Krugman, debt, and growth

[Darwin333]

Many of us have argued this topic before but this article does a great job at explaining the historical results of the fiscal policies that we have been, and currently are, employing.

So those that are banging the drums for even more stimulus, why would it work now when it hasn't worked in 30 years?






Paul Krugman, Jackass


I'm tired of this crap, frankly, but people keep spamming me with it, so here we go.

(Krugman)And that’s a tale that needs telling. For the past two years, the Greek story has, as one recent paper on economic policy put it, been “interpreted as a parable of the risks of fiscal profligacy.” Not a day goes by without some politician or pundit intoning, with the air of a man conveying great wisdom, that we must slash government spending right away or find ourselves turning into Greece, Greece I tell you.

....

Germany and the European Central Bank could take action to make that extreme step less necessary, both by demanding less austerity and doing more to boost the European economy as a whole. But the main point is that America does have an alternative: we have our own currency, and we can borrow long-term at historically low interest rates, so we don’t need to enter a downward spiral of austerity and economic contraction.

So it is time to stop invoking Greece as a cautionary tale about the dangers of deficits; from an American point of view, Greece should instead be seen as a cautionary tale about the dangers of trying to reduce deficits too quickly, while the economy is still deeply depressed. (And yes, despite some better news lately, our economy is still deeply depressed.)

Bull.

And this isn't a difference of opinion. We're all entitled to our opinions.

We're not entitled to make up our own set of facts.

Here are the facts relating to "more borrowing" to "stimulate the economy" and thus "grow GDP."

FACT: Over the last 30 years Krugman's prescription has never worked.

NOT ONCE.

The facts are that on a historical basis borrowing always produces less GDP growth than debt growth. That is, it is a net negative as you must both pay back the debt some day and pay the interest, which means that in order for it to "work" GDP must expand by more than the debt does, so the interest can be covered along with the principal.

But NEVER did GDP exceed new debt, even for one quarter, at any time during the 1980-2007 time period and the only time you saw that happen during the collapse of 07-08 was when debt defaults pushed outstanding down faster than GDP declined -- a temporary condition as you can see we have resumed our sin.

Read this again:

Not once has "stimulus" actually produced an increase in GDP that exceeds the new debt taken on to prove it.

NOT ONCE.

This is not my opinion or someone else's opinion. It is mathematical fact as documented by both the Federal Reserve and the government's GDP numbers.

Krugman has the same access to these numbers as everyone else. He can thus trivially verify that this is true, if he bothers to look. My sources are listed in the chart.

This cannot, therefore, be an innocent error.

Krugman's policy prescription is wrong. It is wrong on the facts, it is wrong on the mathematics and it is empirically, with more than 30 years of history, wrong in terms of realized results.

source

 

[First]

Huh? Since when has Krugman defined stimulus success as contingent on the GDP expanding more than the national debt does? Krugman has in fact claimed (as have most intelligent economists) that you always want to carry some debt, so it needn't expand more than GDP. So even if it's true GDP has never expanded more than the national debt, that's not germane to the reality that the alternatives are far worse; i.e. deflation, credit contraction and much worse GDP growth the last 30 years.

 

[sm625]

As I've tried to explain to Karl, facts dont matter. People like Krugman are nothing but debt pushers. They are paid by the system to produce as much trash ideology as they can to boggle and distract the minds of the general public who fail to understand how this system works. And so many goddarn fools buy it! People worship Krugman, even though he is running this country into the ground just to serve the banksters. Why? It really is just grade school level psychology. Throw enough crap at the wall and hope something sticks. People are so stupid that they will actually lick that crap right off the wall and say "yum that was delicious, give me more." And, oh yeah, you're a kook if you dont agree.

It is amazing the degree people will go to to defend their failed ideology. Every bit of productivity and technological progress we have made as a society has been sucked up into a vast financial vortex and into the hands of the top 1%. All we have to show for it is stupid iCrap which just serves to weaken us as a society. (Through individualism and consumerism and all that...)

 

[xBiffx]

Seems to make logical sense.

I look at this way. My brother owns a car wash. His wash lost quite a bit last year. It doesn't make sense for him to give away a bunch of free car wash coupons in the hope that people will come back and spend money later down the road. He somehow thinks that foot traffic is all that matters. He thinks this will somehow make him money in the long run. He is an idiot. I am slowly getting this through to him.

 

[Anarchist420]

Good points, although I should add that Krugman's been proven wrong since mercantilism started at the end of the middle ages.

 

[Gonad the Barbarian]

If you had a net increase in GDP over increases in government debt you wouldn't need the government to do it, the free and private market would beat them to it. That government spending is not profit driven is exactly why you need it when those that are profit driven aren't spending. Driver of last resort and such.

 

[Blackjack200]

Nice, copypasta from a libertarian blog?

What the hell does that chart even mean? Is it suggesting that that that debt went down to almost -$400 billion in the first quarter of 2010? WTF? I'm pretty sure I don't remember that.

 

[xBiffx]

Nice, copypasta from a libertarian blog?

What the hell does that chart even mean? Is it suggesting that that that debt went down to almost -$400 billion in the first quarter of 2010? WTF? I'm pretty sure I don't remember that.

Click!

1!

 

[QuantumPion]

For a better example just look at Japan's two lost decades. 20 years of no growth due to government spending and 0% interest rates to keep it afloat. True, their economy isn't collapsing like Greece (and neither do I think will ours). But permanent stagnation in the face of a booming Asia is not something I am looking forward to.

 

[Munky]

I agree with the OP, too bad the credit junkies will not give up the fiat heroin until it's literally impossible for them to get more.

 

[QuantumPion]

Nice, copypasta from a libertarian blog?

What the hell does that chart even mean? Is it suggesting that that that debt went down to almost -$400 billion in the first quarter of 2010? WTF? I'm pretty sure I don't remember that.

I'm pretty sure that is total public debt. That drastic decline is due to the defaulting of all the bad mortgages.

 

[Darwin333]

If you had a net increase in GDP over increases in government debt you wouldn't need the government to do it, the free and private market would beat them to it. That government spending is not profit driven is exactly why you need it when those that are profit driven aren't spending. Driver of last resort and such.

For 30 years????

Have you ever heard of the law of exponents? Might want to look it up...

 

[Blackjack200]

I'm pretty sure that is total public debt. That drastic decline is due to the defaulting of all the bad mortgages.

Ahh, so the idiot blogger is refuting Krugman's point about Government deficit spending with a juxtoposition of total American debt vs. GDP? No wonder he didn't clearly label his graph.

Would anyone really expect anything else from libertarians?

 

[Gonad the Barbarian]

For 30 years????

Have you ever heard of the law of exponents? Might want to look it up...

The amount of time doesn't change the principles involved.

You also can't expect all government spending to have any positive affect on GDP. There is a lot that ranges from poor ROI to flat out waste. You can't paint it all as stimulating just like you can't pain it all as wasteful. But go ahead and keep trying.

Edit: If this is total public debt, then no wonder. People borrow to live, not necessarily produce at a profit. How many people die at 0 or less dollars? This is really a symptom of credit increases substituting any real wage increase over the past 30 years.

 

[piasabird]

You sell a better product and make more money. The debt is a separate issue. It is just an expense that takes away from the profits. Wish I has purchased more apple stock. They cant make them I-whatevers fast enough.

 

[MovingTarget]

Good points, although I should add that Krugman's been proven wrong since mercantilism started at the end of the middle ages.

You....do know that Krugman was a 20th/21st century economist, right? :\

Krugman is a Keynesian economist mostly. If anything, our experiences in the 20th century until today have proven this line of thinking largely correct. Right now, its the Austrian school that is largely untested. We'll see how all that austerity works in Europe....

 

[fskimospy]

That post was written by Ken Denninger. For fun, feel free to go compare what percentage of our good friend Ken's economic predictions have been right over the last 4 years and then go look at what percentage of Paul Krugman's predictions have been right.

Then ask yourself why anyone listens to Mr. Denninger.

 

[First]

lol Denninger.

 

[First]

For 30 years????

Have you ever heard of the law of exponents? Might want to look it up...

You do realize that the law of exponents is irrelevant in the context of a continually depreciating U.S. dollar, right?

 

[sandorski]

Stimulate during a Recession, Pay down the Debt during Expansion. This has not been happening for 30+ years, although during Clintons' Presidency it was almost achieved.

 

[Craig234]

Darwin, pick ten predictions/suggestions that have been tested from Krugman - fairly, not from a cherry picked list. Document the results of each. THEN it can be discussed.

 

[Screech]

Stimulate during a Recession, Pay down the Debt during Expansion. This has not been happening for 30+ years, although during Clintons' Presidency it was almost achieved.

10000x this.

This is why you don't stimulate during the bubble: you get seriously boned when the bubble goes pop.

 

[MovingTarget]

Stimulate during a Recession, Pay down the Debt during Expansion. This has not been happening for 30+ years, although during Clintons' Presidency it was almost achieved.

This. This is why Keynesianism hasn't been followed. When times are good, you let taxes on the wealthy rise and use the additional revenue to either pay down the debt or invest in infrastructure or R&D. You do not squander a surplus with a tax cut.

 

[LegendKiller]

First off, you go wrong by posting Denninger, the same guy who said there'd be riots by the end of 2009 and all of society would go to shit. Now, this "stimulus" which partially saved us from something worse, is actually BAD. Never mind that you are taking a look at history and saying that the lack of net GDP growth is proof that the stimulus didn't work when, in fact, you have no way of proving that it didn't prevent WORSE net GDP "growth". In fact, I wholly challenge you and that fucking loon Denninger to go back in your "WAY BACK" machine and relive exactly the mass hysteria he tried to spread and figure out what would have happened WITHOUT the stimulus.

Of course, your illogical (and his) brain cannot possibly fathom that alternative.

 

[LegendKiller]

That post was written by Ken Denninger. For fun, feel free to go compare what percentage of our good friend Ken's economic predictions have been right over the last 4 years and then go look at what percentage of Paul Krugman's predictions have been right.

Then ask yourself why anyone listens to Mr. Denninger.

People with mental illnesses tend to believe each other's delusions. It's a great explanation for Ron Paul.