Krugman said we are heading for a 3rd depression

[truebluefan]

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

http://www.nytimes.com/2010/06/28/opinion/28krugman.html

 

[Denny Crane]

Krugman is nuts, I think.

We've already shot our load with the stimulus and TARP bailouts. They were simply ill advised and poorly considered (what to spend on).

We've been under deflationary pressure for decades. Everything but health care and education are cheaper because of that pressure.

The administration (lately Biden) talks like no jobs will be recovered or created. They're morons for thinking so, or they're deliberately putting a wet blanket on the economy at the expense of main street.

Like I've posted before, the $800B stimulus package would have funded 32,000 startup companies, each employing 100 to 200 employees, and they wouldn't have to make a dime in revenue (but they would!) for 5 years. That's 3.2M to 6.4M jobs, guaranteed, for 5 years. Plus the opportunity to spend that money on a manhattan project for alternative energy (would be a huge waste, though) or other future tech and businesses.

 

[barfo]

We've been under deflationary pressure for decades. Everything but health care and education are cheaper because of that pressure.

Link? I'm not understanding what you mean, or something.

barfo

 

[Denny Crane]

It's pretty obvious, barfo.

All the things made in Japan, Korea, and China, the outsourcing of work to India, etc. Those things make the cost of goods cheaper, and you see the lower prices (deflation!) at Wal-Mart. Look at interest rates - near zero. That's deflation.

 

[Denny Crane]

http://www.telegraph.co.uk/finance/...er-money-printing-by-the-Federal-Reserve.html

RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

By Ambrose Evans-Pritchard, International Business Editor
Published: 5:11PM BST 27 Jun 2010

...

The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".

"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.

...

The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.

...

Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.

...

more at the linky

 

[barfo]

It's pretty obvious, barfo.

All the things made in Japan, Korea, and China, the outsourcing of work to India, etc. Those things make the cost of goods cheaper, and you see the lower prices (deflation!) at Wal-Mart. Look at interest rates - near zero. That's deflation.

Really? Things are cheaper at Walmart than they were decades ago? I don't shop at Wal-Mart, but really doubt that's true.
How do you explain the CPI being positive pretty much every year for the past several decades?

barfo

 

[Denny Crane]

I should have included home prices along with education and health care.

The graph above is adjusted for CPI, hence 1998 dollars.

The first microwave oven cost $5000 in today's dollars. Few people would own one at that price. Yet every home has one, because they're dirt cheap at Walmart.

The cheapest color TV you could buy in the 1960s was about $500. Today you can buy one for under $100. That's current dollars, not adjusted by CPI.

CPI is weighted heavily towards a few things that have gone up in price (for the most part). It's weighted 39% for housing alone.

 

[barfo]

I should have included home prices along with education and health care.

The graph above is adjusted for CPI, hence 1998 dollars.

The first microwave oven cost $5000 in today's dollars. Few people would own one at that price. Yet every home has one, because they're dirt cheap at Walmart.

The cheapest color TV you could buy in the 1960s was about $500. Today you can buy one for under $100. That's current dollars, not adjusted by CPI.

CPI is weighted heavily towards a few things that have gone up in price (for the most part). It's weighted 39% for housing alone.

That's probably because housing costs matter. As do education, health care, food, and many other things that are more, not less, expensive.
Yes, things based on technology have gotten cheaper. But man does not live by microwave alone.

barfo

 

[Denny Crane]

Except when morons turn food into ethanol.

 

[barfo]

Some things get cheaper. Some things get more expensive. Overall, the effect has been inflationary, not deflationary.

It is true that if you exclude all the inflationary items, then things look deflationary. Unfortunately, you can't exclude the inflationary items from real life.

barfo

 

[Denny Crane]

Some things get cheaper. Some things get more expensive. Overall, the effect has been inflationary, not deflationary.

It is true that if you exclude all the inflationary items, then things look deflationary. Unfortunately, you can't exclude the inflationary items from real life.

barfo

Define inflation. Then figure out what the money supply is.

Then you will understand the errors in your last post.

 

[barfo]

Define inflation. Then figure out what the money supply is.

Then you will understand the errors in your last post.

Since my last post was highly non-controversial, I don't think so. But you feel free to identify which parts are errors.

barfo

 

[Denny Crane]

I did. You don't demonstrate a knowledge of what inflation is.

I asked you to define it.

 

[barfo]

I did. You don't demonstrate a knowledge of what inflation is.

I asked you to define it.

Blah blah.

Did I use the word inflation in a way that doesn't suit you? Tough luck. I was using it in the colloquial sense: rising prices. Which I assumed you were too, since you were talking about prices at Wal-mart.

If you want to point out actual errors in my post, go ahead. If you want to play "let's be pedantic", well, believe me, I can play that game too.

Please explain your original claim, that we've had several decades of deflation (or "deflationary pressures" - I hope you aren't going to end up saying, well, we've had deflationary pressures but we also had inflationary pressures - because that would be a pretty silly point to be making as there will always be both).

So far, you haven't backed up your claim except with some weak sauce about microwaves and TVs and a graph about food. Let's hear the actual economic argument for our past deflation. Let's see the data. Let's see some (relevant) links.

barfo

 

[Denny Crane]

Inflation is "too many dollars chasing too few goods."

The reason a TV cost $500 in the 1960s is because there were so few TVs. Today, you can buy a TV in quite a few places within a small radius of where you live, and you have a choice of a wide array of models vs. a couple back then.

TV prices are typical of all but a very few goods and services. The deflation is true of washing machines, computers, energy, food, t-shirts, blue jeans, automobiles, stocks and bonds, and so on.

Hell, the dollar itself is "weak" - meaning devalued or deflated. Interest rates are absurdly low, and have been going lower for 3 decades - making money cheaper (deflationary).

There are few exceptions to goods and services that have gone down in inflation adjusted price, and I mentioned those.

You brought up food, and were proven wrong.

However, I pointed out that turning food into ethanol was foolish, as doing so (go Green!) drove up food prices for a brief time - until we stopped doing the foolishness.

 

[barfo]

There are few exceptions to goods and services that have gone down in inflation adjusted price, and I mentioned those.

Hmm, gone down in inflation adjusted price. What could that mean? Inflation adjusted. Hmm. Why would you need to adjust for inflation when there isn't any?

It's unbelievably bogus to present, as evidence for deflation, that some prices declined after adjusting for inflation. Some prices will always decline after adjusting for inflation, unless inflation is constant across all products and services. If you want to claim deflation, you have to show that prices actually declined.

You brought up food, and were proven wrong.

No, actually your graph is inappropriate and misleading. Your graph shows the fraction of disposable household income spent on food, not the actual price of food. Obviously if disposable household income goes up, the fraction spent on food goes down, since we can only eat so much, gluttonous pigs though we may be.

Here's some data about spending on food per capita. Trend is upwards.
Here's some data about the price of many specific food items. For those I've checked, trend is upwards. Price of energy is in there too. Trend is upwards.

barfo

 

[Denny Crane]

Now think about what the money supply does to the equation "too many dollars chasing after too few goods." (Hint: it affects the "too many dollars" part). During bad economic times like these, the money supply is contracting - see the article I posted. It's bad monetary policy, again see the article. What does an expanding money supply do to the dollar? Weaker. What does it do to prices in current dollars? Increase. That's why you have to compare prices adjusted for inflation.

Looking at your first link, what does the column "at home" say? 1959 = 1070, 2009 = 1062. In 1998 dollars (inflation adjusted).

Consider what would happen if the money supply were static. The prices of things would go down in current terms. Why? Because the economy isn't static. Just look at the population growth in your first link and imagine dividing a fixed pie by 158M in 1959 and that same sized fixed pie by 307.6M in 2009.

http://en.wikipedia.org/wiki/Money_supply
http://en.wikipedia.org/wiki/Inflation

 

[barfo]

Now think about what the money supply does to the equation "too many dollars chasing after too few goods." (Hint: it affects the "too many dollars" part). During bad economic times like these, the money supply is contracting - see the article I posted. It's bad monetary policy, again see the article. What does an expanding money supply do to the dollar? Weaker. What does it do to prices in current dollars? Increase. That's why you have to compare prices adjusted for inflation.

But we aren't talking about bad economic times like these (the past year and a half), we were talking about the past few decades, as defined in your earlier post.

Looking at your first link, what does the column "at home" say? 1959 = 1070, 2009 = 1062. In 1998 dollars (inflation adjusted).

Yes, during that time period, people gradually ate out more, as the next column shows. What's your point?

Consider what would happen if the money supply were static.

Consider what would happen if aliens from Uranus invaded.
Yes, I agree that if we hypothetically remove huge influences on the economy, the economy would look different.

barfo

 

[Denny Crane]

I talked about an expanding money supply, too.

Look at your linky again. People are spending $178/month in 1998 dollars on food, or $5.86 1998 dollars per day. Are you sure you are presenting data that you think you are?

The rest of your post above is nonsense.

 

[barfo]

Look at your linky again. People are spending $178/month in 1998 dollars on food, or $5.86 1998 dollars per day. Are you sure you are presenting data that you think you are?

Don't know what you are trying to say here. I assume you mean 1988, not 1998? How does dividing it into months or days change anything?

barfo

 

[Denny Crane]

Don't know what you are trying to say here. I assume you mean 1988, not 1998? How does dividing it into months or days change anything?

barfo

I find it hard to believe a person can live on $5.86 worth of food in 1988 dollars per day. That's like $1 for breakfast, $2 for lunch, and $2.86 for dinner.

So your data is flawed.

 

[barfo]

I find it hard to believe a person can live on $5.86 worth of food in 1988 dollars per day. That's like $1 for breakfast, $2 for lunch, and $2.86 for dinner.

So your data is flawed.

Seems like it would have been easier to make that point using current dollars, no? $10.76/day in 2009 in 2009 dollars.
Does that seem a little low? Maybe, maybe not. I spend more than that, but kids eat cheap, old people eat cheap, poor people eat cheap.
If you want to find different data, feel free.

barfo