My God, you are an idiot.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

Why you cited 1000 words proving my point I have no idea, but thank you.

His proposition is another way of saying what I said. I just made the point in terms of pure dollars. He adds the argument that, in addition to merely propping things in the trough, Keynesian policies preserve the economic futures, and by extension revenue streams, of current participants in the economy. I think that's subsumed in my point, but to the extent it isn't, it's intended.

You'll have to pardon my simplicity because, unlike that author, my experience with Keynsian polcies comes from hitting a credit line when business gets rough. I understand that a quick contraction is unwise. Makes it all the more difficult to grow when conditions improve. In the same fashion, taking the Hayek approach from the gate can do grave damage to society - damage which might not be repaired so fast, and may lead to prolonged economic malaise going forward.

Why didn't he just write, "Keynesian policies keep shit the same, and that's a better thing than most people easily appreciate"? (Don't tell me his point's more complicated. The essential useful bits of it are exactly what I said. I don't want to discuss the academic elements. I don't care about them; they're for professors to consider.)

He's is contradicting you in a key way that you don't seem to see. Your assumption was that it's a zero-sum game, and that Keynesian policies are simply a transfer of economic activity that would happen later to the present. The point he's making is, that's wrong. Keynes says there are different equilibria which the economy might reach, and that absent government action there is a significant policy that everyone will be worse off when the economy reaches equilibrium. Keynesian policies don't just keep shit the same. That's the point.

eta: Here's the first paragraph again:

One of the most important ideas of 20th century economics was Keynes demonstration that Say's Law does not hold for whole economies. Say's law argued that economies will right themselves - tend to equilibrium - at full production. Keynes showed that will economies tend to equilibrium, they don't tend to equilibrium at what is called a "Pareto Optimal" state. That is the point where there are no "win-win" situations left, in specific terms no one's utility can be increased without an exactly equal decrease in someone else's utility. Sometimes the ship of an economy rights itself, by sinking to the bottom.

[sebastian_dangerfield]

Originally Posted by LessinSF

Call it by a different name then - it is a contraction due to systemic deleveraging.

The majority of it is structural. For instance, can you call millions of unemployed real estate and construction workers in this climate anything but mismatched? Can you call millions of unemployed manufacturing workers, with no hope of competing with foreign labor, any but mismatched?* I could go on through endless industries (including, amusingly, or perhaps not, law)... You get the point.

All unemployment in the future will include a much larger structural component than it did in the past because technology makes hands obsolete at an ever-quickening pace.

*Mismatched is used in its most literal sense for our autistic friend who will no doubt find some thin semantic hook on which to refute this. It is the actual term used in the definition of the term "structural unemployment."

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

The majority of it is structural. For instance, can you call millions of unemployed real estate and construction workers in this climate anything but mismatched? Can you call millions of unemployed manufacturing workers, with no hope of competing with foreign labor, any but mismatched?* I could go on through endless industries (including, amusingly, or perhaps not, law)... You get the point.

All unemployment in the future will include a much larger structural component than it did in the past because technology makes hands obsolete at an ever-quickening pace.

*Mismatched is used in its most literal sense for our autistic friend who will no doubt find some thin semantic hook on which to refute this. It is the actual term used in the definition of the term "structural unemployment."

It makes sense to talk about structural unemployment when one part of the economy is booming and another is contracting, and workers can't switch from one to the other. E.g., if the auto industry were on the skids and tech were booming, you would have a structural problem with auto workers not being able to retool and move to Silicon Valley. But that's not what we have. We have lack of demand everywhere. There's no mismatch -- there's no part of the economy that is strong. Calling that structural unemployment is a misnomer, because the problem has nothing to do with the structure of the economy.

[Adder]

Originally Posted by sebastian_dangerfield

The majority of it is structural. For instance, can you call millions of unemployed real estate and construction workers in this climate anything but mismatched?

First, this group is smaller than you seem to think.

Second, housing construction is now way behind household formation (which is also down due to the economy), such that with closer to normal credit conditions we would have a significant housing shortage.

Can you call millions of unemployed manufacturing workers, with no hope of competing with foreign labor, any but mismatched?*

These people largely stopped existing 30 years ago. Also, technology has been a greater factor in displacing them than foreign competition.

I could go on through endless industries (including, amusingly, or perhaps not, law)

Yes, you can tell all the little stories you want.

All unemployment in the future will include a much larger structural component than it did in the past because technology makes hands obsolete at an ever-quickening pace.

Thanks, Dr. Mathus

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

He's is contradicting you in a key way that you don't seem to see. Your assumption was that it's a zero-sum game, and that Keynesian policies are simply a transfer of economic activity that would happen later to the present. The point he's making is, that's wrong. Keynes says there are different equilibria which the economy might reach, and that absent government action there is a significant policy that everyone will be worse off when the economy reaches equilibrium. Keynesian policies don't just keep shit the same. That's the point.

I don't think it's a transfer at all. I think there is a natural business cycle and the natural tendency, in normal times, is toward growth. On the other side of the canyon there is always a wall of height roughly equivalent to the one off which the economy had fallen. Once the private sector kicks in and starts the boom/bust cycle again, the equilibrium is near what it was when the recession started, and it usually moves upward for a time from there. Then there's a recession, and the process repeats.

Keynesian policies are the bridge. Nothing more, nothing less. His point and mine don't clash. Ours is a disagreement in terms of degree. He says Keynesianism ensures the other side of the recession is at the same level. I don't think that's true. Keynsianism just speeds up the end of the recession, and picks winners. It keeps the status quo where if Hayek had the wheel, new winners buying the assets of losers would take over on a slower time table.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

It makes sense to talk about structural unemployment when one part of the economy is booming and another is contracting, and workers can't switch from one to the other. E.g., if the auto industry were on the skids and tech were booming, you would have a structural problem with auto workers not being able to retool and move to Silicon Valley. But that's not what we have. We have lack of demand everywhere. There's no mismatch -- there's no part of the economy that is strong. Calling that structural unemployment is a misnomer, because the problem has nothing to do with the structure of the economy.

The only jobs in the country are information, tech, finance, or medical care based. We've countless workers who have no skill set in these areas. These people are mismatched, and as Rain Man wisely even agreed in his reply, technology is going to wring many more of them out of the job market going forward.

The lack of demand is not evenly distributed. Not even close.

[Adder]

Originally Posted by sebastian_dangerfield

The only jobs in the country are information, tech, finance, or medical care based.

Services??

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

I don't think it's a transfer at all. I think there is a natural business cycle and the natural tendency, in normal times, is toward growth. On the other side of the canyon there is always a wall of height roughly equivalent to the one off which the economy had fallen. Once the private sector kicks in and starts the boom/bust cycle again, the equilibrium is near what it was when the recession started, and it usually moves upward for a time from there. Then there's a recession, and the process repeats.

Keynesian policies are the bridge. Nothing more, nothing less.

This is wrong. The point of Keynesian policies is that they're not just a bridge to where you would get to eventually. They help you get to a better place than you would otherwise. More like a subway than a bridge.

His point and mine don't clash. Ours is a disagreement in terms of degree. He says Keynesianism ensures the other side of the recession is at the same level. I don't think that's true. Keynsianism just speeds up the end of the recession, and picks winners. It keeps the status quo where if Hayek had the wheel, new winners buying the assets of losers would take over on a slower time table.

No no no. The first paragraph of that post again:

One of the most important ideas of 20th century economics was Keynes demonstration that Say's Law does not hold for whole economies. Say's law argued that economies will right themselves - tend to equilibrium - at full production. Keynes showed that will economies tend to equilibrium, they don't tend to equilibrium at what is called a "Pareto Optimal" state. That is the point where there are no "win-win" situations left, in specific terms no one's utility can be increased without an exactly equal decrease in someone else's utility. Sometimes the ship of an economy rights itself, by sinking to the bottom.

Keynes says you may reach equilibrium at less than full production. That's the point. You need Keynesian policies to get to full production instead of an inferior equilibrium.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

The only jobs in the country are information, tech, finance, or medical care based. We've countless workers who have no skill set in these areas. These people are mismatched, and as Rain Man wisely even agreed in his reply, technology is going to wring many more of them out of the job market going forward.

The lack of demand is not evenly distributed. Not even close.

When demand is down everywhere, you're not talking about structural employment, because there's no mismatch. I'm not saying there's no structural employment at all, but to look at our current situation and to call it structural employment is to see some trees and miss the forest.

A little Googling pulls up this -- a year old, but still sound.

[Adder]

So the Dow, S&P and NASDAQ all recouped yesterday's losses today. Maybe there was some credence to the margin call theory??

ETA: Or, yeah, so could be the Fed statement ("we could do stuff, and the economy sucks and all, but we ain't gonna just now, maybe later") could have inexplicably cheered some folks.

[Tyrone Slothrop]

More from Delong re the need for new Cossacks:

Too few American officials recognise the need to boost demand: THE financial crisis is what went wrong with the American economy.

As Richard Koo would say—as he has said over and over and over again—the US economy looks as one would expect an economy to look in the aftermath of a financial crisis.

Households think—correctly—that they have too much risky debt and that they are too poor for the sum of household spending and business investment to add up to enough demand to attain full employment. Open-market operations don't help: they have no effect on household or business assets because they are simply swapping one zero-yield government asset for another. The risky debt that companies could issue does not sell in terms that make companies happy to expand investment—how can it when households already feel overextended and will only buy risky assets at an attractive price? The economy will recover only as rapidly as households rebuild their balance sheets and so become confident, spending more on the one hand and financing risky business investment on the other—and that can take a long time.

Credit-worthy governments acting aggressively could greatly speed recovery from such a balance-sheet recession. The economy has not too much debt but rather too much risky debt: safe debt right now sells at unbelievably high prices. Credit-worthy governments can boost demand directly by borrowing and spending. Credit-worthy governments can boost demand indirectly by taking on tail risk—either via guarantees or swaps of its debt for risky debt—on terms that make it attractive for businesses to borrow and invest. Aggressive central banks can shift expected inflation upward and thus make households fear holding risky debt and equity less because they gear dollar devaluation more.

The US government could undertake all of these strategies for dealing with a balance-sheet recession, and I am highly confident that at least one would work.

But it won't.

In the late spring of 2009, Barack Obama had five economic policy principals: Tim Geithner, who thought Obama had done enough to boost demand and needed to turn to long-run deficit reduction; Ben Bernanke, who thought that the Fed had done enough to boost demand and that the administration needed to turn to deficit reduction; Peter Orszag, who thought the administration needed to turn to deficit reduction immediately and could also use that process to pass (small) further stimulus; Larry Summers, who thought that long-run deficit reduction could wait until the recovery was well-established and that the administration needed to push for more demand stimulus; and Christina Romer, who thought that long-run deficit reduction should wait until the recovery was well-established and that the administration needed to push for much more demand stimulus.

Now Romer, Summers, and Orszag are gone. Their successors—Goolsbee, Sperling, and Lew—are extraordinary capable civil servants but are not nearly as loud policy voices and lack the substantive issue knowledge of their predecessors. The two who are left, Geithner and Bernanke, are the two who did not see the world as it was in mid-2009. And they do not seem to have recalibrated their beliefs about how the world works—they still think that they were right in mid-2009, or should have been right, or something.

I fear that they still do not see the situation as it really is.

And I do not see anyone in the American government serving as a counterbalance."

[Greedy,Greedy,Greedy]

Originally Posted by Adder

So the Dow, S&P and NASDAQ all recouped yesterday's losses today. Maybe there was some credence to the margin call theory??

ETA: Or, yeah, so could be the Fed statement ("we could do stuff, and the economy sucks and all, but we ain't gonna just now, maybe later") could have inexplicably cheered some folks.

Or maybe the ECB effectively playing the intervention game in Europe with their cute little weapons combined with the feds acknowledgement that they might pull up their big guns and really play the game (after their people got back from vacation).... After all, isn't Europe still the bigger recession threat (thanks no doubt in part to the extended austerity)?

Also, the really incredibly wretched polling numbers for the Rs precededed the market rise. Maybe the market is thinking sanity has some leverage on the crazies, because people seem to be noticing that they're crazies?

[Greedy,Greedy,Greedy]

I've decided to be nice to some of the idiot Rs who post here for a while, as long as you don't talk about caddies.

[Tyrone Slothrop]

Originally Posted by Greedy,Greedy,Greedy

the idiot Rs who post here

I don't think anyone who posts here will admit to being a R.

[Greedy,Greedy,Greedy]

Originally Posted by Tyrone Slothrop

I don't think anyone who posts here will admit to being a R.

Sorry, I meant idiot tea partiers. Thanks for the correction.