You tell 'em Mr K!

http://www.nytimes.com/2010/09/17/opinion/17krugman.html?hp

"It’s time for Democrats to take a stand, and say no to G.O.P. blackmail."

i.e. making middle class tax cuts contingent on the Democrats allowing the continuation of the Bush tax cuts on the to 2% of income
earners.

On the other hand....how likely am I to lose money by betting that the Dems will cave?

Isn't this entirely normal legislative horse-trading that occurs with every bill?

Just because it's normal, doesn't make it right.

Of course it's right. "Ambition must be made to counteract ambition." Granted, rank partisanship wasn't exactly an intended source of checks and balances, but is there any other form of check and balance in the constitution that is not currently impotent?

Not that mercantilists like Massa K believe in having checks and balances.

Name calling is a great argument. Convinces me!

Just because it's normal, doesn't make it right.

I didn't say it's right. Don't put words into my mouth.

But if we're going to harsh this as a bad thing, then simple honesty requires one to admit that both parties do it.

Not just those eeeviiil Republicans, as Krugman implies.

I didn't even mention political parties one way or the other.

Not just those eeeviiil Republicans, as Krugman implies.

Um, do I hear "Nyaa, nyaa! You're another!" ?

Are one parties sins less onerous if the same or similar sins are also perpetrated by the opposition?

#5: You mean he's not a mercantilist? In any case, name-calling is just the cherry on top of the actual argument (which the selectively literate might try to ignore).

#7: Krugman did. His entire piece is about political parties.

#8: Are one parties sins less onerous if the same or similar sins are also perpetrated by the opposition?

No, it just makes Krugman's hysterics more onerous.

OK. I suppose reasonable people can disagree about which ends are desireable and whether this or that means will in fact reach the stated end.

Could you tell us, in simple words we ordinary bears can understand, just what is "hysterical" about Krugman's position, as articulated in the op ed pieces of recent days or weeks?

#10: For one thing, he makes out the Bush tax cuts for the middle class as having been meager and then goes into a tizzy about how disastrous it would be for Republicans to let those meager tax cuts expire at the end of the year. He can't seem to get out of the dance between saying that tax cuts are either good or bad for the economy depending on whose 1040 we're talking about.

ref #11

If I understand the argument (and I'm not sure I really do), Krugman is arguing that we in a "liquidity trap" which I take to mean that there's plenty of savings around, but not so much investment, so the savings, in his words "have nowhere to go".

Unless I've got it bass ackwards (which of course may turn out to be the case) the "liquidity" trap has its root cause in "lack of demand". The "cure" therefore would be for somebody to inject "demand" (i.e. lots of cash) into the economy by spending mass quantities.

The only "somebody" in a position to do that of course, would be the government.

Now if I remember by "Keynes 101", the proportion of one's income that one saves or spends is called "The propensity to save (or spend)". So much is just nomenclature. The take away assumption , which one presumes has been empirically determined, is that propensity to save increases (propensity to spend decreases) as income increases. It seems plausible that if things are "tight" for you, each new dollar of income, or most of it, goes out the door in spending pretty quick, whereas if you're rolling in it, you might hold on to that dollar until there's a good opportunity to invest (or until you've saved up enough for that new yacht?).

If the "propensity to spend" idea is at all true, then I can see why, all other things being equal, you'ld want to see stimulus money (or tax cuts) going to the lower income people first, and not so much to the high rollers, on the grounds that you get more bang for your buck (higher propensity to spend).

Now of course, you're right in that one cant consistently argue that the middle class tax cuts were trivial and also that taking them away would be a disaster.

If Krugman is saying that, he could be legitimately called out for the inconsistency, but "hysteria" maybe not so much.

Now maybe I'm not reading him closely enough, but were did he say that not letting the middle class keep the Bush era tax cuts would in and of itself be a disaster? I missed that. My bad.

What I thought I heard him argue was that letting the high rollers keep the Bush tax cuts would increase the deficit without a significantly large increase in demand
to warrant the cuts, and that THAT would, in his opinion, be a very bad thing.

Up goes that subscriber wall.

#12: Krugman is arguing that we in a "liquidity trap" which I take to mean that there's plenty of savings around, but not so much investment, so the savings, in his words "have nowhere to go".

Yes, creditors have used the stimulus money as savings for troubled times rather than lend it out. Without many good places to invest in, where else could that money go? Of course, Krugman's answer to the lack of instant investment opportunities is bubblenomics:

"Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." -Paul Krugman

And we all know how bubbles end.

propensity to save increases (propensity to spend decreases) as income increases

Propensity to spend on what goes down as income rises? That might make sense for consumer goods and cost of living expenses. But what about spending on investment? Wouldn't the propensity for that go up with income rather than go down? I wouldn't go so far as to say that eliminating the Bush tax cuts on the wealthy would hurt investment all that much, but in principle it still makes more sense to let people of all income levels keep their money. It's not all yachts and nose jobs.

Propensity to spend on what goes down as income rises?

I don't want to pretend to actually know anything, mind you, but as I remember the argument (it has been some months *cough* *cough* since I cracked an economics text) investment comes out of savings, and the higher income households tend to save a greater proportion of their income than the lower income households. But savings does not automatically become investment. Savings can go under the mattress so to speak. If there's weak demand, there will be weak investment opportunities, so even if there's plenty of savings, there won't be adequate investment, and so on in a viscous circle.

Or at least, thats the argument as I misunderstand it.

Umm, the full quote on the bubble is -

And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off.

You'll note that this isn't Krugman's analysis, it's someone else's. And you'll also note that Krugman expresses skepticism about whether it can be done.

Please get your info correct.

The piece from which that "quote" is cherry-picked is actually one where Krugman argues that such a strategy is probably untenable.

#14: But savings does not automatically become investment.

Well, of course. You can say that about savings turning into any kind of spending. That's why we're using the word "propensity." And even if they do put savings under the mattress, that just puts a deflationary pressure on the currency that strengthens the buying power of everyone else's money (barring the usual bout of government inflationary idiocy). Better they save that money until the right investment opportunity comes up rather than have the government take that money and set up some ponzi scheme. I guess the unspoken assumption by Keynesians is that collectively owned money is invested as judiciously at least as well as individually owned money, which flies in the face of everything we know about the tragedy of the commons.

So is there anything wrong in saying that the propensity to invest goes up with income?

#15, 16: If you read in context, the McCully reference is a citation he's using to further his advocacy of creating a housing bubble. Skepticism aside, he was still an advocate of the bubble (though he denies it after the fact, 'cause that'd look bad). And if you read the article I linked to in #13, Kruman's defense of the quote wasn't that he was describing someone else's analysis, but that "What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble."

Cutting interest rates to create investment is what Keynesianism is all about. And there's plenty more advocacy of cutting interest rates and creating housing bubbles that can be cited here, but for those who don't follow hyperlink references, here are the choiciest bits going back to 2001:

“During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?”
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"I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments.... It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.
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“Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery"
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"Low interest rates, which promote spending on housing and other durable goods, are the main answer."

Is there still any doubt that Krugman was an ardent advocate of the housing bubble?