[FoRK] Krugman in NYT: The Third Depression

Jeff Bone jbone at place.org
Mon Jun 28 09:43:56 PDT 2010

On Jun 28, 2010, at 9:56 AM, geege schuman wrote:

> Heard this and something else yesterday that I'm still trying to find.
> Argument re timing.
> http://www.npr.org/templates/story/story.php?storyId=128143091
> Geege

Yup, there's the small matter of that.

Look, if we could simply manufacture new money out of thin air without consequences, and / or borrow endlessly from the future without consequences, I'd be all for more spending right now.  That's the problem with the Keynesian solution, though:  you can't do either without consequences, and they generally ignore this entirely.  It's a completely myopic, short-term and naive viewpoint.  The only way to increase net value in the system in a stable fashion is through increasing productivity;  and that takes capital.  Every mechanism for increasing government spending today robs capital, putting it to less-productive short-term use than its long-term value if deployed in a discretionary manner.  It's ironic, as you'd think the government *should* be able to manage the longer term better than a distributed set of private interests, but the evidence is clear and led us away from Keynes 30 years ago, before our recent relapse.  

Under stimulus, you inevitably see a temporary bump, but at significant cost --- value is being immediately borrowed from the future and then used to redistribute the *static amount of value in the system today* more than to truly augment it.  It is expended in forcing the market into new temporary equilibrium, rather than being truly invested in new future product / value.  No new, durable net present value is created, and future net value is reduced even assuming payback.  Protracted periods of e.g. stagflation in the 70s, on the heals of the 60s, should give us some clue.  Only I fear we're in worse shape today than we were at the onset of that, as the outcome is less meta-stable.

Thank you, Greece et. al.!  Because of you, at least *some* folks are beginning to look at the entire picture rather than religiously following some recipe that was described largely in qualitative and philosophical rather than quantitative and scientific terms the better part of a century ago.  (Keynes' General Theory does introduce a few quantitative measures and relationships, but if they'd been the bulk of his presentation it would've been a thick pamphlet rather than the ~400 pages for which it drones on...)


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