Quite an interesting perspective from Krugman and certainly revealing. Recently, I also watched Friedman's 'Free to Choose' series. Interesting contrasts, really. The principles of a free market make more sense to me. Free to Choose is on RUclips. Very sound discussion of economic principles.
Paul say "uh..." too much. But in all seriousness, thanks for posting this, I'm a big Paul Krugman fan, I always look forward to reading his columns (the only reason in the world to happy for it to be Monday).
[Chorus:] I believe I can fly I believe I can touch the sky I think about it every night and day Spread my wings and fly away I believe I can soar I see me running through that open door I believe I can fly I believe I can fly I believe I can fly. Sure spends a lot of time believing. Not much time knowing.
You know why though right? One of three reasons. 1) He contradicts Ron Paul. 2) He's not a republican. 3)They subscribe to the family credit card theory of economics.
Milt did not say the FED did too much, he said it did too little - and Bernanke agrees. Friedman believed it was because of monetary contraction - which Bernanke agrees with, and Bernanke moved to stop monetary contraction during the 08 crash.
The washington consensus has been moving away from keynesian ideas for a long time, since reagan especially - and we've lurched from economic crisis to economic crisis, the ideas of Friedman have been very very influential on modern day economics. While Keynes ideas have waned for a long time - except for the revival in 2008, which probably save the world economic system.
If people don't have any money, there is nothing to put into the safe. If everybody is in debt. Al that will happen is they will pay off the debt. The only way to start up a truly stagnant economy is to give money away to the people who don't have credit, so they have no debt.
@weavermama It all depends on what basket of goods you use to calculate inflation. The US dept. of labour statistics already does a good job of using different baskets.
Oh I totally agree that Regan rhetoric and actions are two different things. To say that the Fed is a keynesian institution though is silly - Alan Greenspan was the head of the fed for nearly 20 years, and he can hardly be called a keynesian - or someone in favour of regulation. Ben Bernanke likewise, is not a keynesian and subscribes to Friedmans account of how the great depression was cause.
We had far more, and much deeper recessions with commodity-backed money. The gold standard is a joke among serious economists. Monetary policy has been proven to be very helpful. Recessions have been minor compared to before MP. I have no idea what "freedom of choice of money means" US citizens use US dollars because we pay taxes with US dollars. If you want commodity backed money, GO BUY COMMODITIES. Then you can either sell it when you want to or barter with it. Have fun with that.
@yuzhimeng6 With this one I must almost agree. The charcaterization that is in error is that the choice being made is the "null choice" when, in fact, the element being overlooked is time (another problem with Keynesianism). The choice to invest in FUTURE opportunities consistent with interest rates and the production possibilities curve is a choice that those investments yield a greater return (including the time value of money) than current alternatives. This is not a problem to be solved.
So you're conceding my point then - that keynesianism was seriously challenged by other macroeconomic policies starting mainly in the 70's? I mean if you can't concede what is objectively true, then I guess I can't have a discussion with you
But you're completely wrong on the last part, how exactly did keynesian "dogma" grip the reagan whitehouse - being influenced heavily by economists such as Milton Friedman as it was.
What's gone on in America is not all that hard to understand. For a long time now, since the seventies, wages there have not gone up enough in relation to inflation to create the necessary monetary base, on the level that money in the channel of a multiplier flows, to be adequate to create the demand we would expect to have seen given history. This result is ameliorated somewhat by the fact that many people's wages did actually increase that much, but that their wage rises came as the result of pre-tax health care dollars coming their way and not necessarily after-tax wages going up. The difference was, of course, made up by borrowing. Ordinarily, you would expect to see this kind of imbalance receive a come uppence in the markets, except that there was a lot of opportunity for developing 'investment pools' at a container level above that of the local. This received such a huge amount of investment such that it was able to quell the forces which, economically, would have been asking for higher after-tax wages. When this borrowing gravy train overreached, and went after too many people who were never going to be able to repay, after a period of 'ethical debating' the thing underwent an eventual crisis. Things are improving over the deepest levels, but there is still a lot that hasn't come along. People are now fundamentally not spending locally as much as they used to. The container level is not dead, nor is it dying. What it is is not rich enough anymore to speculatively sustain oil prices at over $100! It can't redirect local money as efficiently as it used to either, look at the collapse of so many shopping malls. Everybody keeps harping on deflation in Europe, but look at the currencies. The currency of a deflating economy should be climbing in value. The euro is not doing anything like that. I suppose that's because it belongs under the sway of a quasi-containing over currency; the petrodollar. Deflation is actually raging in that petrodollar realm. It is raging, but it is not nearly as hot in some places as others. The markets denominated immediately in dollars are thriving. This is understandable, however, given that QE has largely benefited that sector over any kind of a more local approach.
@madn0rman When there are no viable investment opportunities then the null choice (let it sit in a bank account) is often best. People also for certain funds avoid savings accounts or guaranteed deposit savings accounts because they want liquidity to be able to invest easily when an opportunity shows up as opposed to being stuck with a small return. So depending on your reasoning, saving at 0% interest while there is +2% inflation is the right thing to do.
@weavermama the negative interest rate is just an artifact of the mathematical analysis. Chemical engineers often use mathematical techniques that give solutions where it calls for a negative mass, but it's just ignored because that solution is meaningless. I know this because I am an engineering student. The negative interest rate just indicates a problem that can't be solved by merely lowering interest rate. I suggest you use some better arguments to show that the neo-Keynsians are wrong.
But you want them to invest in the stock market? People would buy goods that have inherent value (precious metals, guns, non-perishables), and then hoard them. It's the same hoarding mechanism without using fiat currency - people would find something that can retain value without giving their money to other people. The only market I could see booming in that mindset is DIY stuff and anything you could use to repair what you already own. You can already see that in Europe.
This guy needs to read Horizontalists and Verticalists by Basil Moore. This discussion of money is so confused. Loans create deposits and then banks go to the Federal Reserve to get the required level of reserves. He has the causality all backwards, the money supply shrank in the Great Depression because nobody was willing to borrow money and everybody repaid their debt, effectively destroying money.
@sweeves Unless you can find a way to expand world gold supply on an exponential basis you will see massive deflation on a gold standard. Tell me when you can just transmute a couple thousand tons of lead to gold per year and I might believe you. Read Marx, read Marx! Money's FORM does not matter. What matters is the amount of VALUE expressed in the material. Commodities are only ever relevant when inflation is truly noticeable, say 10% a year, which is NOT happening.
I am saddened at this institutionalized point of view with assumptions which are either inaccurate or politically accepted. The explanation of factors effecting the factors of production would in any market tested job would be at best skewed towards government or political disinformation. The figures in his model are based as Mark Carnie said based on the governments inaccurate unemployment figures which have never been triangulated and indeed Cameron have admitted as incorrect. The explanation for non productive growth in the housing giving plus growth figures are a testimony to failed short term policies which may push us back in the growth stakes in the near future.Underlying growth in the productive sector has been inadequate and patchy at times.The inadequate explanation for house price rises shows no meaningful expertise in this area beyond that held by an MP. In truth the subsidizing of a nation wide building program at a cost to the council tax payer of 35 thousand per house is a great mistake taking money away from essential investment yielding little benefit to society.This money if spent on infra structure would benefit society with much higher returns and jobs.The housing crisis in London is a drag on society choking off production and pushing up production costs to global uncompetitive levels. Commentators put the total social costs by austerity to include demunation in intellectual capital in UK PLC to be 260 billion.Presumably the government does not issue or measure independent social economic costs as they would paint a negative picture of the economy in any attempted model. The summary of this situation is the government has inflated the housing market by subsidy to push up otherwise failing economy.A surplus of labour has held back any underlying growth in the productive economey. Taken as a whole poor quantitative easeying choices by not subsidising the ciustomers of the banks, but a few bankers and investors which have not decanted any stimulus to the economy. Radom capital inputs such as PPI have had a short term stimulating effect where quantitative easying has clearly failed. Austerity by ametures has simply been a transfer of short term costs to longer term costs. It is useful to listen to these lectures but sometimes they are presented from a bias point of view from the accumuation of hypothesis to conclusion.
why would anyone save money at 0% interest?!!! especially when inflation is at 2+% The paradox of thrift doesn't seem to explain this - this guy seems to talk yet explains very little!
Well that's a very deceitful way of looking at things - if you include chairmanship of the FED in your definition of keynesianism then sure Greenspan is a Keynesian - no matter what his actual beliefs are. But that's a rather disingenuous way of looking at things.
Whut the hell are you even talking about, Keynesian orthodoxy not questioned since 2008? I guess Ron Paul didn't run in 88 then, or was a he a Keynesian then? Read some history man, keynes ideas have been question for a long time and firstwhere put really underfire during the stagflation of the 70's - which keynesianism didn't account for as back then keynesianism saw inflation and recession as mutually exclusive. Get a basic grasp of the facts. At least know when Ron Paul ran.
*Jaw drop* Are you...serious? So, when people see market conditions that will force them to lose money and value, you shout "INVEST!"? I mean, what if they lose all of their money, and your theory doesn't work? Wouldn't everybody then have no money, and no objects of value? Of course people will hoard money, it's the only way to keep it from disappearing from them forever.
"cobracrush subscribed to a channel 2 weeks ago Mises Institute Media" Some one subscribed to Mises full of pure hate and bile? I'm so surprised. Go back to your room Timmy, the adults are talking.
Quite an interesting perspective from Krugman and certainly revealing. Recently, I also watched Friedman's 'Free to Choose' series. Interesting contrasts, really. The principles of a free market make more sense to me. Free to Choose is on RUclips. Very sound discussion of economic principles.
Great lecture delivered on the return of depression Economics
Paul say "uh..." too much. But in all seriousness, thanks for posting this, I'm a big Paul Krugman fan, I always look forward to reading his columns (the only reason in the world to happy for it to be Monday).
[Chorus:]
I believe I can fly
I believe I can touch the sky
I think about it every night and day
Spread my wings and fly away
I believe I can soar
I see me running through that open door
I believe I can fly
I believe I can fly
I believe I can fly.
Sure spends a lot of time believing. Not much time knowing.
You know why though right? One of three reasons.
1) He contradicts Ron Paul.
2) He's not a republican.
3)They subscribe to the family credit card theory of economics.
The Return of The Return of Depression Economics. Here we go again.
Milt did not say the FED did too much, he said it did too little - and Bernanke agrees.
Friedman believed it was because of monetary contraction - which Bernanke agrees with, and Bernanke moved to stop monetary contraction during the 08 crash.
The washington consensus has been moving away from keynesian ideas for a long time, since reagan especially - and we've lurched from economic crisis to economic crisis, the ideas of Friedman have been very very influential on modern day economics. While Keynes ideas have waned for a long time - except for the revival in 2008, which probably save the world economic system.
If people don't have any money, there is nothing to put into the safe. If everybody is in debt. Al that will happen is they will pay off the debt. The only way to start up a truly stagnant economy is to give money away to the people who don't have credit, so they have no debt.
@weavermama
It all depends on what basket of goods you use to calculate inflation. The US dept. of labour statistics already does a good job of using different baskets.
Oh I totally agree that Regan rhetoric and actions are two different things.
To say that the Fed is a keynesian institution though is silly - Alan Greenspan was the head of the fed for nearly 20 years, and he can hardly be called a keynesian - or someone in favour of regulation.
Ben Bernanke likewise, is not a keynesian and subscribes to Friedmans account of how the great depression was cause.
Wish I could see the slides!
We had far more, and much deeper recessions with commodity-backed money. The gold standard is a joke among serious economists. Monetary policy has been proven to be very helpful. Recessions have been minor compared to before MP. I have no idea what "freedom of choice of money means" US citizens use US dollars because we pay taxes with US dollars. If you want commodity backed money, GO BUY COMMODITIES. Then you can either sell it when you want to or barter with it. Have fun with that.
@yuzhimeng6 With this one I must almost agree. The charcaterization that is in error is that the choice being made is the "null choice" when, in fact, the element being overlooked is time (another problem with Keynesianism). The choice to invest in FUTURE opportunities consistent with interest rates and the production possibilities curve is a choice that those investments yield a greater return (including the time value of money) than current alternatives. This is not a problem to be solved.
We need to be able to see the charts or chunks of this are somewhat difficult to follow...
@KypHeM-I agree with you, but I think he should be Treasury Secretary, or at LEAST the main economic adviser for the current administration.
So you're conceding my point then - that keynesianism was seriously challenged by other macroeconomic policies starting mainly in the 70's?
I mean if you can't concede what is objectively true, then I guess I can't have a discussion with you
But you're completely wrong on the last part, how exactly did keynesian "dogma" grip the reagan whitehouse - being influenced heavily by economists such as Milton Friedman as it was.
Nobody hoards money. People put money in the bank, the bank invests that money and grows the economy.
What's gone on in America is not all that hard to understand. For a long time now, since the seventies, wages there have not gone up enough in relation to inflation to create the necessary monetary base, on the level that money in the channel of a multiplier flows, to be adequate to create the demand we would expect to have seen given history. This result is ameliorated somewhat by the fact that many people's wages did actually increase that much, but that their wage rises came as the result of pre-tax health care dollars coming their way and not necessarily after-tax wages going up. The difference was, of course, made up by borrowing.
Ordinarily, you would expect to see this kind of imbalance receive a come uppence in the markets, except that there was a lot of opportunity for developing 'investment pools' at a container level above that of the local. This received such a huge amount of investment such that it was able to quell the forces which, economically, would have been asking for higher after-tax wages. When this borrowing gravy train overreached, and went after too many people who were never going to be able to repay, after a period of 'ethical debating' the thing underwent an eventual crisis.
Things are improving over the deepest levels, but there is still a lot that hasn't come along. People are now fundamentally not spending locally as much as they used to. The container level is not dead, nor is it dying. What it is is not rich enough anymore to speculatively sustain oil prices at over $100! It can't redirect local money as efficiently as it used to either, look at the collapse of so many shopping malls.
Everybody keeps harping on deflation in Europe, but look at the currencies. The currency of a deflating economy should be climbing in value. The euro is not doing anything like that. I suppose that's because it belongs under the sway of a quasi-containing over currency; the petrodollar. Deflation is actually raging in that petrodollar realm. It is raging, but it is not nearly as hot in some places as others. The markets denominated immediately in dollars are thriving. This is understandable, however, given that QE has largely benefited that sector over any kind of a more local approach.
@madn0rman
When there are no viable investment opportunities then the null choice (let it sit in a bank account) is often best. People also for certain funds avoid savings accounts or guaranteed deposit savings accounts because they want liquidity to be able to invest easily when an opportunity shows up as opposed to being stuck with a small return. So depending on your reasoning, saving at 0% interest while there is +2% inflation is the right thing to do.
Where can I find the next part of this series?
@weavermama the negative interest rate is just an artifact of the mathematical analysis. Chemical engineers often use mathematical techniques that give solutions where it calls for a negative mass, but it's just ignored because that solution is meaningless. I know this because I am an engineering student.
The negative interest rate just indicates a problem that can't be solved by merely lowering interest rate. I suggest you use some better arguments to show that the neo-Keynsians are wrong.
But you want them to invest in the stock market?
People would buy goods that have inherent value (precious metals, guns, non-perishables), and then hoard them. It's the same hoarding mechanism without using fiat currency - people would find something that can retain value without giving their money to other people.
The only market I could see booming in that mindset is DIY stuff and anything you could use to repair what you already own. You can already see that in Europe.
funny how random guys from the internet, who probably couldn't tell the IS from the LM line, judge a Nobel prize winning economist's credentials...:))
But the creditor is in debt to someone else. And it goes around and around. There is no need for money.
krugman for president!
how can everyone be in debt? if one person is the debtor that means another person is the creditor.
This guy needs to read Horizontalists and Verticalists by Basil Moore. This discussion of money is so confused. Loans create deposits and then banks go to the Federal Reserve to get the required level of reserves. He has the causality all backwards, the money supply shrank in the Great Depression because nobody was willing to borrow money and everybody repaid their debt, effectively destroying money.
End the FED.
Funny, I don't see you up on that podium.
@sweeves
Unless you can find a way to expand world gold supply on an exponential basis you will see massive deflation on a gold standard. Tell me when you can just transmute a couple thousand tons of lead to gold per year and I might believe you.
Read Marx, read Marx! Money's FORM does not matter. What matters is the amount of VALUE expressed in the material. Commodities are only ever relevant when inflation is truly noticeable, say 10% a year, which is NOT happening.
why can't the credit go to welfare that wound create inflation?
Come to Modern Monetary Theory, Paul.... it is calling you
plzzz explain the that different rules of parliament which is needed for dc...ex: by American for American, it's act.... bulshit
I am saddened at this institutionalized point of view with assumptions
which are either inaccurate or politically accepted. The explanation of
factors effecting the factors of production would in any market tested
job would be at best skewed towards government or political
disinformation. The figures in his model are based as Mark Carnie said
based on the governments inaccurate unemployment figures which have
never been triangulated and indeed Cameron have admitted as incorrect.
The explanation for non productive growth in the housing giving plus
growth figures are a testimony to failed short term policies which may
push us back in the growth stakes in the near future.Underlying growth
in the productive sector has been inadequate and patchy at times.The
inadequate explanation for house price rises shows no meaningful
expertise in this area beyond that held by an MP. In truth the
subsidizing of a nation wide building program at a cost to the council
tax payer of 35 thousand per house is a great mistake taking money away
from essential investment yielding little benefit to society.This money
if spent on infra structure would benefit society with much higher
returns and jobs.The housing crisis in London is a drag on society
choking off production and pushing up production costs to global
uncompetitive levels. Commentators put the total social costs by
austerity to include demunation in intellectual capital in UK PLC to be
260 billion.Presumably the government does not issue or measure
independent social economic costs as they would paint a negative picture
of the economy in any attempted model.
The summary of this situation is the government has inflated the housing
market by subsidy to push up otherwise failing economy.A surplus of
labour has held back any underlying growth in the productive economey.
Taken as a whole poor quantitative easeying choices by not subsidising
the ciustomers of the banks, but a few bankers and investors which have
not decanted any stimulus to the economy. Radom capital inputs such as
PPI have had a short term stimulating effect where quantitative easying
has clearly failed. Austerity by ametures has simply been a transfer of
short term costs to longer term costs. It is useful to listen to these
lectures but sometimes they are presented from a bias point of view from
the accumuation of hypothesis to conclusion.
Protive tariff might save the USA!
@bumzo Exactly right.
why would anyone save money at 0% interest?!!! especially when inflation is at 2+% The paradox of thrift doesn't seem to explain this - this guy seems to talk yet explains very little!
Well that's a very deceitful way of looking at things - if you include chairmanship of the FED in your definition of keynesianism then sure Greenspan is a Keynesian - no matter what his actual beliefs are.
But that's a rather disingenuous way of looking at things.
Whut the hell are you even talking about, Keynesian orthodoxy not questioned since 2008?
I guess Ron Paul didn't run in 88 then, or was a he a Keynesian then?
Read some history man, keynes ideas have been question for a long time and firstwhere put really underfire during the stagflation of the 70's - which keynesianism didn't account for as back then keynesianism saw inflation and recession as mutually exclusive.
Get a basic grasp of the facts. At least know when Ron Paul ran.
*Jaw drop*
Are you...serious? So, when people see market conditions that will force them to lose money and value, you shout "INVEST!"?
I mean, what if they lose all of their money, and your theory doesn't work? Wouldn't everybody then have no money, and no objects of value? Of course people will hoard money, it's the only way to keep it from disappearing from them forever.
"cobracrush subscribed to a channel 2 weeks ago
Mises Institute Media"
Some one subscribed to Mises full of pure hate and bile? I'm so surprised. Go back to your room Timmy, the adults are talking.
Wow thats great the way you took him apart point by point. Oh wait you didn't do shit except a baseless attack. My aren't you impressive.
Guys don't you know? You must not argue with idiots. Keynesian economics has not and never will work.
We need to be able to see the charts or chunks of this are somewhat difficult to follow...