Europe to humiliate Obama at G-20 meeting next week?

Saying a recession is a lack of economic activity is like saying a patient with massive blood loss is suffering from dehydration. Technically correct, but displaying a profound misunderstanding of the mechanisms at work. Likewise, expecting the economy to get better just by having the government increase spending is akin to expecting the patient to get better by pumping water into his stomach. You need to fucking cauterize the wound.

There is exactly one case in which it makes any sense to deficit spend and that's during an unexpected disaster or famine with an end in sight which hasn't affected time preferences or expectations in the long term. This can minimize costs associated with transitioning production from what's needed before and after the disaster to and from what's needed during it.

So far, no economic calamity of the 20th and 21st centuries qualifies, because they were all about hidden changes in time preferences abruptly manifesting themselves because of monetary policy. Or more accurately, a lack of change manifesting itself - preferences hadn't changed, but the increased money supply and lowered interest rates made it appear that they had. This has been the case in every single collapse of the 20th and 21st centuries, just appearing in different forms - stocks, housing, dotcom, telecom, financials. In light of that, the argument for deficit spending boils down to "let's pretend reality really has changed the way we would have liked it to for the past several years", and it leads pretty much inevitably to direct bailouts of favored industries or favored players in industries. There's no other way to keep pretending the recession didn't happen, as far as stakeholders are concerned - bills must be paid and consumers are just too fickle to be depended on to keep the illusion going.

They start to notice things like inflation, the original trick, when groceries start costing more every week. Eventually they just start saving despite your best efforts, and nothing short of ordering them to spend money, a difficult proposition at best in what's nominally a free country, will get them to spend it in the failing industries. They're too busy saving/investing in what they really want, whatever the entrepreneurs of the day are giving them. At that point, to try to keep the illusion going, you have to turn to bailouts.

Bottom line: if you support counter-recessionary government spending, you are a corporate tool. How do you like that thought, Rick?

Too be honest Terry Shiavo would have been better than McCain/Palin...

I think I disagree with your analysis and therefore with your conclusion. And while much of the stimulus is being funnelled through corporations at present, that doesn't need to be the case.

Stiglitz on deficit fetishism

Krugman on fiscal fantasies

^






And in reference to the thread title? What else?

That's not enough. Where do you disagree? Be specific.

As for those articles, Stiglitz offers nothing new, just hand-wringing. Krugman does (), but fails to see that the trade surpluses would likely have existed during the boom time if the central bank wasn't trying to create a boom. By extension, a successful and quick transition to the new/old time preferences would cause just as much of a swing, and the way to encourage that is to cut government spending. Taxes would be good to cut too, but it's obviously hard for Washington to do that along with cutting spending. Obviously devaluation isn't the right way out.

Enough? I'm not here to satisfy your requirements, I'm happy to say. Suffice to have you know that "the mechanisms at work" are very much a matter of debate amongst economists and you don't get to declare what they are, or that anyone who disagrees with your incredibly narrow focus on monetary policy is lacking in understanding.

So you have nothing to defend yourself other than sticking your fingers in your ears and saying "La la la I can't hear you". Concession accepted.