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Is dissent still patriotic?
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Author Topic: Is dissent still patriotic?  (Read 16176 times)
wodan46
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« Reply #45 on: March 10, 2009, 14:33:46 EDT »

No, the Japan failure was a whole lot deeper then that.
Eh, I'm just going off what some guy on a bus told me.  He was a public policy major who seems to have a strong knowledge of what's happening in other countries.

Instead of throwing money into the economy, take money out, take one in the jaw and pray to Jude Law you can stay through it.
I'm sure that would've worked really well in the Great Depression.  We got out of the Depression first by the New Deal, which involved spending oodles of money on providing stuff for people to do, and then by World War 2, which involved spending even bigger oodles of money on providing even more stuff for people to do.  Those who dislike the New Deal missed the part where unemployment was about halfway solved by it.
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The plural of "anecdote" is "anecdotes". Not "data".
Current
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« Reply #46 on: March 10, 2009, 14:48:27 EDT »

What about questioning the stimulus plan full stop? 

If that questioning contains alternative approaches and realistic estimates about their possible outcomes, no problem.

Questioning it on the basis of ideology alone, using untenable premises when making estimates and turning a blind eye on possible failure modes, however, would fall under destructive criticism.
Fair enough.

From what I've heard, the reason the stimulus has been rushed i because a similar plan in Japan was believed to have failed specifically because they did not rush it, and that they concluded that if they had spent the money earlier, it would've cost them much less overall.  Then again, everyone has their own interpretations of what things mean.
Yes, that is the reason cited.  Keynesians say that the Japanese stimulus didn't work because it wasn't implemented quickly enough.

On the subject of critcism, Current, you and your libertarians say that we should do nothing as a solution, that we should just let the bad parts of the economy die rather than keep them propped up.  I'll admit that is actually quite constructive.
Good.

The problem with that is that when the bad parts of the economy die, the good parts do as well, and that without government interference, bad parts will often be able to sustain themselves far longer than they would otherwise.  The bailout/stimulus is about propping up the good parts even as we let the bad parts die.
Well, I certainly consider that "constructive criticism" of the stimulus proposal.

What I would say though is firstly that the bailouts are not letting the bad businesses suffer very much.  Look at the big three car companies, for example.

I agree that there will be knock on effects to letting bad businesses die.  Other businesses will see their trade disrupted.  Other businesses will also go bankrupt.

A stimulus though has similar effects.  The money for the stimulus may come from three sources.  If it comes from taxation the problem is obvious, the taxpayer suffers (and that has knock on effects).  If it comes from creating new money then the value of old money will decline, there will be price inflation.  If it comes from borrowing what we must remember is that both governments and businesses borrow.  From the funds available for loan governments will borrow more and businesses will have to be content to borrow less which will harm some expansion plans.

Now, the New Keynesians who are proposing the stimulus understand what I've said in the above paragraph, though they don't talk about it much.  But, they have reasons from New Keynesian economic theory to believe that the problems I mention above will be lesser than the benefits the stimulus will bring.

If you are interested the New Keynesian argument there is a good article about it by Greg Mankiw in the online Concise encyclopedia of economics.  Greg Mankiw was one of the creators of the theory and an economic adviser of G.W.B.  He wrote a book about it with another of its originators David Romer.  David Romer's wife Christina Romer is now the head of Obama's council of economic advisers.  I agree with most of what Mankiw says in his article.  But I think that the "unsticking" of the stickiness New Keynesians describe has other negative consequences, as described by Austrian economists.

All that said I think we agree on the parameters for useful debate.  To some extent anyway.

Addendum:
Quote from: wodan46
I'm sure that would've worked really well in the Great Depression.  We got out of the Depression first by the New Deal, which involved spending oodles of money on providing stuff for people to do, and then by World War 2, which involved spending even bigger oodles of money on providing even more stuff for people to do.  Those who dislike the New Deal missed the part where unemployment was about halfway solved by it.
The evidence isn't really that clear.  Certainly the New Deal occurred and there was growth, that though doesn't mean that the one caused the other.  The same is true of WWII, in that case it's even arguable how much real growth there was.
« Last Edit: March 10, 2009, 14:58:07 EDT by Current » Logged
Heq
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« Reply #47 on: March 11, 2009, 01:11:13 EDT »

Well, that and there is a lot more to a depression then just lack of jobs.

I mean, I could write up a package tommorow where everyone would be employed, but those tend to fall apart in the long run.  It's all very well and good to say that the New Deal was solving the problem, but the fact of the matter is the problem continued long after the new deal started up and if I was betting dollars to dracmas it was the shift to the lend-lease program which really changed who the US was in the world.

There is a difference in kind between being a debtor country to being a creditor country, and when the UK switched to being a debtor, it never recovered.

Anyway, I agree with Current there are going to be a lot of groups elbowed out by government borrowing, which will further reduce the liquidity in the economy (remember that the source of all this maelstrom was liquidity).  If I can get a Youtube channel up and running tommorow I`m going to post a really wierd little solution so in future my students can look back and be amazed at how brilliant I was.

Or....  You know, I can delete it and hope no-one remembers it.
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Medivh
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« Reply #48 on: March 11, 2009, 04:15:09 EDT »

Heh.

Memory holes don't work on the internets...
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And if i catch you comin' back my way
I'm gonna serve it to you
And that ain't what you want to hear
But that's what I'll do
-- "Seven Nation Army", The White Stripes

So what you're telling me is that LTV's fudge factor means more than it's independent variable?
Yes...
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« Reply #49 on: March 11, 2009, 09:06:58 EDT »

Quote from: Heq
which will further reduce the liquidity in the economy
One of the main reasons that credit is still so crunchy is because US banks are getting ready for stimulus plans to start.  Then they will lend money to the government.  The anticipation of secure government investment means that investors may as well wait for it, they don't need to run the risks of the private sector.

Given where the banks got their reserves this is all rather like the "Fight Club" method of making soap.
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Heq
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« Reply #50 on: March 11, 2009, 13:10:50 EDT »

Not to mention the incentive to figure out how much they actually have on their books is reduced, as the more nebulous the number the more cash they can squeeze out of the administration.
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DavidLeoThomas
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« Reply #51 on: March 11, 2009, 14:25:59 EDT »

A stimulus though has similar effects.  [...]  If it comes from creating new money then the value of old money will decline, there will be price inflation.

In this case, that may not be a problem.  The jolt our economy is experiencing is because a bunch of money evaporated.  Recreating that much money shouldn't push inflation higher than it was just before the bubble burst..
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Heq
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« Reply #52 on: March 11, 2009, 18:29:38 EDT »

The money actually didn't evaporate, that's the real problem.  A lot of percieved money was just never there, but because that percieved value was never actually used, just leveraged, it didn't chase goods and raise prices.

That being said a lot of that value is there, it's juts become a new game of hide the ball.  Were I a major financial institution right now I would want to crush down any outstanding cash and debt, so I cna show profitability lacking liquidity and get huge cash influxes from the government, after which I can "discover" that the "potentially toxic" assets were of value.

Hahahahah, ooops, well, I guess that would mean I'd just be left with a lot more money then I thought, and I don't know what I would possibly do with it.

What?  Spin off seperate entities under the guise of controlling the company which a CEO can buy into heavily and turn immediate profits once washington gets bored of watching (a year or two at most)...Why I would never contemplate such a thing unless it was through an off-shore paper company lacking any employees so I could also avoid taxes.
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DavidLeoThomas
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« Reply #53 on: March 11, 2009, 20:30:21 EDT »

The money actually didn't evaporate, that's the real problem.  A lot of percieved money was just never there, but because that percieved value was never actually used, just leveraged, it didn't chase goods and raise prices.

Physical currency didn't evaporate, no.  However, the amount of money chasing goods and raising prices, at any given time, is significantly determined by factors other than the amount of physical currency.  When banks thought they held that "perceived money" as a part of their assets, they were willing to loan out more of the money they held in deposit.  That money was chasing goods and raising prices, during the bubble. When that perception disappeared, the amount of money would shrink even if banks simply returned to holding a reasonable reserve outside times of trouble - it's actually gone further than that, as banks battened down the hatches for the oncoming storm.
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« Reply #54 on: March 11, 2009, 23:02:56 EDT »

Theoretically yes, actually...

Well, I'm not sure if unspent money enters into the economy and raises prices.  In theory the concept of having more money out there should do some fun stuff, but really...uh...

Yeah, we don't actually know how much money is out there, we can't even really ballpark it in a way anybody other then an economist would appreciate (750 Tril, give or take 200 Tril?).  See, in addition to the fact that US money floats around a lot of other semi-regulated economies without reserve rates (Canucks holla YO), the government has a nasty habit of lying.

In theory we know how much money was printed...kinda...and we can guess at how long it lasts, but even then you can call in Seth Myers to say "Really?" and everyone just shrugs and says "Maybe, huh?"

I was just thinking today, Donald Rumsfeld should be rehired as an economic advisor.

"This is an actable known unknown!"
"We know we may not know what we think we know, which is really unknowable."
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« Reply #55 on: March 12, 2009, 10:40:36 EDT »

Not to mention the incentive to figure out how much they actually have on their books is reduced, as the more nebulous the number the more cash they can squeeze out of the administration.
Yes.  In many cases it isn't really that hard for a bank to value most of it's position.

The money actually didn't evaporate, that's the real problem.  A lot of percieved money was just never there, but because that percieved value was never actually used, just leveraged, it didn't chase goods and raise prices.

That being said a lot of that value is there, it's juts become a new game of hide the ball.  Were I a major financial institution right now I would want to crush down any outstanding cash and debt, so I cna show profitability lacking liquidity and get huge cash influxes from the government, after which I can "discover" that the "potentially toxic" assets were of value.

Hahahahah, ooops, well, I guess that would mean I'd just be left with a lot more money then I thought, and I don't know what I would possibly do with it.

What?  Spin off seperate entities under the guise of controlling the company which a CEO can buy into heavily and turn immediate profits once washington gets bored of watching (a year or two at most)...Why I would never contemplate such a thing unless it was through an off-shore paper company lacking any employees so I could also avoid taxes.
That kind of stuff is already going on.  There have being instances of financial businesses buying other banks specifically to gain access to that banks bailout pool.

A stimulus though has similar effects.  [...]  If it comes from creating new money then the value of old money will decline, there will be price inflation.

In this case, that may not be a problem.  The jolt our economy is experiencing is because a bunch of money evaporated.  Recreating that much money shouldn't push inflation higher than it was just before the bubble burst..
The money actually didn't evaporate, that's the real problem.  A lot of percieved money was just never there, but because that percieved value was never actually used, just leveraged, it didn't chase goods and raise prices.

Physical currency didn't evaporate, no.  However, the amount of money chasing goods and raising prices, at any given time, is significantly determined by factors other than the amount of physical currency.  When banks thought they held that "perceived money" as a part of their assets, they were willing to loan out more of the money they held in deposit.  That money was chasing goods and raising prices, during the bubble. When that perception disappeared, the amount of money would shrink even if banks simply returned to holding a reasonable reserve outside times of trouble - it's actually gone further than that, as banks battened down the hatches for the oncoming storm.
Here things get complicated.

What you are both talking about is something similar to the Austrian theory of the business cycle or Minsky theory of it.

A tidy way of explaining it is "Net Present Value".  The NPV is the expected yield of an investment rebased to the present time.  During the boom investors estimated that the NPV of some assets is much larger than it is.  The reasons given for this vary, old Keynesians and followers of Minsky point to the "animal spirits" of the market as an explanation.  Austrian economists point to periods of artificially low interest rates.

Then come the subsequent effects on money.  The stock of physical money has not changed between before the crisis and after.  The interesting question is the stock of electronic money in bank accounts.  This money is "credit money".  It is based on loans and the fractional reserve multiplier.  This is what we pay our gas and electricity bill with, our rent, it substitutes for physical money.  If a proportion of debt is found to be bad then this causes a decrease in money supply.

There are several different ideas about what the next policy step should be....

Reflationists think that the credit money stock should be "reinflated" back to it's previous amount.  Monetarists and Keynesians both hold this view.  Most New Keynesians and Neoclassical economists do too.  Where they differ is in how to do it.  Monetarists recommend cutting the interest rate and increasing money stock.  Keynesians recommend a "stimulus" by deficit spending or deficit financed tax cuts, these days they normally recommend this in addition to interest rate cuts.

The question though is "how much reflation is necessary"?  That is what these sorts of economists have a great problem arguing.  There is very little theory to guide them.  Paul Krugman is going around saying that the stimulus package is "too little", on the basis of almost nothing except his own hunch.  Obviously, if there is too much reflation or stimulus then there will be problems afterwards. (I say "obviously", but many Keynesians don't believe that inflation has significant downsides.  I'm assuming the folks in this discussion are sensible enough not to accept this argument).

Others, sometimes labeled "liquidationists" by the reflationists disagree.  They point out that a during the boom investors mispercieved the value of their investments.  They misallocated capital.  In this boom the misallocated capital would be the excessively large houses built and the structure of businesses built to support that, such as housebuilders and financial services.  That means it is undesirable if the same volume of loans are made as were made in the past. 

Old style Austrian economists hold another view.  They agree that liquidation is needed.  But, they think that it's effect on the money stock is detrimental.  It is fine if householder A or bank B goes bankrupt, but that should not affect the money stock.  They recommend preventing this by requiring banks to hold full reserves.  Once fractional reserves are removed the "multiplier" effect of a failed loan on money supply is removed.

What could be called "New style" Austrian economists are less averse to fractional reserves.  In their view a bank can hold only a fractional reserve if it views doing so as safe.  The bank should not be protected by central banks from the consequences of making a mistake in this judgment.  This lack of protection will require banks to run conservative reserve fractions or risk bankruptcy in a downturn.  But it would still allow some flexibility.

I think this new-style Austrian view is the most reasonable.

I think that the actions of the Fed to expand the money supply over the past year or so have being excessive.  The US banks now have over 100% reserves.  They still have permission though to operate with only 12% reserves.  Since the Fed is protecting them from the consequences of making bad loans there is no reason why they should not just lend out much more money.  What is stopping them currently is two things.  Firstly, the Fed is paying interest on reserves, this seriously reduces the incentive for a bank to lend with them.  Secondly, banks are waiting to fund stimulus packages by buying government debt.  In the future though these obstacles will probably be removed.  If they are I think there will be lots of price inflation, probably mostly in asset prices.
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