That 1937 Feeling - Paul Krugman

[AllentownJake]

Here’s what’s coming in economic news: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.

But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.

This shouldn’t be happening. Both Ben Bernanke, the Fed chairman, and Christina Romer, who heads President Obama’s Council of Economic Advisers, are scholars of the Great Depression. Ms. Romer has warned explicitly against re-enacting the events of 1937. But those who remember the past sometimes repeat it anyway.

As you read the economic news, it will be important to remember, first of all, that blips — occasional good numbers, signifying nothing — are common even when the economy is, in fact, mired in a prolonged slump. In early 2002, for example, initial reports showed the economy growing at a 5.8 percent annual rate. But the unemployment rate kept rising for another year.

http://www.nytimes.com/2010/01/04/opinion/04krugman.html?pagewanted=print

I fully agree with Paul, there will be a statistical blip, people screaming victory, followed by another horrible downturn. Other things Paul does not mention is that the business environment that caused this disaster has not been rectified. The financial reform bill in the house is a joke and represents the banksters ability to hedge their bets in the congress with Vichy democrats like Barney Frank. His points on the full article on the currency war and widening trade deficit and lack of reprisals by our leaders on nations such as China is also a solid point.

That and foreclosure and deliquency rates are not slowing.

Translation, a bunch of people are going to look like fools after celebrating momentarily only to have been warned.

You doom yourself when you don't fix the the fundamentals of a problem and instead throw money at it. These people we elected should have been smarter than this.

[Drunken Irishman]

1. I'm not sure you understand Krugman or I'm just not getting what you mean.

Because he isn't predicting gloom after the probable blip of success we'll see in the coming months. He's suggesting we shouldn't pull back thinking the recession is over and instead continue the focus by keeping Obama's stimulus in place and put even more emphasis on the economy.

He's merely saying we can't take our foot off the peddle or things WILL spiral out of control like it did in 1937. He's not saying it will happen.

[AllentownJake]

2. Actually I understand Paul very well

It is perfectly consistent with what I've been saying. The "recovery" is mostly government spending with some inventory restocking. The fundamentals of our economy are essentially fucked. Nothing has been done to fix that and if you take the binky away, BOOM.

Paul is pretty explicit about that in his full article. Not just the 3 paragraph excerpt I can post on DU.

Show me where my comments are inconsistent with Paul. The only thing he left out was Vichy Barney Frank and the shitty reform bill.

[Drunken Irishman]

3. Sure.

Here is what Krugman ended his article with:

Meanwhile, all the talk at the Fed is about the need for an “exit strategy” from its efforts to support the economy. One of those efforts, purchases of long-term U.S. government debt, has already come to an end. It’s widely expected that another, purchases of mortgage-backed securities, will end in a few months. This amounts to a monetary tightening, even if the Fed doesn’t raise interest rates directly — and there’s a lot of pressure on Mr. Bernanke to do that too.

Will the Fed realize, before it’s too late, that the job of fighting the slump isn’t finished? Will Congress do the same? If they don’t, 2010 will be a year that began in false economic hope and ended in grief.

The entire article is about the need to keep the stimulus and the government's support of the economy. And how, when the economy appears to rebound, Republicans and some Democrats will cry about how we need to pull back. Stop the stimulus and move the government from the economy.

Now he does mention how Pres. Obama's stimulus begins to fade too early and certainly Pres. Obama must understand the good economic news to come won't fully mean we're in recovery. However, never once does he suggest it's set in stone as you do. And the fundamentals of our economy are only grim if we let up and act as if everything is fine after the initial successful results.

Anyway, off to bed. Have a good night! :hi:

[AllentownJake]

4. Here is what Mr. Krugman is missing

No one wants to lend us that much more money. T-bond interest are going to increase if we continue to borrow to pay to boost our GDP at our current rate. The administration can't do what Mr. Krugman suggest because despite Mr. Krugman's belief we can just borrow forever, it isn't the case. Eventually your lenders start asking for more. So the Fed and the Obama administration are really over a barrel here.

My beef with this administration is that unlike FDR who looked at a failed system and went for long term solutions, the Obama administration has thrown a whole shit load of money at a problem, borrowed money, while not looking to fix the actual problem. It is a common approach with this admin whether you are talking about Health Care or the economy.

What the Administration has done, with an opportunity to actually change a few things is throw a few bad support beams on a failed system and claimed vicotry.

I notice you totally bypass the commentary on the trade deficit, consumer spending, and the housing sector. So unless you are planning on running 2 trillion dollar deficits in perpetuity, you better have a plan B on actually building a real economy in the private sector to fund your government spending at some point.

They don't fix anything. They are essentially flakes.

[girl gone mad]

5. Krugman promulgates a warped form of Keynesianism.

Massive government intervention would be just the thing to get us out of a slump, if it weren't for the fact that our government never stopped pumping funds into the economy, even during the boom years.

Strange how Krugman recognizes that we're following Japan's bad example with respect to creating zombie banks, yet he has a blind spot when it comes to Japan's two decades of failed stimulus programs, because he seems to think that by some miracle, the same policies that have pushed Japan to the very brink will put us on the road to recovery.

[AllentownJake]

6. Paul is very smart

but I think his lack of actually being in the economy and being held up in Princeton, give him very big blind spots. They are better than the blind spots Geithner and Summers have, which is shock that there is an America outside of NY and Washington D.C.

[Demeter]

8. He also operates Under a Word Limit in a Column Format

and it's a popularized version, too. Krugman does the best he can, but even he has limitations. And his blind spots tend to be partisan, alas!

[AllentownJake]

10. He brings up the flaws in the old economy in this one

That was the biggest take away. When your country is funneling growth on borrowed funds and government intervention, eventually you have build an underlying economy in the private sector you tax, to pay the debt with.

I could borrow money to go to school for the next 10 years, if I don't have a job to pay for it when I'm done, well that money really wasn't the most sound investment.

[Jeff In Milwaukee]

26. "Paul is very smart"

How very generous and condescending of you..

And in which year did YOU win a Nobel Prize in economics?

[ProfessorGAC]

11. You're Attempting To Go From Point A To Point C

The fundamentals and structural improvements you desire are not achievable until the overall economic conditions have stabilized.

Nobody, including Krugman, is suggesting that all is now ok, just because some good things will turn up in the stats. Nobody in the Obama administration is saying that, either.

You are inferring that everyone thinks that, and then create your argument against something nobody actually said.

And, if you have read some of the cites you posted in another thread, you will see that no real economic expansion occurs in a destabilized economy.

Point A, then Point B, THEN Point C.
GAC

[AllentownJake]

12. I think you are bolstering my case actually

The structural problems in our economy are related to free trade, taxation, and regulation. The overall economic conditions cannot stabilize until the structural issues are fixed.

You can helicopter all the money you want to, unless you fix the structural problems, shit is going to hit the fan when helicopters stop coming and the fact that helicopters are dropping money, has people looking for helicopters and not fixing the things that made it necessary to have the helicopters drop money to begin with.

The moral hazard thing.

[ProfessorGAC]

20. Actually I'm Not

I'm suggesting that those things aren't fixable until the basic monetary flow is stabilized. That's A to B. B to C is doing what you suggest. I'm not arguing the systemic issues, merely that one must do what's being done now before the more fundamental elements can be addressed.
GAC

[AllentownJake]

21. Yes and your process of trying to "stabilize" monetary flow

Has ensured the parties that destabilized it in the first place are still in power, haven't learned their lesson, and are stupid enough to blow it up again.

Moral Hazard, you created an unintended consequence by trying to solve a problem, that ensures you can't solve the root cause of the problem.

[ProfessorGAC]

23. I've Created It?

That's just beyond the pale. This discussion is over. Apparently, anybody who doesn't share your exact point of view is the enemy. That's the convenient thinking of a raging right winger.
GAC

[AllentownJake]

24. Apology for using you instead of they

I standby my comments if you put they in there.

[theophilus]

19. We need to replace old Pauly with you Jakey, obviously. n/t

Except "Sarcasm"

[AllentownJake]

22. Look at the last purchase data for Treasury Securities

and get back to me.

I'm very eager to find out who this "household sector" catch all is that has increased buying from 15 billion in 2008 to 500 billion in 2009. Foreign investment increased 23% and China decreased their purchases in the last auction. Other than printing it, where is the money coming from.

[Captain Hilts]

14. Yes, that's how I see it too. nt

[Demeter]

7. That "Blip" Will Be Phony, too

Like every other number that's come out of the govt. for the past decade, it will be "massaged" to death.

[AllentownJake]

9. The government hides truth in plain sight for the investor class

The underlying data is understandable, the way they calculate the number for the idiots to think about on TV is not.

Much can be learned from the reports. You just have to read the actual reports.

[Javaman]

13. Crystal ball economics.

No one knows how this will all pan out. That is a fact.

I do understand one thing though, how does an economy have a "jobless recovery"?

I have stopped clapping harder. I found it only hurts my hands.

I choose the wait and see concept, However, I still choose to keep hopeful while still preparing for the worst.

Like my dad would say, It's nice to hope but a garden feeds you.

[laughingliberal]

25. If this were the first time the country had experienced a meltdown of this nature I might agree

However, we saw these same condition in the Great Depression and we have the roadmap they used to turn it around. We also have a roadmap to the double dip many are worried about-a repeat of 1937. I sincerely believe if we pursue the road we did then we will see the double dip again. Some things are predictable. Those who ignore history are destined to repeat it.

edited punctuation

[Javaman]

28. History doesn't repeat...

It rhymes.

And there is currently no other situation in the US history on the scale we are witnessing.

The panic of 1890 comes close in it's elements even the tulip panic, but nothing on this scale. This is uncharted territory.

[laughingliberal]

29. There may be some things we can not foresee...

but I feel pretty safe in predicting if we go on a deficit reduction spree in 2010 as looks likely right now, we're gonna see a 1937 type double dip. Some economic principles do apply here.

[kentuck]

15. People get a false sense of security..

because of the social safety net, especially unemployment insurance. When we had the Great Depression, the people had very little in the way of a social net. Otherwise, we would be in a similar condition today, in my opinion. The Republicans make the mistake in believing that Republican voters are never unemployed or never need food stamps. They are self-sufficient.

[AllentownJake]

16. Oh no they wouldn't

Trust me, if it were President McCain the unemployment benefits would still be extended. The last thing he would want is a leftist populist movement going on. They are dumb, they aren't that dumb.

Difference between McCain would be he would be cutting taxes left and right in a desperate attempt to get private investment going again....you don't pay taxes when you have plenty of write-offs to begin with though.

The social safety net is anestesia while the leaders are supposed to operate. The problem is, they aren't doing any operating.

[dysfunctional press]

17. "These people we elected should have been smarter than this..."

why? the people who elect them aren't.

[AllentownJake]

18. It's a cultural issue

one I'm afraid, I don't know if there is a solution for right now.

[laughingliberal]

27. 1937 was my first thought when I read, a couple of months ago, the President would use SOTU to

address deficit reduction. Seems there was some sort of outcry cause shortly thereafter we got the 'jobs forum.' I, sincerely, hope we do not pursue the path of cutting spending at this point. We may need more stimulus spending. Meanwhile, the underlying problems need to be fixed so that recovery is sustained growth and not just another bubble waiting to burst again.

[dialectical]

30. For once, and I mean for once, Krugman is right...

Reality check for those interested in economics:

The Crisis of Bourgeois Economics

[mkultra]

31. more uncalled for doom and gloom

the GDP numbers are a trend not a blip. The same is true of unemployment. Foreclosures have been down on trend as well(check realtytrac) and the second dip of the great depression was small and was market by NO change in UE. The Keynesians where wrong about the upturn cause.