NYT - Paul Krugman: "Revenge of the Glut"

As you expect with Paul Krugman when he wants to score a point or two, he channels John Maynard Keynes.
Inflate the money supply, then savings loose value and we are forced either to “buy now” or to purchase assets like gold to keep up and that’s the problem, the money does not go into productive capacity, there is no wealth created.

Krugman is the most over-rated economic commentator. Just because he won a Nobel prize a few decades ago, people take as gospel any old blather he cares to spit out.

No it doesn’t. The perceived wealth of some may be less but they are not neccessarily worse off than they already were - they just hadn’t realised it.
And those with zero debt, positive cash and productive, reliable work will likely come out of this better off than the debt monkeys.

A few decades ago?? it was last year

Paul Krugman, Nobel
Arvind Panagariya, 10.13.08
forbes.com/2008/10/13/krugma … ariya.html

That’s the way I see it too GB; we’ve lived in the Peter-Paul economy for the last twenty-odd years. Borrowing from our future Peters to pay Paul now. If there was such a savings glut in the past, why did the economy only boom when credit was loosened and restrictions on creating imaginary money removed? Paradoxically, why were there not big bubbles in thrifty countries?

What I see happening is a move from borrowing from the future, or making the sums up based on a staight line up to infinity return on investment, to a save and spend economy, that is, certain assets (houses primarily, but also rolling consumer debt) will not be monetised as they do not constitute an investment with a return. They are a sunk cost and require further costs to maintain them - repairs and taxes for houses, repairs and depreciation for cars, high interest rates for credit cards. None of these things add value to the economy beyond the initial spend. And much of the initial spend is of dubious quality.

Could it be that there isn’t enough stuff to invest in? That there really isn’t a requirement for the level of money that floats around an economy? Not when you see the dilapidated schools, hospitals, nursing homes, houses and apartments built to the lowest common denominator, sewage systems and what passes for A roads in this country. Not when you see the patchwork public transport services that exist. Not when you crawl along the information super-highway.

It was an Alfred Nobel Memorial Medal sponsored by Swedbank - Nobel had no time for economics…

Yes youre right. But the prize was for work he did in the 80s as far as Im aware.

Ill take Schiff and Ahearne anytime over Krugman

And as if by magic, Tim Duy comes up with a riposte…
economistsview.typepad.com/timdu … -wane.html
(Courtesy of Naked Capitalism)

And an excellent piece it is too, IMO.

For my particular bugbear:

Elegantly put in a nutshell.

And another thing from Mr. Duy’s post:

Embedded in a department of Finance near you…

Quantitative easing does not succeed in an environment where in the U.S., they have debt that is the equivalent of global GDP, says Hugh Hendry, CIO of Eclectica Asset Management. He makes his case to CNBC’s Maura Fogarty.


Hendry leaves out an important fact about the Great Depression stock market

  • if you managed to stay invested in surviving businesses you enjoyed high dividend yields.

You could say that stocks outperformed bonds.

T-bill rates were at 0% and long bond yields were at 2%, but S&P dividend yields averaged around 5%
between 1930 and 1950.

Somebody espousing something close to sanity!

What is productive, reliable work, right about now…

Construction, Retail, Manufacturing, Financial Services, even public employment are all being decimated in relative terms…

The term reliable is getting redefined by the hour…

I think there’s maybe a bit of a paradox there. I’d venture to guess that the more productive a job is, the less reliable it is. Production of goods and services relies on ever reducing consumption of the same goods and services.

Obviosly there are exceptions, mainly in the essential services area (medical, security etc).

There is no point blaming the savers if you think people saving instead of spending is the problem. Blame the system that encourages people to save and look to change it. What would all these savers do if DIRT went up to 50-80 percent in all major economies tomorrow morning?

Wait for property prices to go down? :wink:

If interest rates went to zero or DIRT went to 100% I don’t think it would make much of an impact.

not much - its more about return of capital now than return on capital. Anyway they will be winners if deflation continues.

The heading on this post is very misleading.

I read that article yesterday and what he says is correct - but he is not BLAMING savers

Dirt tax changes wont change a thing - what else are you going to put it into??

I thought my savings went into a bank, which then gets loaned out to people to start businesses? Its not as if my money isn’t been spent in the economy, its just that I’m not spending it.