I don't know why people say that; firms are always borrowing on the idea that future profits will make it worth it, it's called a leveraged investment. Millionaires have been made in this way.

Neoclassical economists like Krugman far outnumber Austrians these days, although fights about fiscal stimulus still break out between saltwater neoclassicals like Krugman and freshwater neoclassicals from Chicago. So I'll set aside the argument from authority for a moment, and assume that your 'sense' is correct, and that Krugman is full of it. I don't think a paradox of thrift is necessary in order to necessitate economic stimulus. All that needs to be recognized is that a) there's a demand gap, and b) monetary policy is no longer effective in filling it.

Quote: Original post by Klapaucius
spending is likely reduced because the economy is shrinking (correcting) from the credit bubble.

There is just no way to borrow and spend your way to prosperity and wealth, it can't work on a micro or macro level.

But if credit created the bubble than borrowing can create (unsustainable) wealth. Its just that it seems a lot of the detractors of stimulus try to confuse stimulus as a short term way to keep investors from panicking and workers from being fired until natural recover can take place with stimulus as a impractical long term economic model.

Quote: Original post by Klapaucius

Quote: Original post by LessBread
When large numbers of actors in an economy apply that strategy, they spend less money, there is less money in circulation and the economy shrinks. The economy performs worse instead of performing better as expected. What is virtuous in the individual, is, paradoxically, poisonous to the economy.

Yeah, I guess I have a grasp on the theory from a high level at least, I just essentially agree with the Austrian critique.

These are high level theories, backed up with data too (see "The effectiveness of fiscal and monetary stimulus in depressions" linked to earlier).

Quote: Original post by Klapaucius
When people save money, it goes into e.g. bank accounts/IRAs/whatever where it funds investments, not in a money hole in their back yard. What we are experiencing currently probably isn't all that much savings anyway, at least not intentionally - spending is likely reduced because the economy is shrinking (correcting) from the credit bubble.

What business person worth their salt would invest in expansion when the demand for their products is shrinking? What bank would lend them money under those conditions? At the height of the recession last June the personal saving rate for the US reached it's highest point since 1993 [1] [2]. Interestingly enough, that second reference says this:

Quote:
...
As personal savings return to more normal levels, the increase prompts what economists call the “paradox of thrift.”

Although saving money helps individuals repair their finances and pay debts, a sharp rise in overall personal saving can actually deepen a recession and hurt the people who are saving more. As people save money, fewer dollars circulate through shopping malls, Main Street businesses, and large employers and subsequently back to workers through their paychecks. This thrift pulls the economy lower.

Economists say the recent spike in personal saving is likely to fall back slightly as the effects of government stimulus fade, but they have said that Americans are becoming thriftier and are not likely to return to the free-spending patterns that fueled much of the growth of the last nine years.
...

Quote: Original post by Klapaucius
In any case, even if people were hoarding their wealth in big buckets, that still drives up aggregate demand, since that money is going to get spent on something.

It's not about wealth, it's about income [3]. Hoarding income doesn't drive up aggregate demand, it drives aggregate demand down. See the above quote. Perhaps it postpones demand, driving up aggregate demand when pent up demand is released, but not if behaviors change as a result of the experience of recession. I don't know if you know anyone who lived through the Great Depression, but the experience of living through that made many people very very frugal, very cautious when it came to preventing any potential waste in household resources, and very cautious about buying things that weren't needed. Current circumstances mirror those of the 1930's and by some measures may actually be worse [4] [5]. This recession marks the end of unfettered American consumerism.

Quote: Original post by Klapaucius
There is just no way to borrow and spend your way to prosperity and wealth, it can't work on a micro or macro level.

It's not about generating wealth, it's about surviving a recession. The really sad thing about the current recession is there are a lot of unmet infrastructure needs that could be satisfied while retooling the USA for the future, but the government response has been lackluster. In other words, we can stave off recession by laying the groundwork for recovery but we're being miserly about it. Stiglitz talked about this in the interview I linked with earlier. Bob Herbert recently asked the question more directly: What's Wrong With Us?.

I didn't want to make multiple posts but Less is correct that the whole Tea Party movement has been co-opted by the establishment Republicans.

I do think they're in for a rude awakening though. Even the retards at CPAC got off message a few times and stated what they actually believed. You can watch a few of the speakers get booed and in several cases see half of the crowd visibly take a few steps back when the warfare party got a bit too rowdy.


Respectfully, regarding your analysis of stimulus, it ignores the reality that the market is attempting to contract for a reason. Real savings are too low to support investment, full stop.

Of course economic actors go in to defense mode, of course this causes a contraction. The alternative is to prop up prices at an unsustainable level.

The shitty part is that it provides a great vehicle for income redistribution and government graft. So they fill up the trough with free money for those closest to the levers of power and it hits those at the bottom at it's fully discounted rate.

All the talk of multipliers and such are false on its face. You simply can not spend your way in to wealth. Any time someone divorces micro econ from macro econ grab your pocketbook.

Quote: Original post by LessBread
It's not about generating wealth, it's about surviving a recession. The really sad thing about the current recession is there are a lot of unmet infrastructure needs that could be satisfied while retooling the USA for the future, but the government response has been lackluster. In other words, we can stave off recession by laying the groundwork for recovery but we're being miserly about it. Stiglitz talked about this in the interview I linked with earlier. Bob Herbert recently asked the question more directly: What's Wrong With Us?.

Oops, I missed this; Man you realize our credit rating is complete shit right now don't you? We can't fund half of the crap we already commited to much less new programs.

China is slowly de-levering the dollar and now Japan has decided to start liquidating dollars and improve their relationship with China. We're maybe 10 or 15 years away from Japan rejoining the rest of Asia in a pan-Asian economic consortium and there's not much we can do about it.

Those are our #1 and #2 creditors. Our industrial base is in the dump. We're net borrowers and net consumers. Our strongest allies are in the same situation we are, and our unfunded liabilities have probably already exceeded the point of no return.

This crashing and burning in slow motion is just a slow death instead of a quick one. The only way to reinflate is for other countries to push their savings back to the U.S.

As helicopter Ben can attest, the world has been a bit uneasy about that proposition, ala his "global savings glut" speech.

Cut spending

China has been deliberately depreciating the renminbi by buying up US Dollars. If they decided to dump USD, it would allow the dollar to depreciate, thereby closing our trade gap. This is exactly what we want to happen, in fact such an event could help us to create 1.4 million jobs in the US.

Quote: Original post by Dreddnafious Maelstrom
I didn't want to make multiple posts but Less is correct that the whole Tea Party movement has been co-opted by the establishment Republicans.

I think there are parts of the movement that remain independent but as far as the brand goes, it's long gone. It was bought by Fox News.

Quote: Original post by Dreddnafious Maelstrom
I do think they're in for a rude awakening though. Even the retards at CPAC got off message a few times and stated what they actually believed. You can watch a few of the speakers get booed and in several cases see half of the crowd visibly take a few steps back when the warfare party got a bit too rowdy.

I think they're in for several rude awakenings. First that they've been co-opted, second that the nation isn't as excited about them as they are about themselves and third that in running to the right they lose the middle and end up getting more Dems elected. I didn't watch CPAC on CSPAN (I'd rather watch Olympic curling or hockey). Olbermann ran a clip of Barr getting booed and cheered for saying that waterboarding was torture. It seems that Barr and Viet Dinh have been running a little "pro and con" torture tour. The CPAC crowd did boo that one rabidly homophobic speaker - who pointed the finger at Ron Paul's guy for no good reason.

Quote: Original post by Dreddnafious Maelstrom
Respectfully, regarding your analysis of stimulus, it ignores the reality that the market is attempting to contract for a reason. Real savings are too low to support investment, full stop.

Of course economic actors go in to defense mode, of course this causes a contraction. The alternative is to prop up prices at an unsustainable level.

Which market is the market? The economy is contracting because it's been mismanaged for years. Real savings have been too low to support investment for decades. That's one reason for the borrowing from China and Japan etc.

Quote: Original post by Dreddnafious Maelstrom
The shitty part is that it provides a great vehicle for income redistribution and government graft. So they fill up the trough with free money for those closest to the levers of power and it hits those at the bottom at it's fully discounted rate.

It doesn't provide as great a vehicle for income redistribution and government graft as the system before the crisis. The rich get richer and the poor get children, Ain't we got fun!

Quote: Original post by Dreddnafious Maelstrom
All the talk of multipliers and such are false on its face. You simply can not spend your way in to wealth. Any time someone divorces micro econ from macro econ grab your pocketbook.

The talk about multipliers is not about wealth creation. People aren't worried about getting rich, creating wealth. They're worried about paying rent, paying the mortgage, paying for groceries, keeping their job, keeping their house, keeping their health insurance. Maybe people who aren't worried about those things are worried about creating wealth but these days they can jump in the lake (to put it nicely).

Quote: Original post by Dreddnafious Maelstrom
Oops, I missed this; Man you realize our credit rating is complete shit right now don't you? We can't fund half of the crap we already commited to much less new programs.

Nonsense. "The yield on the benchmark 10-year note climbed to 3.84 percent from 2.21 percent at the end of 2008, according to BGCantor Market Data. The yield touched 3.91 percent yesterday, the highest level since June 11." [1] [2]

"Some doubted that the drop in foreign holdings of short-term Treasuries signified growing unease about holding U.S. debt. They noted that net purchases of longer-term Treasury debt rose in December by $70 billion." [3]

Quote: Original post by Dreddnafious Maelstrom
China is slowly de-levering the dollar and now Japan has decided to start liquidating dollars and improve their relationship with China. We're maybe 10 or 15 years away from Japan rejoining the rest of Asia in a pan-Asian economic consortium and there's not much we can do about it.

We're always 10 to 15 years away from disaster on several fronts but that never seems to matter to policy makers (probably because they know they don't own a crystal ball). We should help China pick up the pace weaning itself from it's dollar addiction.

Quote: Original post by Dreddnafious Maelstrom
Those are our #1 and #2 creditors. Our industrial base is in the dump. We're net borrowers and net consumers. Our strongest allies are in the same situation we are, and our unfunded liabilities have probably already exceeded the point of no return.

Thanks to corporate globalization.

Quote: Original post by Dreddnafious Maelstrom
This crashing and burning in slow motion is just a slow death instead of a quick one. The only way to reinflate is for other countries to push their savings back to the U.S.

You appeared to be worried about that above.

Quote: Original post by Dreddnafious Maelstrom
As helicopter Ben can attest, the world has been a bit uneasy about that proposition, ala his "global savings glut" speech.

I thought he was getting ready to raise interest rates to stave off an imaginary inflation threat while actually perpetuating the stagnation of the aughts in to the next decade. Heckuva job Bennie!

While I don't want to comment on the US economy, there is one thing that caught my eye here.

The question "Raise taxes or lower taxes?" is already loaded and could blind you to some solutions. In particular, when you talk about changing taxes, you always have to consider which taxes: who benefits, and how? For example, it can be perfectly reasonable to raise some taxes while lowering some other taxes.

As a side note: I really like the fact that the German word for taxes is "Steuern", which literally means "control" or "steer". It's not just about raising or lowering in total, taxes can be used to steer the economy in some direction.

We need domestic jobs.

The quickest way to fix this problem is to stimulate genuine job growth.

Generally, people do not mind spending money, spending tax money, if we *get* something for it - that means federal infrastructure.
Right now the nation is in dire need of a mass-transit overhaul and various other "green" initiatives for heavy population centers.

Craig Venter (of humane genome sequencing fame) is currently perfecting a genetically engineered bacteria that craps diesel fuel (and sucks CO2 out of the air to do it). Prototype plants should be built and the nation should throw it's shoulder behind this initiative ("to the Moon").

We should consider withdrawal from trade treaties or start new trade agreement initiatives that levee tariffs based on difference of quality of life of the between the populations the imports are coming from and to. That is the aid money that goes back to the country and it will serve as an economic equalizer between rich and poor nations while preventing exploitative out-sourcing yet still allow for the development of global trade.

We need to stop spending so much of our money on the military.
While it is nice to have an extremely large and powerful military it is just not sustainable. Our country has been tanking since the 1950's and now we are just barely treading water.