More politics, sorry. Still, if you want science, RC and J+J are blogging AGU. But CIP is delighted with Obama’s speech on the economy. I’m less so; the comment there from Wolfgang (He always gave great speeches… this was one reason he won in 2008. The problem is that great speeches are not sufficient once the elcetion is over…) looks all too correct. But there is far more to talk about than that, so…
[Note: these quotes are heavily cut to compress them; please check the originals. But I don’t think I’ve altered the sense.]
For many years, credit cards and home equity loans papered over the harsh realities of this new economy. But in 2008, the house of cards collapsed… Mortgages sold to people who couldn’t afford them… It was wrong. It combined the breathtaking greed of a few with irresponsibility across the system… It claimed the jobs, homes, and the basic security of millions – innocent, hard-working Americans who had met their responsibilities, but were still left holding the bag.
What is badly wrong here is blaming all the problems on a greedy few. The problem was the greedy many. All those people who bought ridiculous houses they could not possibly afford. All those people who piled up debt. These were not innocent people exploited by a greedy system; these were greedy people doing their best to exploit what they thought was an easy system. So this isn’t an honest attempt to move forwards and solve problems: it is lying to people who are looking for scapegoats. Much much later on he concedes this point, saying It will require greater responsibility from homeowners to not take out mortgages they can’t afford, and remember that if something seems too good to be true, it probably is.
You see, this isn’t the first time America has faced this choice. At the turn of the last century… would we settle for a country where most of the new railroads and factories were controlled by a few giant monopolies that kept prices high and wages low? Theodore Roosevelt… believed then what we know is true today: that the free market is the greatest force for economic progress in human history… But Roosevelt also knew that the free market… only works when there are rules of the road to ensure that competition is fair, open, and honest. And so he busted up monopolies, forcing those companies to compete for customers with better services and better prices. And today, they still must. He fought to make sure businesses couldn’t profit by exploiting children, or selling food or medicine that wasn’t safe. And today, they still can’t.
So, Obama isn’t complaining that we’ve rolled things back; all the old protections are still in place, it seems. Incidentally: compared to what R is said to have done, Obama looks very lightweight.
[some economics, which I’m ignoring.]
This kind of inequality… hurts us all… America was built on the idea of broad-based prosperity… Inequality also distorts our democracy. It gives an outsized voice to the few who can afford high-priced lobbyists and unlimited campaign contributions… And it leaves everyone else rightly suspicious that the system in Washington is rigged against them… That’s why immigrants from around the world flocked to our shores.
What do you mean, “flocked“? You mean “flock”: they still do. You have to build fences to keep them out. But on:
And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. A few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance fell to around 40%. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a 1 in 3 chance of making it to the middle class.
And if the trend continues much longer, the chances will become negative! Woo. sorry, bit of a cheap shot.
It’s not a view that we should somehow turn back technology or put up walls around America.
Bit late for that, I’m afraid.
So what does that mean for restoring middle-class security in today’s economy?
Ah, good. The “solutions” bit is coming. First notice, though, how all he talks about is the middle class (I’ve cut most of them. Check the original). This is a very targeted speech.
The race we want to win – the race we can win – is a race to the top; the race for good jobs that pay well and offer middle-class security. Businesses will create those jobs in countries with the highest-skilled, highest-educated workers; the most advanced transportation and communication; the strongest commitment to research and technology.
OK, good. Sounds sensible. How are you going to manage it, though – its a bit motherhood-and-apple-pie, no? Quick test: suppose you invert it, is it obvious nonsense? “We want to win the race to the bottom… the race for bad jobs”. Yep, its nonsense. The obverse of nonsense isn’t wrong, but it is trivially right.
…We shouldn’t be laying off good teachers right now – we should be hiring them…
Sounds plausible, but I suspect it to be code for politicking.
That’s why the over one million construction workers who lost their jobs when the housing market collapsed shouldn’t be sitting at home with nothing to do. They should be rebuilding our roads and bridges; laying down faster railroads and broadband; modernizing our schools – all the things other countries are already doing to attract good jobs and businesses to their shores.
This sounds like: we need a government stimulus package, New-Deal-y type stuff I suppose. Do I believe it? Dunno.
But in the long term, we have to rethink our tax system more fundamentally. We have to ask ourselves: Do we want to make the investments we need in things like education, and research, and high-tech manufacturing? Or do we want to keep in place the tax breaks for the wealthiest Americans in our country?
End tax breaks for the wealthy. Yes, might as well, though I gather there is opposition to that, too.
When times get tough, the workers agree to give up some perks and pay, and so do the owners.
Pay flexibility instead of layoffs? Probably a good idea, but there are lots of laws in place that make this hard.
… [chap from company:] it’s about the community: “These are people we went to school with,” he said. “We go to church with them. We see them in the same restaurant. Indeed, a lot of us have married local girls and boys… [Back to the Prez:] That’s how America was built… Our success has never just been about survival of the fittest. It’s been about building a nation where we’re all better off
So yes: you can do that kind of pay flexibility in small companies and local areas where the workers and the bosses know and trust each other. But it is very hard to do outside that environment. And yes, building a successful country has to involve cooperation as well as competition: but that doesn’t usefully tell you quite where the boundary should lie.
Conclusion: probably, it sounded much better as a speech (itself a bad thing :-). As written-down text, it is only so-so, mostly partisan politics, nothing new or exciting in it that I can see.
wmconnolley: scienceblogs.com/stoat archive 
Both Obama’s and your explanation of the mortgage problem is short sighted. At any time you find people who can’t get loans try and get them, the only difference during an easy money period is that the amount on housing goes up because people can borrow more principle, but pay the same per month and less because of less interest over 30 years. The problem in this particular time period is that loan officers were able to make their money up front and then sell off easy to larger banks, who, as we know, packaged the assets in dirivitives and then sold them off again. Then in 2005, the banks just skipped the middle man and started selling loans, whatever they could, because the way they made money was up front and through quantity instead of quality, not worrying about whether or not the loan could be paid. This led to predatory lending, false promises about housing prices, etc. A debt bubble only works if all involved make rational decisions.
[Well yes. I didn’t intend my words to be a complete analysis of the problem, only a counterweight to the view that these poor innocent people were ripped off -W]
But of course, that isn’t even the important part. It’s that everyone else suffered because of that system, through loss of jobs, underwater mortgages. We’ll never have a population that acts rationally in a usurious environment like we have where the most consequences are suffered by others, so blaming it on the borrowers is a waste of time.
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On the “greedy many”, it’s (slowly) becoming more clear that it wasn’t just people buying a house they couldn’t afford. It was significantly worsened by people buying houses (note: plural) that they thought they could flip into an endlessly rising market.
http://economistsview.typepad.com/economistsview/2011/12/investor-speculation-and-the-housing-bubble.html
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This bloke http://planet3.org/2011/12/06/the-leisure-society/ is saying the kind of thing about tax that Obama couldn’t possibly say about tax. (
And speaking for myself, I have absolutely no time for Reagan, but there are a few presidents and congresses between then and now that had plenty of opportunity to roll back this idiocy. He might have started it. But it’s a bit immature, schoolyard style to be pointing fingers 30 years later.)
As for people taking on unaffordable mortgages. They fell for the American dream that was sold to them aggressively. They were *told* by people who were supposed to be experts that house values would always increase (a bit like all those people who sincerely believed a couple of years earlier that the stock market would never decline).
And I really liked the remarks of one doorstep interviewee – how come we’re supposed to be better judges of market conditions and money matters than all those rich people who were ripped off by Bernie Madoff? If they lose millions, they’re victims. If I lose my house, it’s my own fault?
[Those are just words. I don’t think the “victims” of Madoff get any different status – they’ve lost money. In the case of people who were buying houses they clearly couldn’t afford – yes, its their own fault. Aided and abetted by people keen to make money out of them, but still their own fault -W]
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I spent much of 2008 trying to convince climate voters that McCain was the much better candidate. Oh, the names I was called. So far, Obama has destroyed the chance for cap/trade or tax, made green energy a synonym for crony capitalism, presided over failed cash for clunkers and home insulation programs, and shied away from any leadership nationally or internationally.
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Always ‘oggle when dissing
December 5, 2011
http://www.smh.com.au/world/number-of-illegal-mexican-migrants-plunges-20111204-1odbr.html
… the flood of Mexican migration north has slowed to a trickle.
”We have reached the point where the balance between Mexicans moving to the United States and those returning to Mexico is essentially zero,” Jeffrey Passel, a senior demographer at the Pew Hispanic Centre, said. His conclusion was shared by many migration experts.
[An interesting viewpoint. But let me know when you abandon your green card system etc. because there are so few applicants -W]
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The idea that people bought houses they couldn’t “afford” is, again, missing the important point. That problem isn’t as widespread as the freemarkeers want us to believe. A person buying a house for 100,000 at 8% interest, can buy the same house at 50% price increase, at 4% interest, and pay the same amount per month ($720) and same over the life of the loan – about $260,000. It’s not like these people moved in and were already behind in their payments or were paying much more than they were to rents (as rental property rose disproportional to how much owners had to pay on mortgages per month). So the economic prudent thing to do was “own” at the time (based on the idea that the housing market wouldn’t tank – perpetual positive thinking syndrome rampant in neo-liberal theory) and take advantage of low interest rates. Just as it was prudent to “walk away” when the demand for housing ended and the property went underwater. Once people could’t use their house a credit card or a “flip”, the demand in the economy dropped significantly.
The proper argument, if it even exists, is to ask people to not push their mortgage to their spending limit, make sure to account for a housing crisis, and not do what seems economically prudent at the time. It also seems like we should have expected them to understand mortgage products that even the most important and respected rating agencies didn’t understand at the time were bombs just waiting to go off.
The system was (is) the problem. It sends false signals to consumers and creates unsustainable bubbles.
[There was blame on both sides. Exonerating the borrowers, as you and Obama are doing, is (a) wrong and (b) pandering to them and (c) setting them up for another fall next time. It also seems like we should have expected them to understand mortgage products that…: No. We should expect them not to buy mortgage products they didn’t understand -W]
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Disagree with “very targeted”. The expression “middle class” means something different in the US. Look at class self-identification numbers: almost everyone there counts themselves as “middle-class”. Like “hard-working families”, it’s inclusive language: the audience is supposed to think that he’s talking about them.
[You may be right. But that rather contradicts the “middle class is shrinking” part of the speech – unless that is just playing to fears -W]
Also: the “obverse” of “win the race to the bottom” is not “win the race to the top”, it’s “place anywhere except first in the race to the bottom”.
[Logically, yes 🙂 -W]
Also: yes, people should not buy too-good-to-be-true deals, but they do so all the time. And yes, all home-owners should take a haircut when a bubble collapses. But the bubble (the bubble *in the US*, which is what brought on the global crisis) was not only – or even mostly – driven by greedy home-owners. Banks really don’t want to own mortgages which won’t be paid: they are a liability, not an asset (especially high LTV mortgages, and especially in a possible bubble where the underlying property value can’t be relied upon to back the loan). What changed in the US, and what caused the crisis which is still buggering up the global system now, is that the financial system devised a way to repackage *any* mortgage, chop it up and resell the bits to banks and other investors, thus getting the risk off the books of the organisation which originally loaned the money. This, together with a lack of regulation, removed any motive to be sensible, cautious, or honest in marketing mortgages. And so millions of mortgages were sold at insane LTV, at insane salary multiples, with insanely complex interest-rate and premium backloading systems, often targeting vulnerable groups, and often quite fraudulently.
[I agree that the repackaging aspect, ie the make-money-and-sell-it-on, is troublesome. But not in principle. Because the people who bought it ought to have cared. And I’m not sure that “often quite fraudulently” is correct – what do you mean by it? -W]
People shouldn’t buy snake-oil, but that doesn’t mean we shouldn’t blame snake-oil salesmen. And, in fact, lock the bastards up.
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And how and why did these people, who had always previously been denied access the the credit necessary to satisfy their desires, suddenly gain access to it? I mean, sure, you can say that they shouldn’t have taken the various offers that everybody and their dogs were beating on their doors with, but it’s not a particularly realistic suggestion, is it? “I know I turned up at your door every single day with a suitcase full of money and begged you to take it, but you really should have known better!” Yes, people bought houses they could not afford, but the only reason they were able to do so was that lenders were so desperate to lend that they abandoned even the pretence of due diligence, so that they could make more money. I’ve always had an almost superstitious aversion to debt, but back when I was getting half a dozen offers of interest-free credit cards every fucking week, even I found it difficult to resist.
It’s not a zero-sum game – they were greedy people being exploited by a greedy system. Yes, people are greedy and short-sighted. Yes, people will take on more credit than they can manage. Yes, water is wet. Back in Ye Olden Days, it was the business of lenders to perform due diligence on their loans, because the idea that you can loan anything to anyone and rely on the borrower for due diligence is obviously stupid to anybody who’s ever actually met a human being.
[Ah, thank you – I knew there was something I was missing – a photo for the post. I’ve added it now 🙂 -W]
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“Like “hard-working families”, it’s inclusive language: the audience is supposed to think that he’s talking about them.
> [You may be right. But that rather contradicts the “middle class is shrinking” part of the speech – unless that is just playing to fears -W]”
Most every American thinks they are part of the middle class, not that most Americans are part of it.
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> I turned up at your door every single day with
> a suitcase full of money
If you didn’t live through this you’d find it hard to believe. I got more ‘mortgage money’ phone calls each day — than I got Nigerian spam email, most days, for several years. Both on the home phone and the office phone.
People should be smart enough not to buy stuff they don’t understand? As Gandhi said about western civilization,
“I think that it would be a good idea.”
But how is it possible?
Would people buy what you make, if they only bought what they can understand? Or buy products incorporating what you make from some third party? How many people would buy a cell phone, or a computer, or a modern automobile?
But you’re trustworthy, right, working for a trustworthy company with sales people who know what they’re selling.
When asked what type of government the Constitutional Convention had created, Benjamin Franklin famously replied, âA Republic, if you can keep it.â
Something like that occurred in England too, I recall.
That’s where making rules works for those not at the top of the pile for understanding things.
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The “greedy many” got forclosed on and evicted. The “greedy few” got bailouts and bonuses and crashed the economy. I think the greedy few can afford to take a few more kicks.
You are not an American, so I think you are missing much of the context. What might seem obvious in the UK is not obvious here. Look at the Republican candidates and their rhetoric to see what the counterproposals are. The Repubs want to return to the era of the robber barons. They are engaged in a race to the bottom, as they see this as the natural progression in a globalized economy.
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Aside — on learning not to be greedy, this is useful:
http://www.sd-commission.org.uk/publications.php?id=914
Prosperity without Growth? – The transition to a sustainable economy Date: 30/03/2009
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>> with insanely complex interest-rate and premium backloading systems, often targeting vulnerable groups, and often quite fraudulently.
> I’m not sure that “often quite fraudulently” is correct – what do you mean by it? -W
AIUI lots of people got mortgages with cut-rate-payments for first two years so the payments were low and looked affordable but there was no large print to say the payments were going to rise even if interest rates didn’t. Many claimed they didn’t know the payment rate was going to increase until around 21-23 months after start. To what extent are people responsible for understanding the small print if it is practically impossible to understand and impossible to work out how much the payments would rise? I believe there was fraudulent mis-selling.
[Ah, I see what you mean. Yes, not quite clear if that is technically fraudulent or not, would depend on the size of the small print, etc etc -W]
Unlike Europe, in USA people can hand back keys without being liable for mortgage, so you can suggest these people taking out mortgages didn’t lose out as they had nice house for low payments for two years, unless they did a lot of improvements. However emotionally it is a bit upsetting to be thrown out of home.
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Face it, Obama is an economic black hole
As Obama called for passage of those bills, he also responded to a recent Republican push to require him to approve the construction of the Keystone XL pipeline from Canada. “However many jobs might be generated by a Keystone pipeline,” he said, “they’re going to be a lot fewer than the jobs that are created by extending the payroll tax cut and extending unemployment insurance.”
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For every one of the greedy many “who bought ridiculous houses they could not possibly afford” there was a bank who stupidly gave them a loan. Now, you don’t even postulate that they are equally at fault, but it’s not a very difficult exercise to show that one party (the borrowers) was far less educated and familiar with the system than the other party (the lenders). It is not an unreasonable expectation to believe the lenders should have known better. Of course the lenders profited at the expense of the borrowers.
Stimulus spending could get us out of this economic situation. Go read Krugman, or Delong, or Dean Baker. I’ve seen a hundred times the argument that FDR’s New Deal didn’t get us out of the Great Depression – WWII did. And I ask in response, what was WWII if not the greatest deficit spending stimulus program in human history? Not only that, but we built things just so we could blow them up.
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1. Inequality isn’t necessarily bad thing. He sounds like he wants to legislate equality where naturally there is none. If some people (i.e. the producers) have a bigger voice than the takers (e.g. welfare recipients) then I don’t see that as a bad thing.
2. His complaints about economic mobility are incorrect:
http://en.wikipedia.org/wiki/Economic_mobility#United_States
And he is cherry-picking the post-Great Depression era vs our current era of massive taxes, regulations and huge numbers of poor immigrants who can’t even speak the native language. So no, an illegal alien from Mexico (and we have millions) won’t be as economically mobile as some poor kid in Chicago post-WW2.
3. “all the things other countries are already doing to attract good jobs and businesses to their shores.”
Wrong again. We have one of the highest corporate tax rates in the world, a government encouraging unions (and the inefficiency/expense/heartache that comes with them) and burdensome regulations.
If he wants to do what other countries are doing to attract jobs then he should do what the successful ones are doing.
4. “Or do we want to keep in place the tax breaks for the wealthiest Americans in our country”
Taxing the wealthy at 100% wouldn’t solve our deficit. The problem is massive spending. It causes inflation, crowds out private investment, manipulates the market and creates uncertainty.
5. “…We shouldn’t be laying off good teachers right now – we should be hiring them…”
Which is exactly what unions do with the policies they’ve “negotiated” like “first in, last out” which makes hiring/firing decisions based on arbitrary rules rather than merit.
His utter failure at improving education in Chicago during his tenure as chairman of the CAC, despite throwing millions of dollars at the problem, harms his credibility when he talks about throwing even more money at education.
He simply doesn’t know how to improve education – so he proposes to throw even more money at it using the same philosophy he already failed at.
6. “When times get tough, the workers agree to give up some perks and pay, and so do the owners.”
Translation: The owners give up far more in order to achieve “wealth equality.”
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@Kevin
The Great Depression lasted over a decade. It was extended by the big spending “stimulus” spending of both Hoover (e.g. Hoover dam) and Roosevelt. It ended not from “stimulus” but because we were selling weapons and supplies in the war, the industrialized nations of Europe were ruined and the rise of the Conservative Coalition which slashed spending and “stimulus” programs (which was greatly opposed at the time by people saying cutting spending would cause a new depression).
Conversely, the Depression of 1920 lasted only a year, despite the very bad economic indicators at the start, because the government reduced regulations, spending and taxes.
Look at the histories of China, Taiwan, Hong Kong, etc – China suffered greatly under centralized control and after they started adopting free market principles they’ve developed into an economic superpower.
Krugman is simply ignoring history to fit his ideology. Try reading some Hayek – or even better – watching him:
[This is *not* going to turn into a discussion of the causes of the Great Depression, or of its end. Nor will comments pointing out very useful papers analysing same – all that will get burrowed. Sorry, but I’m just trying to head off trouble -W]
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“1. Inequality isn’t necessarily bad thing. ”
Sorry, when you start with something like that there is no need to read the rest.
Care to show that in the current situation the extreme inequality of resources and income is not a bad thing. Marie Antoinette was rumored to be of your opinion and the Party of Swindlers and Thieves another of your fellow travellers, may hopefully soon have an awakening.
[Silly, you’ve just setup a strawman. Inequality != extreme inequality. “Inequality isn’t a bad thing” is not controversial, its just obvious. Aiming to have a society that minimises inequality probably isn’t a good idea -W]
And, oh yes, please address the current extreme situation, not one where there are relatively small differences.
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> in USA people can hand back keys without being
> liable for mortgage
That’s state law, in some states.
https://www.google.com/search?q=mortgage+walk+away+right+first+action
The banks have been working for decades to get rid of that rule, it’s one of the state law remnants of the last great depression.
If you weren’t around for the years of two or three phone calls a day hustling loan sales, you have no idea how persistent and — for unsophisticated people — charming and convincing the sales mills were. They paid well and had very effective methods — and got their profit when the signatures went on the paper, no matter what happened later.
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Predatory lenders like Countrywide, Household Finance (now part of HSBC) and Ameriquest have settled for roughly a billion dollars in suits alleging not that they included this information in print that was too fine, but that they did not disclose it to prospective borrowers at all. Other practices they were known to use include falsifying appraisals, charging undisclosed fees and penalties, offering payment plans with negative amortization (the balance gets bigger even as you make the required payments) and changing the terms of the agreement between the time the borrower initially reviewed the contract and closing.
There was a half trillion dollar industry built on searching out prospective borrowers and convincing them that they could afford these loans by any means necessary, including deception and outright fraud. Yes, some people clearly jumped at offers they should have known they couldn’t afford, and some even lied to get those offers, but I don’t think it’s at all fair to assert that the majority of people who found themselves unable to pay were victims of their own greed and/or naivete.
A significant number of those who found themselves in debt also had no direct involvement with sub-prime lending at all. They had been living well within their means for many years up until the time the economy collapsed and they suddenly found themselves unemployed. In deciding what they could afford, many of these people had taken into account that they may lose their jobs, but not that they would be unable to find a new one for over a year or that their significant other would be unemployed at the same time. It’s easy to look back now and say they should have anticipated these things, but no one in today’s workforce had experienced a comparable economic climate, so the risk seemed very remote at the time. While I wouldn’t exactly consider them victims, neither would I consider them greedy for failing to factor in a very remote risk.
As for myself, I didn’t take out a mortgage (though it would have made economic sense for me to do so since I could get one for less than what I rent for) and luckily I’m not in debt. However, I still lost a lot of money in the sub-prime mortgage bust. I’m required to contribute 5% of my paycheck to my employer’s retirement plan. I have no say in how the funds are managed aside from a choice of “high,” “moderate,” or “low” risk- as judged by the fund managers. At least in the US, this is very common arrangement. At no time was I ever told that the managers were trading in derivatives, nor would I have been able to independently investigate the risk of those investments had I known (which was the appeal for those peddling derivatives). Whose greed left me with investments worth less than nothing? The bankers selling the derivatives and fund managers buying them and underestimating their risk, or my own for investing the minimum amount I’m required to in the “moderate risk” funds?
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@Eli “And, oh yes, please address the current extreme situation, not one where there are relatively small differences.”
It is not clear to me that we are currently in an “extreme” situation of inequality. As I showed, there is still good economic mobility – not something you would expect in an extreme situation of inequality.
The gini co-efficient of most countries is below .5:
And taxes decreases the inequality even further.
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“A few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance fell to around 40%. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a 1 in 3 chance of making it to the middle class”
‘Poverty’ today is wealthier than the ‘middle class’ of the 1940s-50s.
“Chance”. As if mobility reduced to luck, not the desires and goals of the individual.
Reducing ambition and achievement to ‘having the most material wealth’.
Equality is the politics of greed and envy.
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GoodLocust says: “The Great Depression lasted over a decade. It was extended by the big spending “stimulus” spending of both Hoover (e.g. Hoover dam) and Roosevelt. It ended not from “stimulus” but because we were selling weapons and supplies in the war.”
It was all financed by government spending – i.e., stimulus. Not only that, it was all deficit spending. And very little of it went to productive uses, most of it was destroyed as soon as it was produced. Except to a small cadre of libertarian fanatics, Hayek is a minor footnote in history. He produced nothing lasting in terms of economic theory. His popularity in certain circles is a political/social decision, not because economists find his work useful.
How does your economic theory explain massive US debts and historically low inflation and historically low interest rates. Krugman, Delong, Baker et al not only can explain it – they predicted it. Libertarians were screaming ‘Hyperinflation!”
How does your economic theory explain the fact that markets were (perhaps still are) unable to set prices? Isn’t this supposed to be a fundamental basis of libertarian economics? Yet when markets were exposed as being unable to set prices libertarians responded, “Squirrel!”
Tired memes. Tired cliches. Absolutely no relationship to reality. “No man is an island.” Understand that simple concept and you immediately cease being an economic libertarian.
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I blaim slack auditing for the fraudulence of the derivatives (which are now basically wortthless); a system failure.
[You can’t. Products like derivatives, i.e. financially complex instruments designed to be traded only by people that certify they know what they are doing, have light-to-no regulation. and this is deliberate, and correct -W]
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@Kevin
1) Real inflation is actually much higher. The Federal government, and I’m assuming Krugman, are telling you core inflation is low:
http://en.wikipedia.org/wiki/Core_inflation
But in reality, and most people realize this with the higher cost of some goods, inflation is much higher than we are being told ( http://www.bakersfield.com/news/business/economy/x500357207/Food-prices-up-portions-down ).
Austrian economists understand that inflation affects different segments of the economy more briskly than others.
2) Additionally, while there is technically a greater money supply, banks have absolutely no reason to lend it out in this climate ( http://blogs.law.harvard.edu/philg/2009/10/17/how-wall-street-is-making-its-billions/ ).
When they do finally have a reason to lend it out – then I imagine we’ll see even greater inflation.
3) Europe’s sovereign debt crisis has strengthened the dollar since people still see it as a safe haven.
4)As for Krugman:
http://krugman.blogs.nytimes.com/2009/01/11/more-on-romerbernstein/
http://www.huffingtonpost.com/2011/08/15/paul-krugman-fake-alien-invasion_n_926995.html
Really?
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William — I can blaim whomsoever I please. 🙂
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@24GoodLocust
And what is wrong with either of your links to Krugman? In one he says the stimulus plan was inadequate and that we’d likely see deflation. Right on both counts. Only successive interventions by the Federal Reserve have prevented deflation.
In the other, a tongue in cheek article BTW, he says an alien invasion (or the threat of one) would spur the economy. Yes, it would. Anything that increases aggregate demand spurs the economy.
Again, I’ll ask: How does your economics account for massive US debts and low inflation and low interest rates? Where’s the hyperinflation?
The BPP shows 4% (total – not annual) inflation since 2008.
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@Anonymous
1) Look at the date of the first article and his “calculations.” He says the stimulus would reduce unemployment to 7.3 at this time.
Currently it is at 8.6%, which I’m assuming includes all the seasonal hires for Christmas. The real unemployment rate is much higher:
http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-the-real-unemployment-rate-is-11-percent/2011/12/12/gIQAuctPpO_blog.html
http://blogs.smartmoney.com/advice/2011/12/08/is-the-real-unemployment-rate-22-6/?link=SM_mustread
2) His “alien invasion” plan was hardly tongue in cheek. He is simply elucidating his philosophy, which is that useless spending and squandering of resources brings prosperity, when it really just brings rationing.
3)I already explained why we aren’t seeing as much inflation as we perhaps should. To be a little more specific/technical, while the money base has increased by a quarter in the last two years, the velocity of money has decreased rapidly.
4) If you still think Krugman is a great prognosticator and economist after his bad prediction of the effects of the stimulus then please explain this:
“Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer.”
http://www.nytimes.com/2001/10/07/opinion/07KRUG.html
He said this back in 2001. Of course, promoting spending on housing is what caused the housing bubble….
An Austrian economist would’ve told you that low interest rates create bubbles.
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“Yes, we believe you can afford this mortgage which is why we’re happy to lend you the money.”
Of course, it’s all the fault of the buyer.
[I don’t think anyone is saying that. Nor would anyone be dumb enough to say it was all the fault of the seller -W]
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But I’d go so far as to say that it was 100% the fault of the banks who simply didn’t have the means to cover their lending. I’m finding it difficult to see the difference with a 419 scam apart from a 419 scam being more easily detectable, especially in light of investors being encouraged to bet on one thing when the bank bet against.
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#27 GoodLocust
A) You can’t read or, more likely, comprehend what you read. In January of 2009 unemployment was expected to reach a *maximum* of 9%. The Obama plan *by Krugman’s calculations* would reduce unemployment by 1.3%. The economy was actually in much worse shape than anyone thought. Unemployment rose – not to 9% – but to 10%. The CBO has stated that the stimulus plan did reduce unemployment by the predicted amount.
B) You assume wrong. Headline unemployment numbers are seasonally adjusted. If you didn’t already know that, then your level of knowledge on the entire subject is pretty much nil (and explains a lot of your opinions).
And, no, you haven’t explained how the US government can print trillions of dollars of money and neither inflation nor interest rates have moved. Inflation is not rising – unless you think MIT’s Billion Price Project is somehow rigged.
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crandles:
Once you know the interest rate, it is very, very easy to work out a lower bound for how much you are going to have to pay eventually. But I’m not denying we live a world full of incompetent and undereducated people (especially in the US) who aren’t even capable of doing that.
Kevin O’Neill:
Indeed, the lenders should always expect that the borrowers are greedy and often not competent. The system failed this time because the lenders made mistakes. William is just reminding us about borrowers’ normal behavior which normally doesn’t cause too much trouble because the lenders are normally diligent.
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