Ep. 39 It’s Easy to Fix the Slowing Economy: Try Something That’s Never Worked, Says Krugman

12 June 2016     |     Tom Woods     |     23

Krugman admits the recent job numbers aren’t so good, but says there’s an easy solution: fiscal stimulus. Waiting for actual examples of successful fiscal stimulus? You won’t find them in this column, and for good reason….

Krugman Column

A Pause that Distresses” (June 6, 2016)

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Contra Column

Stop Bleating About Crumbling Infrastructure,” by David Stockman

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Related Episodes

Ep. 30 Obama’s Been a Great President? Not So Fast
Ep. 23 Krugman: You’re Stupid If You Oppose Stimulus
Ep. 22 Fear Balanced Budgets and Sound Money, Warns Krugman
Ep. 13 Krugman’s Lame Defense of the Obama Economy
Ep. 11 Ignore the Bad News About Obamacare! Everything Is Fine!
Ep. 8 Does the Economy Perform Better Under Democrats?
Ep. 7 Obamacare Is a Big Success, Says Krugman
Ep. 418 The Truth About One of Those Pre-Fed Depressions (Tom Woods Show)

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  • Mark

    To Krugman: You moron….is your answer for everything always another shot of heroin? You’re vacuous, stupid, and a huge bore.

  • Brohemius Meebio-Blaps

    I always get Dr. Woods’s jokes. I can’t understand why the rest of you guys don’t.

  • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

    I am going to try to imitate Tom Woods’ sense of humor now so,… please be gentle with me.

    Tom, Tom, Tom,… you’ve got this all wrong! Silly Rabbit! The point is not to fix the economy,… the point is to get credit for fixing the economy! There is no money, no power, no prestige, (no girls!) being the child who is crying out But he’s nude! The power only comes from carrying the floor length robe that isn’t there.

    Right now I am working on a campaign project to get Hillary the credit for the sun raising in the morning and setting in the evening. See how that works! Any suggestions from you Tom, and your audience, for how to make a convincing case of this, would be much appreciated. (Patronage still available; Taking is so much more fun than actually giving; If you still get credit for giving,… what’s the down side!)

    • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

      On a totally different subject (unless moral consistency is really considered essential afterall), and because it’s so immediately timely,… I give you What Pisses Me Off About The Orlando Terrorist Attack | Stefan Molyneux.

      Anyone here want to start a betting pool over whether or not the media will forget about a mass murderer of gays being Muslim? Or will the Muslim disappear and the guns become the quilty party>

    • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

      Would you tell me why my post on the Orlando Terror Attack was deleted without any explanation as to why?

      I would just appreciate knowing what the rules are.

      • http://www.TomWoods.com Tom Woods

        I haven’t touched a thing. I’m eating a late dinner with my kids.

      • http://www.TomWoods.com Tom Woods

        I got your comment emailed to me as they all are, but I have no idea what happened to it.

      • http://www.TomWoods.com Tom Woods

        I can email you the text and you can post again. I had no problem with what you wrote.

        • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

          Thanks a bunch for clearing that up. Gremlins Rule! I suspect the problem arises when I repeatedly re-edit my comments.

          I have to ask, before you also delete this hanging thread,… do you have an opinion about am I usefull here?

        • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

          Thanks a bunch for clearing that up. Gremlins Rule! I suspect the problem arises when I repeatedly re-edit my comments.

          I have to ask, before you also delete this hanging thread,… do you have an opinion about am I usefull here?

          • Luke Perkins

            I have to ask, before you also delete this hanging thread,… do you have an opinion about am I usefull here?

            You weren’t asking me, but I’ll answer.

            I think your posts get wordy, and repetitive, and I don’t notice you dealing with the arguments people bring up to you in subsequent posts, but I like the graphics you include, and the times we’ve discussed different topics I’ve always found our conversations productive.

            And, even when we can’t come to agreement, I have always found you at least try to understand what other people have to say, and remain polite unlike a certain cadre of trolls around here…

            So, all in all, I think it’s worth having you around even though we don’t agree on everything… or even much it seems… and I would have the arrogant, condescending, drivel spewers leave long before I would wish you depart. Low bar to get over, I know =D

            That said, have you thought about your own blog? Right now I suspect most people miss what you have to say because they’re here to listen to Tom and Bob and long comments are really not usually read. Perhaps taking Tom’s offer of promotion for a website would get you blogging where you would have the stage instead of the peanut gallery. Just a thought.

          • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

            Wow! Okay!? This is what we give people looking for a little love,… the truth!

            I think your posts get wordy, and repetitive,…
            guilty!

            I don’t notice you dealing with the arguments people bring up to you in subsequent posts,…
            Ouch! That hurts. Because, silly me,… I thought I was dealing with the arguments people bring up to me in subsequent posts. I am not saying you’re wrong,… just that I must be doing a bad job of explaining myself.

            the times we’ve discussed different topics I’ve always found our conversations productive
            Thank you.

            So, all in all, I think it’s worth having you around even though we don’t agree on everything… or even much it seems
            I understand our differences to be one of differing opinions on how best to move society in our preferred direction. Such differences are to be fully expected. To say … or even much it seems seems to be a bit harsh to me.

            As to getting my own blog,… as I’ve explained before, I am a counterpuncher. When I try to swing first, all I ever seem to hit is air. I just find my own stuff bores me when I start alone. But I would love to write for someone else’s blog/website.

          • Luke Perkins

            Of course you ask for love and get the truth… the two kinda go together 😉 If you’re looking for ego flattering, I’m not your guy =P

            To say … or even much it seems seems to be a bit harsh to me.

            I suppose we are headed in the same direction for the moment, but as a anarchist perhaps I am just headed a lot further than you intend to. Either way, on matters of faith (Taoist vs Christian), political structure (minarchy vs anarchy), the “Muslim question” (to borrow a phrase), the borders, and probably a couple I’m missing, we certainly disagree. I see agreement on economics and the desire for a peaceful life, the latter of which virtually all humans claim to desire, so really economics is the place we most agree.

            So I don’t think I was being all that harsh, but perhaps that’s just one more to put down on the disagreement side? =P Either way, I’ve gotten old enough to realize even people who disagree on almost everything can still have decent conversations, and really honest disagreement is often more productive than agreement.

            I am a counterpuncher. When I try to swing first, all I ever seem to hit is air.

            Ok… so how about a blog where you deal with what someone else has said… ya know… kinda like Contra Krugman =P

    • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

      On a totally different subject (unless moral consistency is really considered to be essential afterall), and because it’s so immediately timely,… I give you What Pisses Me Off About The Orlando Terrorist Attack | Stefan Molyneux 14:55 minutes

      Anyone here want to start a betting pool over whether or not the media will forget about an American immigrant mass murderer of gays being Muslim? Will the Muslim disappear and the guns become the sole quilty party? If you really have any doubt about what’s about to happen,… then honey, you’re still an innocent. God bless you!

  • http://tklist.us TKList

    New Contract With America

    Abolish tax code and IRS.
    Enact the Fair Tax.
    Minimize regulations to only what is absolutely necessary.
    Balance the budget.
    Start decreasing the national debt.
    Abolish the Federal Reserve, the FDIC and all bank regulations except one; require full disclosure on full or fractional reserve backing of deposits.
    Treat gold, silver and cryptocurrencies as legal tender (not as an asset) for tax purposes.
    End the war on drugs. Decriminalize and legalize drugs.
    Immigration reform is necessary because of inadequate immigration policy and execution.
    Abolish the Farm bill
    Give all parents school vouchers.
    Abolish minimum wage laws.
    Get the federal government out of the student loan business.

    Get government out of the health insurance business as much as possible. Limit them to limited regulations and financial support to those who need it.
    Obamacare, Medicaid, Medicare and VA hospitals should be phased out.
    People under these programs and those who are financially below the poverty level should be given a yearly amount that they could use to purchase health insurance.
    Keep the federal regulation stating that insurance companies have to cover pre-existing conditions as long as the person had previous insurance.
    Allow people to purchase insurance from any state.
    Deregulate state health insurance markets.
    Unhinge medical insurance from employers in the tax code.
    Getting government out and increasing competition in this way will lower health care costs. It cuts the bureaucracy costs, cuts the fraud costs and improves competition and quality of care.

    Abolish the FHA, HUD, Freddie Mac and Fannie Mae. Repeal the Community Reinvestment Act.

    Update the safety net. Have a means tested financial safety net, not a safety net based on government run programs for everyone.
    Pay employees their full pay and let them choose to who and how much of their pay goes to their medical insurance, pension fund, and long-term care fund.
    Stop letting companies, unions, cities, states and federal government mismanage and underfund promised benefits.
    Liberate the paychecks of hard-working Americans from the convoluted tax code and dictates of politicians on how to save for retirement.

    Support politicians that promise to get rid of laws and regulations that are obsolete or ineffective, instead of the ones that promise to enact more laws and regulations.

    Pass and ratify an Amendment to the Constitution to require a 60% supermajority in the House to pass any new legislation and a simple majority to repeal any legislation.
    Pass a Constitutional Amendment for congressional term limits.

    Choose limited federal government. Stop making millionaires out of our politicians and lobbyists. Stop increasing the power of connected corporations.

  • Steve Chaplin

    Why in the heck didn’t you touch on this sentence from Krugman: “For example, both the 1974-5 recession and the 1981-2 recession were followed by rapid, “V-shaped” recoveries, because the Fed drastically loosened monetary policy and slashed interest rates.”

  • tz1

    Competition: http://www.breitbart.com/2016-presidential-race/2016/06/14/paul-krugman-is-nearly-always-wrong/
    Meanwhile, the great debate will happen this friday

    • http://www.TomWoods.com Tom Woods

      If you should miss the live version, I will be making it into an episode of my own show at tomwoods.com.

  • http://www.economicmanblog.com Roger Barris

    This is really a question for Bob:
    This episode touched upon my central question about ABCT, when you cite Rothbard for saying that increased savings can actually improve an economy that is experiencing the “bust” after an “boom” that has been induced by artificially low interest rates. In other words, this can help validate a structure of production that was falsely predicated on an assumed higher level of real savings.
    Now, I can understand this if the boom has ended due to higher prices for input goods, resulting in investments becoming unprofitable. Then, the addition saving would (although realistically only with a lag in time) free resources to provide additional supply in these “choke points” and potentially restore the profitability of the investments. (Although there seems to be a bit of sunk cost thinking going on here, but leave that aside for now.) However, although this is one possible pattern of a bust and recovery, it is not the only possible and, in practice, I don’t think that it is the most likely one. For example, I don’t think that this was the pattern in the GFC — although a lot of malinvestment in housing was stopped midstream, this was not due to increases in the prices of construction materials or labor, but rather drops in demand — and I don’t see how increasing the level of saving after the GFC could have accelerated the recovery.
    Likewise, I can see increased savings being helpful if the malinvestment resulted from an increase in interest rates due to the shortfall in the real savings rate directly pushing up interest rates or because Fed had to increase interest rates in order to curtail general inflation. But, again, I don’t think that these patterns of excess demand are the only possible patterns, nor were they terribly relevant in the GFC.
    Can Bob give specific examples, perhaps by reference to the GFC, of how increased saving would have helped? There is much that is intuitively appealing about ABCT — the basic idea that manipulating the key price in a capitalist economy must be destructive and the idea that artificially low interest rates induce excess risk taking and malinvestment — but there is also a great deal of “hand waving” in explaining how this particular policy prescription could be helpful or why attempts to enhance aggregate demand would be harmful. (For example, Bob’s comment that tax cuts would not be helpful if the goods were not available on the shelf for purchase is not, I don’t think, an accurate description of why tax cuts have failed to produced a stronger recovery post GFC.)

    • Matt Galindo

      But it would have been an actual recovery.

      If the measures to stimulate the economy and loosen monetary policy (amongst other things) had never occurred post stock market crash (2000), there would be no need for a correction to fair value, deleveraging of debt, and downsizing and bankrupting of unprofitable banks and businesses.

      So, A) You have to start somewhere. The efforts to stimulate an economy always result in a bubble, and quite frankly, we have many today – fueled by debt.

      B) The problem with low rates is, in the long run, it actually stagnates growth. Too many loans, high taxes, and inflation work together to create an environment of less spending in the long run. The credit cycle. (It is also a reason why the financial sector has become so profitable)

      C) ABCT is comprised of a few steps that are constantly occuring – industry to industry, business to business.

      The MMT spearheader Warren Mosler said, ‘People tend to act in a cyclical nature’. This is not entirely false, however in the aggregate it is usually misunderstood.

      The cyclical nature is that of higher levels of consumption that are coupled with rising interest rates and consumer goods prices, followed by a period of savings coupled with investment in capital goods structures, lowering interest rates, and falling consumer prices.

      During the latter stage, more companys are formed and vertically integrate into the production system as new firms or extensions. Some businesses may fail and you can expect deflation and lower employment. However this is all temporary because the next period is the consumption, low rate, and rising price period that keynsians love so much.

      At any rate, it is important to understand that the only reason any of these problems are allowed to accur is credit/debt. The big crisis’ are a result of manipulation: Trying to funnel more debt/credit into the system than there should be. It’s really that simple. Well, that and derivatives. X_x

      As for examples, it is kind of hard to give specifics of what naturally occurs, so as to explain why much of modern Austrian spokespersons are negative and criticize rather than act happy-go-lucky and push their agendas (because there aren’t any, really).

      I’d say look at 1920-21 crash/recovery (aka the forgotten depression) for starters.

      I’d definitely look at 1819. Rothbard has a great book (I think it’s is actually titled 1819) that seems to be a narrative of the modern day.

      As for the GFC “recovery”, there is nothing much to be said. Student loan debt bubble, stock market bubble, housing problems, medical costs through the roof. Less safe investments (bonds and savings), and more speculative gains in derivative and equity markets, financed by QE and low rates to buy up the equity. Bailouts and subsidies continue to plague competition and stagnate growth. Minimum wage still creating unemployment. Food stamps, welfare, and unemployment the new breadlines. Social unrest. Worldwide currency pooling and inflation. I mean have you seen the money supply? If we ever lost our reserve status, you would see hyperinflation in the upper 50’s. And to top it all off, we have a huge public sector debt that Krugman wants to further exacerbate.

      All stimulus does (as well as any credit/debt system) is satisfy current desires for future desires plus interest. So any “tax cuts” that have taken place are pretty much moot at this point, and will be directed at saving and paying off accrued debt, taxes, and other outstanding liabilities.

      • http://www.economicmanblog.com Roger Barris

        Thanks, but I think that you have largely missed my point (in a way that is fairly typical for advocates of ABCT).

        I was not asking a question about how an economy GETS INTO a crisis. Here, I find the Austrian description — that it is the result of loose monetary policies causing malinvestment and excess debt — to be fairly persuasive. It has to be said, however, that there is nothing uniquely Austrian about this perspective and it can be easily grafted onto a mainstream view of economics. For example, Martin Feldstein has been saying this for years, but he certainly does not self-identify as an Austrian. This is also the view of the BIS and of a number of buy-side economists who warned about both the dot com and housing bubbles (such as David Rosenberg and Stephen Roach).

        My question was not about how an economy gets into trouble, but the prescription for getting out of it. Specifically, how it would help to increase the savings rate during a recession in order to align the capital structure with the “real” pool of savings. As I indicated with my original question, I can see how this would help with certain patterns of crises — mainly, inflationary ones — but I fail to see how this would have helped, for example, with the GFC.

        • Matt Galindo

          The GFC was an inflationary crisis, like any crisis. Assets were absolutely inflated – obviously the case with housing.

          The “perscription” is simply how the people decide to react to the crisis. If, for example, people responded by going out and buying a ton of houses, then that is what would have happened – because people saw that option as in their best interest.

          However most economists believe people will save in times of crisis out of general fear, and consumption will deplete. I’d turn the question and ask why would preventing people from saving money help?

          The loose policy did build up inflated assets which needed to be deflated and deleveraged. The bigger problem with the GFC was and is all of the public debt and motrage backed pooling orchastrated by the government. That gave the government a greater incentive to try and stave off savings and deflation.

          I’m not saying saving money would eliminate a depression, I’m saying it’s an honest step that is viable for most people. Lower prices and a higher cash Balance help to secure families and eliminate any businesses, assets, or otherwise that are no longer functional under loose monetary conditions.

          I wouldn’t tell people how to act, I would simply allow them to act for themselves, assuming they are doing what is in their best interest.

          • http://www.economicmanblog.com Roger Barris

            “I’m not saying saving money would eliminate a depression, I’m saying it’s an honest step that is viable for most people.”

            But this is precisely what ABCT claims. This is the technical, economic theory question that I am asking. I am not asking for opinions on how people should act in a financial crisis or whether you should have any such opinions.

            We are talking at cross purposes so probably best if we stop now.