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Read Krugman's stuff a few days ago. 'Course he is a trained economist, and I am no way close to that.
From the text:
"de facto austerity in the form of huge spending and employment cuts at the state and local level." >>>>> I sure don't know about other states, cities or other forms of small gov'ts in other states; but there are fixed budgets in MI. As we all know, many communities have had drastic cuts to incoming cash flows because of umemployment and revenues from real estate taxes. MI has a fixed level related to real estate taxation; whereas I recall other states, as NJ, is allowed to raise property taxes as they see the need. MI's real estate tax (non-business property) may not be increased for purposes of a taxable base; more than 5% per annum or CPI, which ever is less. If person "A" bought a house in 1992 for $100k, this is the start value for property tax, which is named State Equalized Value in MI, being 50% of the purchase value. The property tax on this house would start based on a $50,000 amount. As noted, over a 20 year period (1992-2012) this SEV taxable base number could either increase at CPI or 5%, which ever is less. In 2012 and finding the home price crunch, the "real" prices of what is selling finds a reduction of -25% to -45% in what folks are willing to pay today vs what they would have had to pay in 2006 or 2007. All SEV's have also been reduced based upon whatever sales values of existing home in an area bring today. The obvious result is that the property tax revenues are greatly reduced and have had a tremendous negative impact upon cities and other community entities. So, as to the off-the-wall statement about spending and employment cuts at the state and local level in the article.......the answer is yes. Not sure what Krugman was attempting to prove. Perhaps things are different in his world. Another aspect to local public employment is that excess revenues are held at local banks; and in the past were able to generate a decent return on these monies from CD or similar accts. Our community was able to have one more full time police officier just from the tax free interest generated from the excess (rainy day money) money on deposit. This is now gone and so is the officier, plus another. I will name this "forced austerity" and it is everywhere in this state. In 2009, one knew all of this was coming, at least to this state.
>>>>>From the comments section:
"It is surprisingly hard to find anyone willing to use *math* to explain economic principles: >>>>>Duh, some of it becomes "forced" math, past this; the whole thing is "kinda" math; but I challenge the brightest to keep track of such a moving target; and this would only be to account for the money they think they know about, let alone the monies that can't be accounted for using standard accounting practices. Their major challenge would be to get a straight answer from any central bank.
"As a monopoly, the government is not subjected to disciplined competitive market forces. Without a competitive profit motive to discipline it, it's spending is necessarily marked by inefficiency and corruption. Money is doled out to corporations who lobby for it and to other special interests. Voters can't keep politicians honest because politicians promise them endless "freebies", or transfers from the productive to the less productive. Show me one government in the history of the world that's been operated efficiently and benevolently." >>>>>This writer's statement just about covers the whole stink pot at the federal level. Knowing there are many programs from citizens tax dollars that are valid; it is the size, scope and pure inefficient operations that cause so much grief.
MI, not unlike other states does have a mandated balanced budget limitation.
There are several types of austerity in play at this time on many levels
The issue becomes there's never any fiscal responsibility in good times or bad and it's only gotten worse in the last decade. If one can be fiscally responsible during good times, there's a buffer there for bad. The spending never stops and the funneling off to various special interests just keeps increasing and the effectiveness of what actually gets spent becomes less and less and it's less productive.
Money instead gets printed and spent willy-nilly, there's tremendous malinvestment (two giant failed Solar companies, costing billions and apparently other energy startups that were given money that went down the drain in the last year or two) and crony-ism. There's no budget because, well, why budget when no one could care less about how much debt is run up despite serious statements to the contrary? Just keep sending future generations the bill. Run savers out of cash and force the old folks into risk they don't want to take in old age, but now their CDs yield 0.000000001% - which I'm guessing they won't see change for a VERY long time.
Additionally, it all has diminishing returns on top of it. What was the GDP print yesterday? Oh, but wait - bad news is good news for a market now addicted to QE and hints of QE. It's amazing you have people on financial media cheering more QE and easy monetary policy and then in the same sentence wondering why gold has done what it's done and why central banks around the world continue to buy. The oil price is what it is due to a number of factors (geopolitics, etc), but easy monetary policy is one of them.
As for Krugman, we're talking about someone who strongly suggested spending money on a faked alien invasion in order to boost spending.
Let me say this again, because it needs to be repeated: the guy went on cable news and, with a great degree of seriousness, suggested spending money on faking a large scale alien invasion because it's spending and apparently it doesn't matter how it's spent even if in completely idiotic and unproductive fashion. (Hey, maybe we can spend even more and get the Transformers to save us, and Michael Bay can direct it? If we're going to spend trillions on pointless BS, why not do it right?)
Paul Krugman knowingly abandoned the economic profession a decade or so ago when he became a political attack columnist.
That decision, which he had every right to make, has prompted him to jump-the-shark on many occasions. MFO contributor Scott correctly identifies the “alien attack spending scenario” as the zenith of Krugman’s quirky career since that faithful decision. If he wasn’t so serious an academic, many of his columns would bring a smile to his disappearing readership.
Paul Krugman is a smart, well-educated man. He earned a PhD from MIT in the 1970s so he had been dedicated to economic data collection and careful analysis early in his economic life.
Before he tarnished his reputation with unwarranted political screeds, the economic profession recognized him as a major contributor to understanding and developing international trade theory. He integrated many divergent factors (like population explosions) into the framework of his modeling.
I liked him. He even responded to several questions that I asked him by snail mail before he embarked on his quixotic political journey. Too bad.
Krugman is definitely a strong Keynesian disciple, but his current writings don’t seem to reflect any deep Keynesian insights or even any economic analyses. They’re more like wild rages. Although I am no longer a Keynesian (I more prefer the Austrian methods these days), his policies have some limited merit. As in most instances, a merger of economic philosophies might be the best approach. Today, Paul Krugman would never accept such a compromise. He is far too agenda committed.
As a current purveyor of Keynesian economic philosophy, I much prefer the more subtle, more fair, and less flamboyant commentary of Joseph Stiglitz. He is a Nobel Laureate and author of the book “Freefall”. The book offers a more balanced assessment of the world economy that Krugman seemingly has lost the ability to do.
I’m saddened that my present judgment of Paul Krugman is so harsh. I really did like the guy a few years ago.
Reply to @MJG: MJG, do you have any comment about what he wrote. It seems like most of the comments about Krugman is due to his political associations rather than the contents of the article.
Reply to @MJG: I can see why someone could be turned off by the style of Krugman's presentation, but generally, at least with economics, things tend to happen the way Krugman says they will happen. That's pretty rare.
I have always respected Krugman as an economist. He just doesn't seem to do too much serious economic research any longer; I am not familiar with any recent probing research in his economic specialty area (international trade) from him. From my current readings he is a fully committed political pundit. That's too bad.
Also, as my reading list has expanded, I have become more a proponent of the Austrian school of economics. Less government is better government. It is not that government spending does not generate positive outcomes. It does.
However, it is a matter of competing efficiency. I believe the accumulated evidence demonstrates that private industry simply is a more efficient way to generate outcomes that enhance our GDP per person. Distributing bread is certainly a way to alleviate hunger in the short term, but allowing industry to build a bakery is a more efficient approach in the long run.
An easy book that illustrates the tradeoffs always necessary when addressing economic issues is Henry Hazlett's "Economics in One Lesson". Give it a try. Even if you disagree with his observations, the book clearly shows the other side of the Keynesian economic government pump-priming model.
Since most people are avoiding addressing the text let me summarize here. Austrian's claim that confidence will re-establish when austerity measures are implemented and path to growth well clear has shown in practice to be a myth as European countries that implemented austerity measures are headed to recession or in recession with huge unemployment and neither the residents nor investors are any more confident than before the austerity measures are implemented.
The countries that implemented austerity are now looking at bigger budget deficits, ever shrinking demand and shrinking GDP. Thus more austerity measures will need to be implemented (if persuaded in the same path) and this process will continue until the economy is totally destroyed and hit bottom or there is a change of path as it looks like will start in France.
Without growth you can get out of this vicious cycle and without demand supply side economics will not work either.
You can disagree with Paul Krugment because of his political association but he has been more right than not.
Investor, you're missing the point, as usual. Once someone leaves the flock of the anointed, thus "tarnishing his reputation", it makes no difference whether anything that he says is factual or accurate. He has been cast out into the darkness, is an apostate if not a heretic, and all that he may say is nothing more than the work of the devil, who, as is well-known, uses many disguises to spread his work of evil.
The newly revised bible has replaced, "For I was hungry and you gave me something to eat" with "allow industry to build a bakery".
Reply to Old Joe: "... the work of the devil, who, as is well-known, uses many disguises to spread his work of evil." Scary stuff - am starting to suspect a few here! (PS: He more than likely resides within the working class & not among the "job creators."
Sorry for my long delay in responding to your request for a more economically centered reply.
As you well know I am not an economist; like you, I have been trained as and practiced the engineering discipline. So I hesitate to challenge Krugman, a Noble winner in his specialty, on his home turf.
But I did not fully understand his argument that austerity had basically failed in the European nations. Keeping in mind the senseless and destructive riots by mostly government employees in those nations, I wondered about which austerity programs Krugman was referencing.
I certainly do have the patience, the resources, or the training to do my own basic research on this subject, so I punted, and searched for a reasonable reply that addressed this issue in a fairly honest manner. I submit this Link as a reply to your challenge:
This article offers just another opinion. It is not a gospel embraced by the entire economics community.
I suspect you might not agree with all the points made by the author. I do not. This is a controversial subject that has no immediate or easy answer. It is a complex, nonlinear problem with many moving, highly connected parts. All its feedback loops, both positive and negative, can not be fully identified nor modeled.
Most likely, compromise approaches will be attempted. Outcomes can not be confidently projected. That’s the nature of the “dismal” science. I’m happy I did not enter the economics field.
I surely do not know the answers; I’m not convinced that anyone really does.
Krugman has identified an issue but it's one of those myths that the spin doctors are producing. Oh, if we demonstrate fiscal responsibility and constraint - that we're getting our financial houses in tiptop order - everyone will feel good and things will turn rosey.
Rubbish. It's not unlike the bs myth of Supply Side Economics. What utter drek. Witness Bush Jr. tax cuts - reward investors in new P&E with CapEx writeoffs, make the cost of money around - dare we say it, 'zero' - give all these guys more money . . . and it will trickle down. Yeah. If my current plant is at 75% capacity, I don't care if money is free, I'm not building another plant. You need demand and Supply Side Econ ignores it. The buzz term these days is 'lack of aggregate demand'. No demand for widgits and we don't need any more widgit makers.
And it still goes back to Unfunded Liabilities and how gov'ts are going to pay the bloody tab. How much can you cut benefits and break contracts and promises vs. how much can you raise taxes vs. how much you can monetize the bill.
Comments
Read Krugman's stuff a few days ago. 'Course he is a trained economist, and I am no way close to that.
From the text:
"de facto austerity in the form of huge spending and employment cuts at the state and local level."
>>>>> I sure don't know about other states, cities or other forms of small gov'ts in other states; but there are fixed budgets in MI. As we all know, many communities have had drastic cuts to incoming cash flows because of umemployment and revenues from real estate taxes. MI has a fixed level related to real estate taxation; whereas I recall other states, as NJ, is allowed to raise property taxes as they see the need. MI's real estate tax (non-business property) may not be increased for purposes of a taxable base; more than 5% per annum or CPI, which ever is less.
If person "A" bought a house in 1992 for $100k, this is the start value for property tax, which is named State Equalized Value in MI, being 50% of the purchase value. The property tax on this house would start based on a $50,000 amount. As noted, over a 20 year period (1992-2012) this SEV taxable base number could either increase at CPI or 5%, which ever is less.
In 2012 and finding the home price crunch, the "real" prices of what is selling finds a reduction of -25% to -45% in what folks are willing to pay today vs what they would have had to pay in 2006 or 2007.
All SEV's have also been reduced based upon whatever sales values of existing home in an area bring today.
The obvious result is that the property tax revenues are greatly reduced and have had a tremendous negative impact upon cities and other community entities.
So, as to the off-the-wall statement about spending and employment cuts at the state and local level in the article.......the answer is yes. Not sure what Krugman was attempting to prove. Perhaps things are different in his world. Another aspect to local public employment is that excess revenues are held at local banks; and in the past were able to generate a decent return on these monies from CD or similar accts. Our community was able to have one more full time police officier just from the tax free interest generated from the excess (rainy day money) money on deposit.
This is now gone and so is the officier, plus another. I will name this "forced austerity" and it is everywhere in this state. In 2009, one knew all of this was coming, at least to this state.
>>>>>From the comments section:
"It is surprisingly hard to find anyone willing to use *math* to explain economic principles:
>>>>>Duh, some of it becomes "forced" math, past this; the whole thing is "kinda" math; but I challenge the brightest to keep track of such a moving target; and this would only be to account for the money they think they know about, let alone the monies that can't be accounted for using standard accounting practices. Their major challenge would be to get a straight answer from any central bank.
"As a monopoly, the government is not subjected to disciplined competitive market forces. Without a competitive profit motive to discipline it, it's spending is necessarily marked by inefficiency and corruption. Money is doled out to corporations who lobby for it and to other special interests. Voters can't keep politicians honest because politicians promise them endless "freebies", or transfers from the productive to the less productive.
Show me one government in the history of the world that's been operated efficiently and benevolently."
>>>>>This writer's statement just about covers the whole stink pot at the federal level. Knowing there are many programs from citizens tax dollars that are valid; it is the size, scope and pure inefficient operations that cause so much grief.
MI, not unlike other states does have a mandated balanced budget limitation.
There are several types of austerity in play at this time on many levels
Regards,
Catch
Money instead gets printed and spent willy-nilly, there's tremendous malinvestment (two giant failed Solar companies, costing billions and apparently other energy startups that were given money that went down the drain in the last year or two) and crony-ism. There's no budget because, well, why budget when no one could care less about how much debt is run up despite serious statements to the contrary? Just keep sending future generations the bill. Run savers out of cash and force the old folks into risk they don't want to take in old age, but now their CDs yield 0.000000001% - which I'm guessing they won't see change for a VERY long time.
Additionally, it all has diminishing returns on top of it. What was the GDP print yesterday? Oh, but wait - bad news is good news for a market now addicted to QE and hints of QE. It's amazing you have people on financial media cheering more QE and easy monetary policy and then in the same sentence wondering why gold has done what it's done and why central banks around the world continue to buy. The oil price is what it is due to a number of factors (geopolitics, etc), but easy monetary policy is one of them.
As for Krugman, we're talking about someone who strongly suggested spending money on a faked alien invasion in order to boost spending.
Let me say this again, because it needs to be repeated: the guy went on cable news and, with a great degree of seriousness, suggested spending money on faking a large scale alien invasion because it's spending and apparently it doesn't matter how it's spent even if in completely idiotic and unproductive fashion. (Hey, maybe we can spend even more and get the Transformers to save us, and Michael Bay can direct it? If we're going to spend trillions on pointless BS, why not do it right?)
Someone faked Krugman on Twitter and said this about an Earthquake, " we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage." (http://www.slate.com/blogs/weigel/2011/08/24/the_krugman_google_saga_or_why_fact_checking_is_important.html) Many thought it was actually Krugman (and weren't surprised, because he's said similar things in the past) until someone asked him.
Anyone like this chart - CPI for all urban consumers? http://research.stlouisfed.org/fred2/series/CPIAUCSL (especially the ramp since the '70's)
Speaking of CPI, I see this this morning - discussion of tweaking CPI measurement further:
http://market-ticker.org/akcs-www?post=205226
http://www.beatingbuffett.com/?p=3858
The desired end result, as Rono has said previously and I agree with - is significant inflation. Prepare accordingly.
Paul Krugman knowingly abandoned the economic profession a decade or so ago when he became a political attack columnist.
That decision, which he had every right to make, has prompted him to jump-the-shark on many occasions. MFO contributor Scott correctly identifies the “alien attack spending scenario” as the zenith of Krugman’s quirky career since that faithful decision. If he wasn’t so serious an academic, many of his columns would bring a smile to his disappearing readership.
Paul Krugman is a smart, well-educated man. He earned a PhD from MIT in the 1970s so he had been dedicated to economic data collection and careful analysis early in his economic life.
Before he tarnished his reputation with unwarranted political screeds, the economic profession recognized him as a major contributor to understanding and developing international trade theory. He integrated many divergent factors (like population explosions) into the framework of his modeling.
I liked him. He even responded to several questions that I asked him by snail mail before he embarked on his quixotic political journey. Too bad.
Krugman is definitely a strong Keynesian disciple, but his current writings don’t seem to reflect any deep Keynesian insights or even any economic analyses. They’re more like wild rages. Although I am no longer a Keynesian (I more prefer the Austrian methods these days), his policies have some limited merit. As in most instances, a merger of economic philosophies might be the best approach. Today, Paul Krugman would never accept such a compromise. He is far too agenda committed.
As a current purveyor of Keynesian economic philosophy, I much prefer the more subtle, more fair, and less flamboyant commentary of Joseph Stiglitz. He is a Nobel Laureate and author of the book “Freefall”. The book offers a more balanced assessment of the world economy that Krugman seemingly has lost the ability to do.
I’m saddened that my present judgment of Paul Krugman is so harsh. I really did like the guy a few years ago.
Best Regards.
I have always respected Krugman as an economist. He just doesn't seem to do too much serious economic research any longer; I am not familiar with any recent probing research in his economic specialty area (international trade) from him. From my current readings he is a fully committed political pundit. That's too bad.
Also, as my reading list has expanded, I have become more a proponent of the Austrian school of economics. Less government is better government. It is not that government spending does not generate positive outcomes. It does.
However, it is a matter of competing efficiency. I believe the accumulated evidence demonstrates that private industry simply is a more efficient way to generate outcomes that enhance our GDP per person. Distributing bread is certainly a way to alleviate hunger in the short term, but allowing industry to build a bakery is a more efficient approach in the long run.
An easy book that illustrates the tradeoffs always necessary when addressing economic issues is Henry Hazlett's "Economics in One Lesson". Give it a try. Even if you disagree with his observations, the book clearly shows the other side of the Keynesian economic government pump-priming model.
Best Wishes.
The countries that implemented austerity are now looking at bigger budget deficits, ever shrinking demand and shrinking GDP. Thus more austerity measures will need to be implemented (if persuaded in the same path) and this process will continue until the economy is totally destroyed and hit bottom or there is a change of path as it looks like will start in France.
Without growth you can get out of this vicious cycle and without demand supply side economics will not work either.
You can disagree with Paul Krugment because of his political association but he has been more right than not.
The newly revised bible has replaced, "For I was hungry and you gave me something to eat" with "allow industry to build a bakery".
Hi Investor,
Sorry for my long delay in responding to your request for a more economically centered reply.
As you well know I am not an economist; like you, I have been trained as and practiced the engineering discipline. So I hesitate to challenge Krugman, a Noble winner in his specialty, on his home turf.
But I did not fully understand his argument that austerity had basically failed in the European nations. Keeping in mind the senseless and destructive riots by mostly government employees in those nations, I wondered about which austerity programs Krugman was referencing.
I certainly do have the patience, the resources, or the training to do my own basic research on this subject, so I punted, and searched for a reasonable reply that addressed this issue in a fairly honest manner. I submit this Link as a reply to your challenge:
http://blogs.telegraph.co.uk/news/nilegardiner/100153583/why-the-new-york-timess-paul-krugman-is-clueless-about-the-european-economic-crisis/
This article offers just another opinion. It is not a gospel embraced by the entire economics community.
I suspect you might not agree with all the points made by the author. I do not. This is a controversial subject that has no immediate or easy answer. It is a complex, nonlinear problem with many moving, highly connected parts. All its feedback loops, both positive and negative, can not be fully identified nor modeled.
Most likely, compromise approaches will be attempted. Outcomes can not be confidently projected. That’s the nature of the “dismal” science. I’m happy I did not enter the economics field.
I surely do not know the answers; I’m not convinced that anyone really does.
Best Wishes.
Krugman has identified an issue but it's one of those myths that the spin doctors are producing. Oh, if we demonstrate fiscal responsibility and constraint - that we're getting our financial houses in tiptop order - everyone will feel good and things will turn rosey.
Rubbish. It's not unlike the bs myth of Supply Side Economics. What utter drek. Witness Bush Jr. tax cuts - reward investors in new P&E with CapEx writeoffs, make the cost of money around - dare we say it, 'zero' - give all these guys more money . . . and it will trickle down. Yeah. If my current plant is at 75% capacity, I don't care if money is free, I'm not building another plant. You need demand and Supply Side Econ ignores it. The buzz term these days is 'lack of aggregate demand'. No demand for widgits and we don't need any more widgit makers.
And it still goes back to Unfunded Liabilities and how gov'ts are going to pay the bloody tab. How much can you cut benefits and break contracts and promises vs. how much can you raise taxes vs. how much you can monetize the bill.
and so it goes,
peace,
rono
Ron Paul vs Paul Krugman:
http://www.bloomberg.com/video/91689761/