Krugman's very very simple solution to end this depression

[EdwardBaiamonte]

I think it would probably help to actually get people consistently paying jobs

yes and you would do that by fixing the housing crisis and getting rid of the socialist president who had 2 communist parents and voted to the left of Bernie Sanders.

 

[NeoTemplar]

I think it would probably help to actually get people consistently paying jobs

yes and you would do that by fixing the housing crisis and getting rid of the socialist president who had 2 communist parents and voted to the left of Bernie Sanders.

I thought that was a given so i didn't say anything about it.

 

[The Rabbi]

I think it would probably help to actually get people consistently paying jobs so they can get off unemployment and stop draining the already empty federal budget and make local businesses hire locally and go from there up, of course this is just me and economics was never my best subject.

That's crazy talk around here, son.

 

[ilia25]

dear, try to imagine what would happen if it took the auto industry years to complete each sale!!

But that is exactly my point -- auto industry is struggling too, as any other sector in the economy.

too stupid!!!!! the auto industry is struggling because of the liberal housing crisis. Thats why we say it is a housing crisis not an auto crisis.

And housing is struggling because we have high unemployment in every other sector of the economy. And that is why it remains depressed -- it is a state of equilibrium. Underperforming of one part of the economy ensures underperforming of other parts.

 

[Middleoftheroad]

...Spain cut spending this year, they immediately went into a recession. Greece cut spending twice, both times, they went into a recession...

--and over the past 70 years the US has cut spending nine times and not once did it cause a recession. Must not be spending cuts that cause recessions.

Then again Spain, Greece, and the US elected socialist governments and all three have crippled economies. Must be socialism.

Yes not one of these time every led to a recession. That is if you choose to ignore the recessions that happened during these times. The post WWII recession GDP fell 12%. Real GDP per capita tumbled and wouldn't rise again until the korean war. Most times this isn't called a recession it is referred to as "sui generis" or end of war recession. Real GDP per capita wouldn't reach its 1944 high for 10 years and wouldn't show any significant improvements until the 1960's, during which time 6 of your 9 years of cuts happened. In reality the economy didn't really get going again (strong growth per capita) until we became heavily involved in the Vietnam war.
Long-term real growth in US GDP per capita 1871-2009

 

[Widdekind]

You're equating private lending and borrowing with public "borrowing" from the public's children to fund things "needed"... We have infrastructure, schools, etc. What you're asking for is for the govt. to take the nation further into debt by borrowing money from china to pay for things we can not afford...

you're being hypocritical. When a business borrows money for new investments, it already has old investments (old machines, old factories). Yet, new investments (new machines, new factories) are often more productive, more profitable, and worthwhile

we have high unemployment and "significantly below potential" GDP?

that's called "Okun's Law", labor works & wields the machines that produce output; so less employment (of labor) implies less production (GDP)

Japan recovered in the 1990's?

...

I guess Japan's lost 2 Decades were a sign of Stimulus success, just like FDR Depression and Obama's Deep recession

Japan's "lost decade" was a sign of how huge their real-estate bubble had been in the late 1980s. According to Richard Koo, the Japanese lost the equivalent of 3 years of GDP, in the bubble collapse. Japanese businesses took 15 years to pay down their debts, back out of bankruptcy. Fiscal stimulus, by the Japanese government, "took up the slack" for those 15 years, to keep the economy running. The Japanese twice tried "austerity" instead (1997, 2001), and both times their economy recessed for over a year. So, without those budget-balancing "Fiscal consolidations", Japan could have recovered years earlier

The problem is that we have high unemployment and depressed economic output because of low level of spending by the private sector. And yet private sector has tons of cash, but it prefers to park it in zero-interest assets or accounts rather than spending it, or investing in expansion of production capacity.

There are two ways out. First we can encourage the private sector spending by a credible treat of higher inflation down the road. Second, the government can borrow the excess of private sector saving (at current low interest rates) and spend it on infrastructure,
research, weapons and so on. Either way it will cause the unemployment to drop and will start a virtuous cycle of increasing private sector spending, so making unemployment lower and so encouraging the private sector to spend more.

"in theory", if-and-only-if the money is spent specifically the way(s) you state -- on profitable Public (large-scale) investments. Evidently, "in practice" has confused people about the potential of Fiscal stimulus

People are in serious debt, they are not "parking lots of money" anywhere.

where did the money go? The US money supply did not contract after 2008. Most people & businesses may be in debt; but some people or businesses (and foreign central banks) still have lots of money, in their accounts. Interest-rates are low, so lots of money could be borrowed, for low interest-payments.

Repeal regulations across the board, along with subsidies. Cut the minium wage law out, cut out the hiring taxes imposed by govt. Business required insurance coverages, and a host of other taxations that keep businesses from bothering and you will see massive improvements without collecting a single additional tax dollar except the fact people will get back to work and start paying them again.

Taxes & regulations inhibit business

Stimulus didn't work after WWII, they didn't work all nine times the japanese tried them in the 90s and they did not work for us un 2008-09.

WWII was an effective stimulus, for the US economy. And, Fiscal stimulus worked for the Japanese in the 1990s, every time they tried it -- only budget balancing, in 1997 & 2001, threw them back into recession. Actual true Fiscal stimulus works

your income is someone else's spending. So if everyone starts spending less, your income drops and your debt problems get worse even as you are cutting your own expenditures.

that's called "the Paradox of Thrift"

 

[ilia25]

"in theory", if-and-only-if the money is spent specifically the way(s) you state -- on profitable Public (large-scale) investments.

Why put this condition? The purpose of the stimulus is to lowering unemployment temporary, which in turn will start the virtuous cycle. Whether the investment will be profitable later on is completely irrelevant.

Also, what is the meaning of profitable? Is building weapons profitable? What about a particle accelerator or a space telescope?

your income is someone else's spending. So if everyone starts spending less, your income drops and your debt problems get worse even as you are cutting your own expenditures.

that's called "the Paradox of Thrift"

Yup. And the keyword here is "paradox". This is what people should remember before claiming that Keynesian approach does not make sense.

 

[expat_panama]

...Any cut in goverment spending harms a depressed economy...

...In 1946 the GDP shrank 12%. Far worse than today's performance...

...In 46 the economy was not depressed -- meaning low unemployment...

Sounds like you're maybe saying that when unemployment's high and spending is cut then unemployment gets worse. Historical unemployment/spending levels show it's a fantasy and I imagine that if anyone bothered to post examples of spending cuts of say, 30% --followed by plunging unemployment, then you'd be able to change what you meant and come up with more excuses.

Or maybe you're saying something else. Vague talk may work for excusing an adopted political creed but it's worthless in business when the rest's due.

 

[EdwardBaiamonte]

And housing is struggling because we have high unemployment in every other sector of the economy.

way too stupid!!! its a housing crisis or depression. Its takes years to complete a sale in housing and minutes in the auto industry!! Housing is the cause or disease , autos and the rest of economy is the symptom.

The liberal is fully displaying his pure ignorance.

 

[EdwardBaiamonte]

If you try spending cuts when unemployment is high, you turn into Greece or Ireland.

too stupid but perfectly liberal! if the government doesn't steal and waste the money on make-work Solyndra bridges to no where the private sector has it to create real economic growth and end the depression.

The Golden Rule is: the more soviet the spending is the more the economy declines.

 

[ERGO]

The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

The Myth that Private Debt Doesn’t Matter

Before we can address the myth about how banks make loans and as a way to understand the deadly effect of that misconception, we need to talk about debt.
As economics professor Steve Keen documents in his must-read book, Debunking Economics: The Naked Emperor Dethroned, mainstream economists - from both the left and the right – don’t even take debt into consideration in their models of what makes for healthy economies.

As Keen noted in September:
The vast majority of economists were taken completely by surprise by this crisis—including not just … the ubiquitous “market economists” that pepper the evening news, but the big fish of academic, professional and regulatory economics as well.
Why did conventional economists not see this crisis coming, while I and a handful of non-orthodox economists did [?] Because we focus upon the role of private debt, while they, for three main reasons, ignore it:
They believed that the level of private debt—and therefore also its rate of change—had no major macroeconomic significance:

Finally, the most remarkable reason of all is that debt, money and the financial system itself play no role in conventional neoclassical economic models. Many non-economists expect economists to be experts on money, but the belief that money is merely a “veil over barter”—and that therefore the economy can be modeled without taking into account money and how it is created—is fundamental to neoclassical economics. Only economic dissidents from other schools of thought … take money seriously, and only a handful of them—including myself

Solving the Paradox of Monetary Profits — Economics E-Journal

Even the most “avant-garde” of neoclassical economists … have only just begun to consider the role that debt might play in the economy ….
In other words, most economists think that debt – and our money system – don’t matter.

L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City. Wray is one of the country’s top experts on money creation.

Wray is the author of Money and Credit in Capitalist Economies, 1990, and Understanding Modern Money: The Key to Full Employment and Price Stability, 1998. He is also coeditor of, and a contributor to, Money, Financial Instability, and Stabilization Policy, 2006, and Keynes for the 21st Century: The Continuing Relevance of The General Theory, 2008.


Wray was asked:
As you might have heard – Paul Krugman argues that banks only loan out based upon their deposits, while Steve Keen argues that loans are created through double entry bookkeeping, so that money is created endogenously [i.e. banks create their own money].

For example, here is Scott Fullwiler’s (Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College) take on the debate: Scott Fullwiler: Krugman or The Keen/Krugman Debate: A Summary « Unlearning Economics


As a leading expert on modern monetary theory, who do you think is right? Do banks need deposits before they can lend … or do they lend regardless of deposits, and only bounded by reserve and capital requirements (or access to Fed monies)?

Wray responded:

Bank deposits are bank IOUs; an IOU can only come from the issuer. Where do your IOUs come from? Do you borrow them? NO. [Professor] Scott [Fullwiler] is right, Krugman does not know what he is talking about.

Indeed, economics professor and money expert Fullwiler says that Krugman should wear a flashing neon sign saying “I don’t know what I’m talking about”, and explains:

As is well known, and by the logic of double-entry accounting, the bank does make a loan out of thin air—no prior deposits or reserves necessary.

[Krugman writes:]
And currency is in limited supply — with the limit set by Fed decisions.

This statement is simply mindboggling. It’s so wrong I don’t know where to begin. The Fed NEVER limits the supply of currency. Never. Ever. To do otherwise would be to violate its mandate in the Federal Reserve Act to provide for an elastic currency and maintain stability of the payments system.

Economics professor Michael Hudson also slams Krugman for having a blindspot on debt:

Mr. Krugman’s failure to see today’s economic problem as one of debt deflation reflects his failure (suffered by most economists, to be sure) to recognize the need for debt writedowns, for restructuring the banking and financial system, and for shifting taxes off labor back onto property, economic rent and asset-price (“capital&#8221 gains. The effect of his narrow set of recommendations is to defend the status quo – and for my money, despite his reputation as a liberal, that makes Mr. Krugman a conservative. I see little in his logic that would oppose Rubinomics, which has remained the Democratic Party’s program under the Obama administration.

Mr. Krugman got lost in the black hole of banking, finance and international trade theory that has engulfed so many neoclassical and old-style Keynesian economists. Last month Mr. Krugman insisted that banks do not create credit, except by borrowing reserves that (in his view) merely shifts lending savings from wealthy people to those with a higher propensity to consume. Criticizing Steve Keen (who has just published a second edition of his excellent Debunking Economics to explain the dynamics of endogenous money creation), he wrote:

Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.Keen says that it’s because once you include banks, lending increases the money supply. OK, but why does that matter? He seems to assume that aggregate demand can’t increase unless the money supply rises, but that’s only true if the velocity of money is fixed;

But “velocity” is just a dummy variable to “balance” any given equation – a tautology, not an analytic tool. As a neoclassical economist, Mr. Krugman is unwilling to acknowledge that banks not only create credit; in doing so, they create debt. That is the essence of balance sheet accounting. But … Krugman offers the mythology of banks that can only lend out money taken in from depositors (as though these banks were good old-fashioned savings banks or S&Ls, not what Mr. Keen calls “endogenous money creators&#8221. Banks create deposits electronically in the process of making loans.

Source link:The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

 

[EdwardBaiamonte]

The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

The Myth that Private Debt Doesn’t Matter

Before we can address the myth about how banks make loans and as a way to understand the deadly effect of that misconception, we need to talk about debt.
As economics professor Steve Keen documents in his must-read book, Debunking Economics: The Naked Emperor Dethroned, mainstream economists - from both the left and the right – don’t even take debt into consideration in their models of what makes for healthy economies.

As Keen noted in September:
The vast majority of economists were taken completely by surprise by this crisis—including not just … the ubiquitous “market economists” that pepper the evening news, but the big fish of academic, professional and regulatory economics as well.
Why did conventional economists not see this crisis coming, while I and a handful of non-orthodox economists did [?] Because we focus upon the role of private debt, while they, for three main reasons, ignore it:
They believed that the level of private debt—and therefore also its rate of change—had no major macroeconomic significance:

Finally, the most remarkable reason of all is that debt, money and the financial system itself play no role in conventional neoclassical economic models. Many non-economists expect economists to be experts on money, but the belief that money is merely a “veil over barter”—and that therefore the economy can be modeled without taking into account money and how it is created—is fundamental to neoclassical economics. Only economic dissidents from other schools of thought … take money seriously, and only a handful of them—including myself

Solving the Paradox of Monetary Profits — Economics E-Journal

Even the most “avant-garde” of neoclassical economists … have only just begun to consider the role that debt might play in the economy ….
In other words, most economists think that debt – and our money system – don’t matter.

L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City. Wray is one of the country’s top experts on money creation.

Wray is the author of Money and Credit in Capitalist Economies, 1990, and Understanding Modern Money: The Key to Full Employment and Price Stability, 1998. He is also coeditor of, and a contributor to, Money, Financial Instability, and Stabilization Policy, 2006, and Keynes for the 21st Century: The Continuing Relevance of The General Theory, 2008.


Wray was asked:
As you might have heard – Paul Krugman argues that banks only loan out based upon their deposits, while Steve Keen argues that loans are created through double entry bookkeeping, so that money is created endogenously [i.e. banks create their own money].

For example, here is Scott Fullwiler’s (Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College) take on the debate: Scott Fullwiler: Krugman or The Keen/Krugman Debate: A Summary « Unlearning Economics


As a leading expert on modern monetary theory, who do you think is right? Do banks need deposits before they can lend … or do they lend regardless of deposits, and only bounded by reserve and capital requirements (or access to Fed monies)?

Wray responded:

Bank deposits are bank IOUs; an IOU can only come from the issuer. Where do your IOUs come from? Do you borrow them? NO. [Professor] Scott [Fullwiler] is right, Krugman does not know what he is talking about.

Indeed, economics professor and money expert Fullwiler says that Krugman should wear a flashing neon sign saying “I don’t know what I’m talking about”, and explains:

As is well known, and by the logic of double-entry accounting, the bank does make a loan out of thin air—no prior deposits or reserves necessary.

[Krugman writes:]
And currency is in limited supply — with the limit set by Fed decisions.

This statement is simply mindboggling. It’s so wrong I don’t know where to begin. The Fed NEVER limits the supply of currency. Never. Ever. To do otherwise would be to violate its mandate in the Federal Reserve Act to provide for an elastic currency and maintain stability of the payments system.

Economics professor Michael Hudson also slams Krugman for having a blindspot on debt:

Mr. Krugman’s failure to see today’s economic problem as one of debt deflation reflects his failure (suffered by most economists, to be sure) to recognize the need for debt writedowns, for restructuring the banking and financial system, and for shifting taxes off labor back onto property, economic rent and asset-price (“capital”) gains. The effect of his narrow set of recommendations is to defend the status quo – and for my money, despite his reputation as a liberal, that makes Mr. Krugman a conservative. I see little in his logic that would oppose Rubinomics, which has remained the Democratic Party’s program under the Obama administration.

Mr. Krugman got lost in the black hole of banking, finance and international trade theory that has engulfed so many neoclassical and old-style Keynesian economists. Last month Mr. Krugman insisted that banks do not create credit, except by borrowing reserves that (in his view) merely shifts lending savings from wealthy people to those with a higher propensity to consume. Criticizing Steve Keen (who has just published a second edition of his excellent Debunking Economics to explain the dynamics of endogenous money creation), he wrote:

Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.Keen says that it’s because once you include banks, lending increases the money supply. OK, but why does that matter? He seems to assume that aggregate demand can’t increase unless the money supply rises, but that’s only true if the velocity of money is fixed;

But “velocity” is just a dummy variable to “balance” any given equation – a tautology, not an analytic tool. As a neoclassical economist, Mr. Krugman is unwilling to acknowledge that banks not only create credit; in doing so, they create debt. That is the essence of balance sheet accounting. But … Krugman offers the mythology of banks that can only lend out money taken in from depositors (as though these banks were good old-fashioned savings banks or S&Ls, not what Mr. Keen calls “endogenous money creators”). Banks create deposits electronically in the process of making loans.

Source link:The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

do you have any thoughts on OP??????????????????????????????

 

[ERGO]

The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

The Myth that Private Debt Doesn’t Matter

Before we can address the myth about how banks make loans and as a way to understand the deadly effect of that misconception, we need to talk about debt.
As economics professor Steve Keen documents in his must-read book, Debunking Economics: The Naked Emperor Dethroned, mainstream economists - from both the left and the right – don’t even take debt into consideration in their models of what makes for healthy economies.

As Keen noted in September:
The vast majority of economists were taken completely by surprise by this crisis—including not just … the ubiquitous “market economists” that pepper the evening news, but the big fish of academic, professional and regulatory economics as well.
Why did conventional economists not see this crisis coming, while I and a handful of non-orthodox economists did [?] Because we focus upon the role of private debt, while they, for three main reasons, ignore it:
They believed that the level of private debt—and therefore also its rate of change—had no major macroeconomic significance:

Finally, the most remarkable reason of all is that debt, money and the financial system itself play no role in conventional neoclassical economic models. Many non-economists expect economists to be experts on money, but the belief that money is merely a “veil over barter”—and that therefore the economy can be modeled without taking into account money and how it is created—is fundamental to neoclassical economics. Only economic dissidents from other schools of thought … take money seriously, and only a handful of them—including myself

Solving the Paradox of Monetary Profits — Economics E-Journal

Even the most “avant-garde” of neoclassical economists … have only just begun to consider the role that debt might play in the economy ….
In other words, most economists think that debt – and our money system – don’t matter.

L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City. Wray is one of the country’s top experts on money creation.

Wray is the author of Money and Credit in Capitalist Economies, 1990, and Understanding Modern Money: The Key to Full Employment and Price Stability, 1998. He is also coeditor of, and a contributor to, Money, Financial Instability, and Stabilization Policy, 2006, and Keynes for the 21st Century: The Continuing Relevance of The General Theory, 2008.


Wray was asked:
As you might have heard – Paul Krugman argues that banks only loan out based upon their deposits, while Steve Keen argues that loans are created through double entry bookkeeping, so that money is created endogenously [i.e. banks create their own money].

For example, here is Scott Fullwiler’s (Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College) take on the debate: Scott Fullwiler: Krugman or The Keen/Krugman Debate: A Summary « Unlearning Economics


As a leading expert on modern monetary theory, who do you think is right? Do banks need deposits before they can lend … or do they lend regardless of deposits, and only bounded by reserve and capital requirements (or access to Fed monies)?

Wray responded:

Bank deposits are bank IOUs; an IOU can only come from the issuer. Where do your IOUs come from? Do you borrow them? NO. [Professor] Scott [Fullwiler] is right, Krugman does not know what he is talking about.

Indeed, economics professor and money expert Fullwiler says that Krugman should wear a flashing neon sign saying “I don’t know what I’m talking about”, and explains:

As is well known, and by the logic of double-entry accounting, the bank does make a loan out of thin air—no prior deposits or reserves necessary.

[Krugman writes:]
And currency is in limited supply — with the limit set by Fed decisions.

This statement is simply mindboggling. It’s so wrong I don’t know where to begin. The Fed NEVER limits the supply of currency. Never. Ever. To do otherwise would be to violate its mandate in the Federal Reserve Act to provide for an elastic currency and maintain stability of the payments system.

Economics professor Michael Hudson also slams Krugman for having a blindspot on debt:

Mr. Krugman’s failure to see today’s economic problem as one of debt deflation reflects his failure (suffered by most economists, to be sure) to recognize the need for debt writedowns, for restructuring the banking and financial system, and for shifting taxes off labor back onto property, economic rent and asset-price (“capital”) gains. The effect of his narrow set of recommendations is to defend the status quo – and for my money, despite his reputation as a liberal, that makes Mr. Krugman a conservative. I see little in his logic that would oppose Rubinomics, which has remained the Democratic Party’s program under the Obama administration.

Mr. Krugman got lost in the black hole of banking, finance and international trade theory that has engulfed so many neoclassical and old-style Keynesian economists. Last month Mr. Krugman insisted that banks do not create credit, except by borrowing reserves that (in his view) merely shifts lending savings from wealthy people to those with a higher propensity to consume. Criticizing Steve Keen (who has just published a second edition of his excellent Debunking Economics to explain the dynamics of endogenous money creation), he wrote:

Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.Keen says that it’s because once you include banks, lending increases the money supply. OK, but why does that matter? He seems to assume that aggregate demand can’t increase unless the money supply rises, but that’s only true if the velocity of money is fixed;

But “velocity” is just a dummy variable to “balance” any given equation – a tautology, not an analytic tool. As a neoclassical economist, Mr. Krugman is unwilling to acknowledge that banks not only create credit; in doing so, they create debt. That is the essence of balance sheet accounting. But … Krugman offers the mythology of banks that can only lend out money taken in from depositors (as though these banks were good old-fashioned savings banks or S&Ls, not what Mr. Keen calls “endogenous money creators”). Banks create deposits electronically in the process of making loans.

Source link:The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

do you have any thoughts on OP??????????????????????????????

read

C'mon...You couldn't have read this commentary in that short of time. You're a knee jerk reactionary with an ego that assumes your Idol Krugman can never be wrong and therefore what you espouse is sound economic principles. I guarantee you I understand what I have just put forth way better than you!

 

[EdwardBaiamonte]

The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

The Myth that Private Debt Doesn’t Matter

Before we can address the myth about how banks make loans and as a way to understand the deadly effect of that misconception, we need to talk about debt.
As economics professor Steve Keen documents in his must-read book, Debunking Economics: The Naked Emperor Dethroned, mainstream economists - from both the left and the right – don’t even take debt into consideration in their models of what makes for healthy economies.

As Keen noted in September:
The vast majority of economists were taken completely by surprise by this crisis—including not just … the ubiquitous “market economists” that pepper the evening news, but the big fish of academic, professional and regulatory economics as well.
Why did conventional economists not see this crisis coming, while I and a handful of non-orthodox economists did [?] Because we focus upon the role of private debt, while they, for three main reasons, ignore it:
They believed that the level of private debt—and therefore also its rate of change—had no major macroeconomic significance:

Finally, the most remarkable reason of all is that debt, money and the financial system itself play no role in conventional neoclassical economic models. Many non-economists expect economists to be experts on money, but the belief that money is merely a “veil over barter”—and that therefore the economy can be modeled without taking into account money and how it is created—is fundamental to neoclassical economics. Only economic dissidents from other schools of thought … take money seriously, and only a handful of them—including myself

Solving the Paradox of Monetary Profits — Economics E-Journal

Even the most “avant-garde” of neoclassical economists … have only just begun to consider the role that debt might play in the economy ….
In other words, most economists think that debt – and our money system – don’t matter.

L. Randall Wray is a professor of economics and research director of the Center for Full Employment and Price Stability at the University of Missouri–Kansas City. Wray is one of the country’s top experts on money creation.

Wray is the author of Money and Credit in Capitalist Economies, 1990, and Understanding Modern Money: The Key to Full Employment and Price Stability, 1998. He is also coeditor of, and a contributor to, Money, Financial Instability, and Stabilization Policy, 2006, and Keynes for the 21st Century: The Continuing Relevance of The General Theory, 2008.


Wray was asked:
As you might have heard – Paul Krugman argues that banks only loan out based upon their deposits, while Steve Keen argues that loans are created through double entry bookkeeping, so that money is created endogenously [i.e. banks create their own money].

For example, here is Scott Fullwiler’s (Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College) take on the debate: Scott Fullwiler: Krugman or The Keen/Krugman Debate: A Summary « Unlearning Economics


As a leading expert on modern monetary theory, who do you think is right? Do banks need deposits before they can lend … or do they lend regardless of deposits, and only bounded by reserve and capital requirements (or access to Fed monies)?

Wray responded:

Bank deposits are bank IOUs; an IOU can only come from the issuer. Where do your IOUs come from? Do you borrow them? NO. [Professor] Scott [Fullwiler] is right, Krugman does not know what he is talking about.

Indeed, economics professor and money expert Fullwiler says that Krugman should wear a flashing neon sign saying “I don’t know what I’m talking about”, and explains:

As is well known, and by the logic of double-entry accounting, the bank does make a loan out of thin air—no prior deposits or reserves necessary.

[Krugman writes:]
And currency is in limited supply — with the limit set by Fed decisions.

This statement is simply mindboggling. It’s so wrong I don’t know where to begin. The Fed NEVER limits the supply of currency. Never. Ever. To do otherwise would be to violate its mandate in the Federal Reserve Act to provide for an elastic currency and maintain stability of the payments system.

Economics professor Michael Hudson also slams Krugman for having a blindspot on debt:

Mr. Krugman’s failure to see today’s economic problem as one of debt deflation reflects his failure (suffered by most economists, to be sure) to recognize the need for debt writedowns, for restructuring the banking and financial system, and for shifting taxes off labor back onto property, economic rent and asset-price (“capital”) gains. The effect of his narrow set of recommendations is to defend the status quo – and for my money, despite his reputation as a liberal, that makes Mr. Krugman a conservative. I see little in his logic that would oppose Rubinomics, which has remained the Democratic Party’s program under the Obama administration.

Mr. Krugman got lost in the black hole of banking, finance and international trade theory that has engulfed so many neoclassical and old-style Keynesian economists. Last month Mr. Krugman insisted that banks do not create credit, except by borrowing reserves that (in his view) merely shifts lending savings from wealthy people to those with a higher propensity to consume. Criticizing Steve Keen (who has just published a second edition of his excellent Debunking Economics to explain the dynamics of endogenous money creation), he wrote:

Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.Keen says that it’s because once you include banks, lending increases the money supply. OK, but why does that matter? He seems to assume that aggregate demand can’t increase unless the money supply rises, but that’s only true if the velocity of money is fixed;

But “velocity” is just a dummy variable to “balance” any given equation – a tautology, not an analytic tool. As a neoclassical economist, Mr. Krugman is unwilling to acknowledge that banks not only create credit; in doing so, they create debt. That is the essence of balance sheet accounting. But … Krugman offers the mythology of banks that can only lend out money taken in from depositors (as though these banks were good old-fashioned savings banks or S&Ls, not what Mr. Keen calls “endogenous money creators”). Banks create deposits electronically in the process of making loans.

Source link:The Biggest Myth Preventing an Economic Recovery: "Private Debt Doesn't Matter"

do you have any thoughts on OP??????????????????????????????

read

C'mon...You couldn't have read this commentary in that short of time. You're a knee jerk reactionary with an ego that assumes your Idol Krugman can never be wrong and therefore what you espouse is sound economic principles. I guarantee you I understand what I have just put forth way better than you!

do you have any thoughts on OP? We can all cut and paste! What do you think??????

 

[ilia25]

And housing is struggling because we have high unemployment in every other sector of the economy.

way too stupid!!! its a housing crisis or depression. Its takes years to complete a sale in housing and minutes in the auto industry!!

So when was the last time you were talking to a doctor?

 

[Mustang]

Well, since nobody else has reviewed the book (based on actually having read it), I guess I might as well do it.

I suppose that anyone who knows of Paul Krugman knows he's a columnist for economic and political matters (they're often interrelated) at the NYT, an unabashed Keynesian economist, an author of several books, and a recent recipient of a Nobel Prize in economics in 2008, as well as an occasional TV pundit. He's also routinely denounced by conservatives for many, if not most, of his positions, which is a shame considering that, regarding economic policy, he's routinely taken on Democrats as well as Republicans for years simply because he dislikes bad economic policy, regardless of which political party is pushing it. I get the impression that's because he believes that, too often, public policy is championed for reasons other than its merits. For example, sometimes people push certain policies because they benefit one group or segment of society. Sometimes it's because it's an ideological belief. Sometimes it's simply a lack of a working knowledge of both economics and the historical record of what has worked and what didn't work in previous recessions.

While I've read the occasional column by Krugman, I had never read any of his books. This particular book was just published (April 30, 2012) and it seemed timely considering the current ongoing debate on how to revive the economy. I was also struck by the title (which I don't particular like) because I perceived it as essentially a plea for attention, or at least for serious consideration. But Krugman's title is meant more to describe the human toll that the economic downturn is having on families as opposed to a textbook definition of the state of the economy.

In the book Krugman offers an explanation of our current economic crisis, how we got here, and how best to get out of it. In fact, he states several times that we really don't have to be going through this extended economic downturn at all. He offers historical perspective going back to before the great depression, and an analysis of differing approaches and offers his ideas for how best to solve our current economic problems.

The book is intentionally written for the layperson. While there are a few graphs and charts (I would have preferred more, frankly), there's no math or complicated economic theorems to make the eyes glaze over. It's basically written in a very straightforward style.

Of course Krugman discusses the concept of austerity and the notion of cutting back on national debt immediately as a way of addressing our current problems. And needless to say, Krugman is highly critical of that approach. He offers several example of how and why those policies would have the exact opposite of the intended consequences. Said plainly, Krugman states that such policies will only serve to dig us into a deeper hole. (But that doesn't mean our country won't try it anyway, does it?).

That's not to say that Krugman doesn't think that our huge debt problem needs to be addressed. He does. He just doesn't think it's anywhere near being our most pressing problem, and he offers economic numbers to support his case. And like I said earlier, he says that attacking the debt problem at the wrong time (now) will only make our worst problem (the anemic recovery) worse still.

Krugman also tackles a number of economic myths, both American and European, which he says are getting in the way of solving the economic problems simply because the decision makers don't have an accurate understanding of what the problem is. And as everyone knows, if you don't identify the core problem and how and why it developed in the first place, you're probably not going to make any progress in solving the problem unless blind luck or providence lend a hand.

One of the European myths Krugman tackles is that all the European countries are in trouble because of profligate spending. Untrue, he says. While some countries like Greece have caused many of their own problems, other countries like Spain had actually been paying down their debt relative to GDP for years when the economic crisis struck. In other words, it was the economic crisis which led to the debt crisis, not the other way around.

The one part of the book that I found particular surprising (don't ask me why) was Krugman's chapter on Austerians (Ch 11) where he gives a number of reasons why people embrace austerity. Of course ignorance of economics and history both play a role. Krugman also makes a good case that there's an emotional desire to 'punish bad nations' by making them suffer for their perceived economic sins despite the fact that they're often not at fault for the problem and that it's a counterproductive approach. But more disturbing still is Krugman's belief that powerful people have an economic interest in preventing a recovery even though a recovery would also help them as well as everyone else. If true, I guess we should never underestimate the possibility that powerful people may have suspect motives when their self-interest conflicts with the common good.

Krugman also discusses why the European Union's adoption of the Euro as a common currency is causing so many problems for Europe. For example, he points out that if all the countries still had their own currencies, countries like Greece could devalue their currency relative to the rest of Europe, and that's now that's not an option for any country that uses the Euro.

Despite all the other reasons to read this book, it's worth reading if for no other reason than to better understand the nature of the liquidity trap in which we currently find ourselves, and that's tackled very early in the book.

It's only 238 pp, and it's a great primer in understanding our current economic doldrums.

 

[ERGO]

do you have any thoughts on OP??????????????????????????????

read

C'mon...You couldn't have read this commentary in that short of time. You're a knee jerk reactionary with an ego that assumes your Idol Krugman can never be wrong and therefore what you espouse is sound economic principles. I guarantee you I understand what I have just put forth way better than you!

do you have any thoughts on OP? We can all cut and paste! What do you think??????

I supplied information to back up my opinions that I posted back in March with which you called me a "conspiracy theorist", but you probably don't remember. You're getting on your high horse now and trying to make it look as though I'm just posting something I don't understand. This was in essence was I was opining on last March with which you vehemently denied had any credibility and stated that I didn't know what I was talking about.
People cut and paste all the time on this message board as a supplement to their opinions. Just because you don't, doesn't mean it's a bad thing to do.

So, what's you're response to the info I posted? Or is this you way of dodging the information I put forth that debunks some of Krugman's Keynesian ideology.

 

[EdwardBaiamonte]

And housing is struggling because we have high unemployment in every other sector of the economy.

way too stupid!!! its a housing crisis or depression. Its takes years to complete a sale in housing and minutes in the auto industry!!

So when was the last time you were talking to a doctor?

way too stupid!!! its a housing crisis or depression. Its takes years to complete a sale in housing and minutes in the auto industry!!

 

[EdwardBaiamonte]

So, what's you're response to the info I posted?

what info exactly???

 

[ERGO]

So, what's you're response to the info I posted?

what info exactly???

Now you're playing coy, GOOD BYE PHONEY!