Friday, November 14, 2008

Paul Krugman kinda scares me.

Not to sure about this "Depression Economics" idea.

Comments?

CC
who is by nature a fairly debt-averse person.

12 comments:

PG said...

I also am a debt-averse person; I was very worried about buying an apartment because a mortgage is such a huge debt (even if it's an asset-backed one), and I will brown bag lunch every day if the alternative would be not paying off my credit card in full at the end of the month. When my husband was talking in the abstract about how to game the system by declaring bankruptcy, just the word "bankruptcy" made me really nervous.

But I think Keynesian economics is essentially sound: in good economic times, the government should rein in spending and increase taxes so it can pay down debt and perhaps even get a rainy day surplus; in bad economic times, the government should spend more, particularly on infrastructure projects to employ workers, and not worry about zeroing out the surplus and even getting some red ink. A recession is the perfect time to rebuild and expand some bridges, levies, highways and public transport systems so they can handle bigger loads once the economy is doing better.

The trouble, of course, is that no one ever wants to do what Keynes prescribed for the good economic times. Politicians always see an increase in tax revenues from the good times, as reason to spend more and cut taxes. It was absolutely insane for Bush to have engaged in deficit spending during the non-recessionary period 2003-2007, and to have increased the national debt by so many trillions of dollars.

However, we can't be scared by the size of those figures into taking the Herbert Hoover route during this recession. But I don't think the stimulus package should be another lame check like the one issued this year, which a lot of people put into paying down debt rather than into new consumption. I think the government's going to have to spend the money to ensure that it is spent in a way that employs American workers and uses American-made materials.

Let the Detroit auto industry fail entirely if it can't rework itself in bankruptcy court -- cars will still be made in America, as Toyota continues toward opening yet another U.S. plant (this one in Mississippi). There's nothing holy about the Detroit auto industry. What matters is whether Americans are working the assembly lines, not whether they are the CEOs of the corporations.

PG said...

Oops, I meant to link the best argument I have seen in favor of bailing out the Big Three.

I still disagree, because Gross doesn't explain how the bailout would ensure that the Big Three do what is necessary in order to survive: "the Big Three need to shrink their capacity by 40 percent, recruit new managers and corporate boards, restructure labor relations in such a way that they can have lower-cost and more flexible work forces, and shuck many of the liabilities they willingly entered into, all while raising vast new sums of capital to invest in research, development, and factory modernization."

But he certainly makes a more plausible case than Gov. Granholm's witterings about national security and my GM car battery as universal fuel source.

Comrade Kevin said...

All economies are transitory and doomed to failure. This was an inevitability, but with time I have confidence that the market will correct itself. In the meantime, however, this could be a lengthy period of uncertainty.

I see where Krugman is coming from, but quite honestly, I don't think anyone has anything to offer but competing theories right now. These are uncharted times.

Bill Baar said...

All economies are transitory and doomed to failure.

It was Keynes who wrote in the long run we're all dead.

That shouldn't stop us from doing the work of practical goodness in the here and now.

One of my fears about Obama is he's an extremely cautious guy at a time in history that calls for some boldness.

Boldly letting these corporations restructure themselves is not the bold move I expect from BHO.

Throwing more money into the Auto Industry's broken business model is the more likely course.

Joel Monka said...

pg, the problem of people only using half of the Keynesian formula is at the heart of why I'm conservative; most liberal programs are actually well thought out, but get spoiled by human cussedness... of course, if we were the kind of people that would make such government programs work, we wouldn't get into the problems that required them in the first place.

And yes, it was insane for Bush to run up those debts- and equally insane for the Republican congress. That's why Republican vote totals were down the last couple elections, including the Presidential election; conservatives have been fleeing the party in droves, so much so that we've elected a lot of Libertarians to local offices here in Indiana and elsewhere.

Not that the Libertarians are ideal conservatives, either. *sigh* But at least it's not "God's Own Party"

fausto said...

I think Krugman is exactly right. But the fiscal stimulus should be direct spending on public works and public employment (on the model of the CCC and WPA) which can be wound down when the private economy can again generate sufficient private-sector employment, or on investment in public infrastructure that will produce long-term public benefits. It should not be spent on subsidies to preserve the franchises (or jobs) of failed enterprises pursuing unsuccessful business strategies. Even worse, it should not be spent to make already-failed businesses even more untenable by interfering with executive decisions and forcing them to adopt unprofitable political goals.

Bill Baar said...

Rhinelander Wisc has an exceellan museum about the ccc. You should visit and ask how many kids are going to want to join it and chop trees in northern wisconsin in winter. And what Government agency is going to manage them, pay for their health care, deal with all of the issues that will arise.... and who will answer why don't we just cut these kids a check instead and do spring break on the gulf.

PG said...

I'm not sure why chopping trees in northern Wisconsin this winter would be a useful task for anyone. Sending young people to do reconstruction on the Gulf Coast sounds far more helpful. Many people in Texas are still living in tents two months after Hurricane Ike.

Nor am I sure what Bill means by "kids," considering that the CCC initially took only 18-25 year olds (plus veterans and Native Americans of any age), never allowed people to join who were younger than 17, and required them to send 5/6 of their paychecks for support of dependents (either their parents and younger siblings, or their own wife and children).

kim said...

We have a suggestion for what to do about the auto companies. the government could contract for cars -- just buy whatever number of billions they were going to give them worth of cars -- but they have to be alternative fuel or hybrids or Volts, or other low pollution vehicles. The government could use all it can, and sell the rest as government surplus. Lots of auto workers would have jobs, cars would get more efficient, and they could buy back the contract at any time they wanted to quit -- and we'd get our money back.

PG said...

The government could use all it can, and sell the rest as government surplus.

I don't think I want the government in the auto dealership business. One of the reasonable concerns about a bailout that imposes too many restrictions on the Big Three is that the government will be edging toward controlling what is supposed to be a private sector enterprise. If there is to be a bailout, it should look as much like a bankruptcy proceeding as possible, including converting creditor debt into corporate equity, which means the people whom GM owes money will now have the blocks of shareholder power necessary to replace directors and management.

Anonymous said...

i'm new to blogging and i'm jumping right into a discussion beyond my current knowledge - this blog just sort of fell into my lap as i struggle with my financial woes. i'm struggling to find my way back to being "a debt-averse person". pre-single motherhood and a bout with cancer i too was debt averse. but living in a cycle of deprivation made me a little nuts in my relationship with money. i've worked hard to find my way back and not there yet. how do you stay debt averse? is it simply your nature to not want to be indebted or do you struggle within yourself to realize having when you can't afford is not the answer?

PG said...

anonymous,

I now feel kind of bad for saying I'm debt averse, because I've never been in an economic situation like yours where I had expenses that were unavoidable (paying for medical and child costs) and a break in my ability to earn money. I wish you the best in dealing with your financial woes.

My debt aversion is more on the scale of "I'm going to keep the secondhand TV I got from my sister and use an antennae instead of paying for a new TV and real cable." I have little interest in clothing, only drink socially (and don't go out that much) and get most of my entertainment free on the internet (so the last thing I would cut if cutting expenses would be my home wifi). I get really attached to my old stuff -- I am sitting here in a shirt I've had for 13 years (apparently Guess clothing from 1995 was quality for the price) and with my husband's old iPod, which makes him sad because he bought me a new one but I can't get used to it yet. My last haircut was the first one for which I've paid more than $15; my hair was finally getting too awful to wait until Thanksgiving when I'd go home and be able to get it trimmed at Wal-Mart.

Sometimes I see things I want and that are more than I should pay -- restaurants and travel are my big weaknesses -- but I tend to hang out with cost-conscious people, and since those things are socially oriented (I would feel uncomfortable going to a nice restaurant or traveling alone), it's easy to think, "Well, no one else I know would want/ can afford to do this with me, so it's not really a loss."

Hmm. Try becoming a geek with cheap friends, I think that helps save money.