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wait, did you really just say that a windfall of government spending--1/3rd of which was tax breaks, none of it offset with any planned tax increases--caused that spike in unemployment?
You seem to be there was a "windfall" other than higher unemployment and higher debt. I've seen no evidence of any positive, and the results speak for themselves.
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You seem to be there was a "windfall" other than higher unemployment and higher debt. I've seen no evidence of any positive, and the results speak for themselves.
please, I just want you to say it clearly, you're saying the spike in unemployment was the government's response to the crisis, not the crisis itself?
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please, I just want you to say it clearly, you're saying the spike in unemployment was the government's response to the crisis, not the crisis itself?
That question isn't very clear. If you are asking if the spike in unemployment was caused at least in part by the government flushing $800B down the toilet, then yes, that was at least part of it. Nobody will ever know what percent, of course, but why should it be surprising that irresponsible and ineffective spending would have a net negative effect on the economy?You can look back at posts in this forum from the time between Obama's election and Obama taking office, and a number of economic indicators had turned positive, and some experts were predicting economic growth.
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I think the chart below will shed some light on the stimulus issue.The reality is that the recession was far deeper than anybody thought when the chart that Strat posted was made public. It was really stupid politics to post something predictive like that.Eventhough the stimulus was large in money terms it was far smaller than the drop in Aggredate Demand caused by the recession so in fact a lot of Economists argue and some like Krugman argued at the time that it was too small to replace the loss in demand and had to be larger if unemployment wasn't going to continue to be very high.Henry is probably laughing at that but the economic analysis of that argument can't be argued with in the short term. The long term consequences of even more deficit spending and whether that price is worth it is where I would mainly differ from somebody like Krugman on his stimulus analysis.010312krugman1-blog480.jpg

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That question isn't very clear. If you are asking if the spike in unemployment was caused at least in part by the government flushing $800B down the toilet, then yes, that was at least part of it. Nobody will ever know what percent, of course, but why should it be surprising that irresponsible and ineffective spending would have a net negative effect on the economy?
OK, I can live with this answer.
You can look back at posts in this forum from the time between Obama's election and Obama taking office, and a number of economic indicators had turned positive, and some experts were predicting economic growth.
I don't think I followed this forum much back then, other than to rant about the debt occasionally. I'm an alarmist hipster... I was talking about the debt when it was 50% GDP, WAY before it was mainstream.but, when you say 'experts', you mean to insult some posters, yes?
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I just take issue with the way krugman presents the argument, like it's just self-evident to anyone who has done their homework. if there was some easy, simple answer, we'd be off talking about something else right now.

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I just take issue with the way krugman presents the argument, like it's just self-evident to anyone who has done their homework. if there was some easy, simple answer, we'd be off talking about something else right now.
He is a raging douchbag but I understand why he would be that way at times since so many of the attacks against his positions are pretty vicious and often are of the talking point variety and without any economic basis or analysis.
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I can only speak to today's realities. no investor today expects to be backed by threat of force when they are wronged by a shady foreign country. this is actually just international finance 101, not my opinion.
I think that investors were backed by actual force very recently in Libya.
The oil-exporting countries should opt for nationalisation because of the rapid fall in oil prices. We must put the issue on the table and discuss it seriously. Oil should be owned by the State at this time, so we could better control prices by the increase or decrease in production.
Mindful of the risks and costs of military action, we are naturally reluctant to use force to solve the world's many challenges. But when our interests and values are at stake, we have a responsibility to act. That is what happened in Libya over the course of these last six weeks.
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but, when you say 'experts', you mean to insult some posters, yes?
Uh... I don't think so, but was there someone that needed insulting in there?Economics is tough, so if I come off too strong on this stuff it's just because I have to actually type this stuff, and starting every sentence with "there are many possible answers, but the theory I read that I am leaning toward believing is....". So instead I just say it.One thing I'm pretty confident, though, people like Krugman who act like all this stuff takes place in a vacuum are way, way wrong. I guess theoretically a stimulus *could* work in the short term if nobody knew that it was happening so that nobody compensated for the future costs it would impose but at the same time everyone felt richer for no apparent reason and DID act on that, and all the money was printed out of thin air and nobody knew about that. If any of those conditions fail, so will debt-driven stimulus.EDIT: Oh, and all the money would have to be spent on things that at least make *some* net positive contribution to the well-being of society, enough to outweigh the harm caused to businesses that are harmed by the competition and reallocation of resources.
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I think that investors were backed by actual force very recently in Libya.
maybe my understanding is naive, but I thought the arab spring was something that basically happened on its own, only slightly supported by outsiders? was that an american soldier that Gaddafi'd Gaddafi in that video?if you want to discuss various examples of governments destroying international investors without any military response, I could probably find quite a few. russia in the 90s (LTCM, anyone?) immediately comes to mind, iceland and greece more recently. I don't mean to be a rude, but like I said, this is a very uncontroversial position.
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maybe my understanding is naive, but I thought the arab spring was something that basically happened on its own, only slightly supported by outsiders? was that an american soldier that Gaddafi'd Gaddafi in that video?
It was not an American soldier and that in no way diminishes the point I'm making. I'm asserting that the British and Americans intervened in Libya (specifically in Libya, not in the Arab springs in general) to protect oil interests. The NATO involvement was significant. I daresay significant enough to earn promises that the oil assets will not be nationalized.
if you want to discuss various examples of governments destroying international investors without any military response, I could probably find quite a few. russia in the 90s (LTCM, anyone?) immediately comes to mind, iceland and greece more recently.
I'm confident you're bringing up valid examples.But again, I'm not saying that countries always experience foreign military intervention when they fail to honor economic commitments. I think there's a cost-benefit analysis, a question of the relevant companies' government connections, and a question of military power. I think it's dangerously optimistic to assume that we'll continue to be immune to those forces indefinitely.
I don't mean to be a rude, but like I said, this is a very uncontroversial position.
You should have no problem coming with good arguments for that position then.
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It was not an American soldier and that in no way diminishes the point I'm making. I'm asserting that the British and Americans intervened in Libya (specifically in Libya, not in the Arab springs in general) to protect oil interests. The NATO involvement was significant. I daresay significant enough to earn promises that the oil assets will not be nationalized.I'm confident you're bringing up valid examples.But again, I'm not saying that countries always experience foreign military intervention when they fail to honor economic commitments. I think there's a cost-benefit analysis, a question of the relevant companies' government connections, and a question of military power. I think it's dangerously optimistic to assume that we'll continue to be immune to those forces indefinitely. You should have no problem coming with good arguments for that position then.
I don't mind the cost-benefit idea. As long as the US is the dominant economic/military power in the world, that equation will be mostly skewed to the peaceful side. It's definitely possible that Libya is a valid modern counter-example; I have no idea what kind of private interest was at stake with the threat nationalization. Arguments for why it is not common practice to invade a nation that defaults on private investment: Frivolous wars are bad. Keeping trade as open and free as possible has shown tangible benefits. You're a libertarian, right? Why am I listing these for you? The impact of bankruptcy laws and the abolishment of debtors' prison probably serve as a decent comparison here. I just thought of that and felt very clever.
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I guess theoretically a stimulus *could* work in the short term if nobody knew that it was happening so that nobody compensated for the future costs it would impose but at the same time everyone felt richer for no apparent reason and DID act on that, and all the money was printed out of thin air and nobody knew about that. If any of those conditions fail, so will debt-driven stimulus.
Jeff, please ask hblask the following:Does he believe that "everyone" shares the same opinion of inflation that he and the far right libertarians do, i.e. that it is ABSOLUTELY harmful in every way it can rear its head and negatively drives all business decisions? If he believes this, does he also believe the opposite to be true, i.e. that "everyone" would wholeheartedly CHEER consistent deflation because their dollars would just be RISING IN VALUE ALL THE TIME!!!! ?
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#4Strategy says:bill gross's jan investment outlook, which contains almost everything he wrote for FT.com (for those of you who missed his piece on cheap money)

A new duality – credit and zero-bound interest rate risk – characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion.
pretty good summary of the article. I don't think the risk of inflation vs deflation theme is new or unique to 2012... it started in the financial crisis and continued when Europe came to the forefront.
Even if reflation is successful it will only be because the Fed and other central banks keep policy rates low for an “extended period of time.” Financial repression depends on negative real yields and until inflation moves higher for a period of at least several years, central banks will hibernate at the zero bound
I love his writing style. a bit from tyler cowen on international trade in the midst of WWI
My favorite section details how the British responded when it turned out they had a drastic shortage of binoculars, which at that time were very important for fighting the war. They turned to the world’s leading manufacturer of “precision optics,” namely Germany. The German War Office immediately supplied 8,000 to 10,000 binoculars to Britain, directly intended and designed for military use. Further orders consisted of many thousands more and the Germans told the British to examine the equipment they had been capturing, to figure out which orders they wished to place.
really interesting.
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Jeff, please ask hblask the following:Does he believe that "everyone" shares the same opinion of inflation that he and the far right libertarians do, i.e. that it is ABSOLUTELY harmful in every way it can rear its head and negatively drives all business decisions? If he believes this, does he also believe the opposite to be true, i.e. that "everyone" would wholeheartedly CHEER consistent deflation because their dollars would just be RISING IN VALUE ALL THE TIME!!!! ?
this is SO META for this thread
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this is SO META for this thread
LOLTo answer the question, I think it is clear that inflation hurts the poor and unsophisticated the most; many people seem unbothered by that, which I find to be a bit of a mystery. Deflation seems to be more harmful than inflation, though, so the optimal policy seems to be minimal inflation without suffering through periods of deflation. Obviously getting it exactly right would be the best policy, as would happen in a competitive commodity-based currency market, but the people who want to spend unchecked will never allow that, so 0-2% inflation as a goal is probably the best we'll get, as that only harms the poor a little.
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LOLTo answer the question, I think it is clear that inflation hurts the poor and unsophisticated the most; many people seem unbothered by that, which I find to be a bit of a mystery. Deflation seems to be more harmful than inflation, though, so the optimal policy seems to be minimal inflation without suffering through periods of deflation. Obviously getting it exactly right would be the best policy, as would happen in a competitive commodity-based currency market, but the people who want to spend unchecked will never allow that, so 0-2% inflation as a goal is probably the best we'll get, as that only harms the poor a little.
And which school of economic thought will best accomplish this?Keynesian or Austrian?
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And which school of economic thought will best accomplish this?Keynesian or Austrian?
I'm not sure Austrian school supports central banking in general, so probably Keynesian by default. What is the sound of one hand clapping?
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I apologize if you've already addressed this, but how does a commodity-based currency deal with population growth?I understand why you want to do it. wanting to take as much as possible away from the monkeys in washington is a reasonable desire.

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I apologize if you've already addressed this, but how does a commodity-based currency deal with population growth?I understand why you want to do it. wanting to take as much as possible away from the monkeys in washington is a reasonable desire.
Competing commodity-based currencies promote stable prices because they have to compete to give the best value for both ends of a transaction. Both sides need to feel they are getting the best deal possible. If they inflate their currency, the person receiving the money goes somewhere else. If they deflate their currency, the person receiving the product goes somewhere else. They have to balance the two all the time better than their competitors.They don't deal with population growth directly, but instead "production growth" (which is obviously directly affected by population growth). The idea is if the economy produced 100 widgets one year and they printed 100 VisaBucks, and the next year the economy grew so that it produced 110 widgets, then they would print 110 VisaBucks (or, more accurately, have 110 in the economy). That way, a widget is always exactly one VisaBuck.If they instead print 200, the seller knows it is only worth half as much, and will not accept 100 anymore. They will either have to get 200 or go to AmEx and use their currency, which might still be worth $1.You wouldn't even need to get rid of or audit the Federal Reserve, because if the Fed screwed up, people would just stop using their money. Look at BitCoin... I'm not even sure it's legal and it's already attracting a lot of attention. It is basically a competing commodity-based currency. (If someone can explain the theory of how they create money and why that is optimal, that would be great....) The commodity, though, is sort of floating -- what the users are willing to trade for it. It seems like they are trading price stability for 'volume of money supply' stability... I haven't thought about it hard enough to think through the repercussions of that.
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LOLTo answer the question, I think it is clear that inflation hurts the poor and unsophisticated the most; many people seem unbothered by that, which I find to be a bit of a mystery. Deflation seems to be more harmful than inflation, though, so the optimal policy seems to be minimal inflation without suffering through periods of deflation. Obviously getting it exactly right would be the best policy, as would happen in a competitive commodity-based currency market, but the people who want to spend unchecked will never allow that, so 0-2% inflation as a goal is probably the best we'll get, as that only harms the poor a little.
Very glad to have not gotten a contemptuous, dismissive return here. In response:I certainly would be bothered by your premise if I thought it were true; I would argue that inflation is not merely a one-way street, harming the poor with the rising cost of goods and services. Inflation also, in effect, transfers wealth from lenders (the powerful) to borrowers (everyone else) because it lowers the real cost of making a fixed stream of payments, e.g. the real cost of repaying a 30y fixed goes down because its costs are locked in. Small levels of controlled inflation also benefit output and therefore employment, which helps everyone.Deflation results in major cutbacks in output and hiring, which is kind of a big problem if you have an expanding population. It also results in a major rise in collateral requirements, which attenuates borrowing power and thus the velocity of money within the economy even further and these effects become additive and extremely difficult to combat. A money supply fixed to the physical supply of a commodity compounds these effects dramatically, and many economic scholars have argued that the Great Depression was indeed lengthened unnecessarily by the gold standard.The Fed doesn't choose to not get it "exactly right" and shoot for 0% inflation because they want unchecked spending; this is tinfoil hattery. They shoot for 1-2% because 0% inflation means short term interest rates will very likely be 0%, and you have no wiggle room while sitting at a level (0) where a very small decline in prices/wages, which will often happen simply due to noise, can cause a deflationary spiral. It's essentially a buffer against noise in the economy.
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#5strategy says,I need to know that I'm not taking crazy pills

He would move the U.S. to a so-called territorial system of taxation, in which the government taxes only domestically generated corporate income. Republican leaders in Congress have shown interest in this concept. House Ways and Means Chairman Dave Camp, a Michigan Republican, introduced a proposal in October that would shield 95 percent of profits earned offshore from taxation in the U.S.
aren't these the people worried about sending jobs+capital overseas, or is that the other side?
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Very glad to have not gotten a contemptuous, dismissive return here. In response:I certainly would be bothered by your premise if I thought it were true; I would argue that inflation is not merely a one-way street, harming the poor with the rising cost of goods and services. Inflation also, in effect, transfers wealth from lenders (the powerful) to borrowers (everyone else) because it lowers the real cost of making a fixed stream of payments, e.g. the real cost of repaying a 30y fixed goes down because its costs are locked in. Small levels of controlled inflation also benefit output and therefore employment, which helps everyone.Deflation results in major cutbacks in output and hiring, which is kind of a big problem if you have an expanding population. It also results in a major rise in collateral requirements, which attenuates borrowing power and thus the velocity of money within the economy even further and these effects become additive and extremely difficult to combat. A money supply fixed to the physical supply of a commodity compounds these effects dramatically, and many economic scholars have argued that the Great Depression was indeed lengthened unnecessarily by the gold standard.The Fed doesn't choose to not get it "exactly right" and shoot for 0% inflation because they want unchecked spending; this is tinfoil hattery. They shoot for 1-2% because 0% inflation means short term interest rates will very likely be 0%, and you have no wiggle room while sitting at a level (0) where a very small decline in prices/wages, which will often happen simply due to noise, can cause a deflationary spiral. It's essentially a buffer against noise in the economy.
Ok, I figured this might be a reply to me, so I unblocked it and appreciate the serious response.
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#6strategy says,lawrence summers had a piece in the FT yesterday (or the day before, depending on when I send this email).

The nature of the transformation is highlighted by the 50 fold change in the relative price of a television set of a constant quality and a day in a hospital over the last generation. While it is often observed that wages for median workers have stagnated, this obscures an important aspect of what is occurring. Measured via items such as appliances or clothing or telephone services, where productivity growth has been rapid, wages have actually risen rapidly over the last generation. The problem is that they have stagnated or fallen measured relative to the price of food, housing, healthcare, energy and education. But at a deeper level, citizens of the industrial world who believe that they live in progressive societies are right to wonder why increasingly affluent societies need to roll back levels of social protection. Paradoxically, the answer lies in the very success of capitalism which has made the opportunity-cost of an individual teaching or nursing or administering that much more expensive
you can probably access the article for free through FT with this search. he's arguing that people (wrongly) look to make big changes to our system when the economy's doing poorly--today's pain distorts our expectations for the future. if you are in the mood to get a little dumber, check reddit's economy, economics, and business sections. the average person believes this slump is never going to end, or that it is actively getting worse. there's some rough-looking math in this paper, but it's relatively easy to understand what he's saying.
For instance, making a mistake between a bet and a payoff (binary) that depends on the full distribution is extremely common among sophisticated people, which led high ranking social scientists to start the so called "prediction markets" grounded in the idea that binary bets on markets going higher or lower are hedges (they are not, as was asserted in Taleb (1997) yet the incidence of such confusion has increased since).Trivial perhaps, but serious. Very serious. Otherwise we would not have had the crisis that started in 2008 in spite of thousands of PhDs in quantitative fields missing the point and similar ones staring at them. Indeed the probabilistic mistakes that led the the collapse of the banking system were trivial and remain uncured: banks focusing on "probability" of profit and loss, causing them to engage in negative Black Swan exposures, a high probability of "mildly profitable", low probability of disaster, and a negative overall expected return while being convinced that “being profitable most of the time” is their mission.
reading this almost makes me want to go back to school.
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