little boost to GDP for the absurd dance should bother you.

As for the rest, I agree there are underlying cultural problems with expectations of entitlement. But it doesn't seem terribly hypocritical for your niece to expect a free ride, especially if the reason she can't get a job is because the banks won't write off their losses, and are instead reliant on government subsidies for their profitability when that money would be better spent on improving the health, welfare and education of US citizens.

[Gfranc]

This thread is old...but I do want to finish by saying that I think we agree on a few points. The main issue I still have is that Krugman believes that Keynesian models can be applied in our political system. Sure, they should work just as you portray, but they don't. And they never will. Keynesian models are simply to prone to corruption. I said he was an idiot though, not a fool.

Of course the fed is bailing out the banks...they always will, they are the banks! This is a very, very dangerous road. We've made a real mess out of something that really is simple. I can't say it better than this. http://unqualified-reservations.blogspot.com/2011/10/profess...

[trevelyan]

Gfranc,

You aren't clear enough on the difference between fiscal and monetary policy for your comments on corruption to make any sense. If you think US banking policy is corrupt that has nothing to do with Krugman or Keynesian models. Quite the opposite since Krugman has been arguing very publicly AGAINST the sorts of policies you seem to find instinctively distasteful: he does not think the bailout is solving the underlying economic problems with the banks and writes practically every week about WHY. The fact you attack him without knowing what he actually says is revealing.

On the other hand, if you think fiscal policy is corrupt you have the uncomfortable reality that there hasn't been much of it: the White House scaled back the needed stimulus from a projected 1.2 trillion to 800 billion and overall government spending STILL fell. This is why U6 is over 16 percent now: private sector demand collapsed and nothing has stepped in to fill the gap. If you think there has been too much corruption with the fiscal stimulus you are also pretty much alone. People seem generally content funding additional transfers to local governments to keep public services running. I haven't read a lot of popular anger over fiscal priorities. I have read a lot of people who are angry at banking policy though.

None of this is insider information. Nor do you sound informed to be citing bloggers who were crying wolf about deficit spending at a time when US borrowing rates were falling or sounding the alarm about inflation at a time when the US economy was moving in the other direction. You might be right in slamming on the American political system since it gives voice and power to these people, but I don't see what your criticism has to do with the one guy in the NYTimes who is trying to get the brakes put on bad policy and has constantly criticized both left and right and been proven time and time again right on the money with his critiques.

Also -- you should drop the right-wing fool/idiot claptrap if you expect people to take your posts seriously. It makes you sound confused instead of smart -- especially when the blog you cite approvingly reverses the words while seeming to mean exactly the same thing.