Pepper sprayed for public safety.

[Greedy,Greedy,Greedy]

Originally Posted by Tyrone Slothrop

Wow. Someone needs to read Keynes.

[Tyrone Slothrop]

Originally Posted by Greedy,Greedy,Greedy

Wow. Someone needs to read Keynes.

I don't think that's the problem. This is the single best thing I've read about the economy in the last few years:

We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives.

Usually, economists are admirably catholic about the preferences of the objects they study. They infer desire by observing behavior, listening to what people do more than to what they say. But with respect to national polities, macroeconomists presume the existence of an overwhelming preference for GDP growth and full employment that simply does not exist. They act as though any other set of preferences would be unreasonable, unthinkable.

But the preferences of developed, aging polities — first Japan, now the United States and Europe — are obvious to a dispassionate observer. Their overwhelming priority is to protect the purchasing power of incumbent creditors. That’s it. That’s everything. All other considerations are secondary. These preferences are reflected in what the polities do, how they behave. They swoop in with incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary. The same preferences are reflected in what the polities omit to do. They do not pursue monetary policy with sufficient force to ensure expenditure growth even at risk of inflation. They do not purse fiscal policy with sufficient force to ensure employment even at risk of inflation. They remain forever vigilant that neither monetary ease nor fiscal profligacy engender inflation. The tepid policy experiments that are occasionally embarked upon they sabotage at the very first hint of inflation. The purchasing power of holders of nominal debt must not be put at risk. That is the overriding preference, in context of which observed behavior is rational.

I am often told that this is absurd because, after all, wouldn’t creditors be better off in a booming economy than in a depressed one? In a depression, creditors may not face unexpected inflation, sure. But they also earn next to nothing on their money, sometimes even a bit less than nothing in real terms. “Financial repression! Savers are being squeezed!” In a boom, they would enjoy positive interest rates.

That’s true. But the revealed preference of the polity is not balanced. It is not some cartoonish capitalist-class conspiracy story, where the goal is to maximize the wealth of exploiters. The revealed preference of the polity is to resist losses for incumbent creditors much more than it is to seek gains. In a world of perfect certainty, given a choice between recession and boom, the polity would choose boom. But in the real world, the polity faces great uncertainty. The policies that might engender a boom are not guaranteed to succeed. They carry with them a short-to-medium-term risk of inflation, perhaps even a significant inflation if things don’t go as planned. The polity prefers inaction to bearing this risk.

This preference is not at all difficult to understand. The ailing developed economies are plutocratic democracies. “The people” do have power, but influence is weighted in a manner correlated with wealth. The median influencer in these economies is not a billionaire, but an older citizen of some affluence who has mostly endowed her own future consumption. She would like to be richer, of course. But she is content with her present wealth, and is panicked by the prospect of becoming poorer. For such a person, the depression status quo is unfortunate but tolerable. The risks associated with expansionary policy, on the other hand, are absolutely terrifying.

The revealed preference of my polity is not my personal preference. Perhaps that is because I’m an idealist, and I actually care about the misery provoked by precarity and unemployment. Perhaps it’s simply because I’ve not yet endowed my own future consumption, and I’m scared. Regardless, I object. Although I understand where it comes from, I detest the preference for depression revealed by my polity. Perhaps you do too.

But if we want to change the behavior of the polity, it’s not enough to argue over clever policies that, if implemented, might do the trick. We’ve got to change its preferences, which means either buying off the median influencer, or changing her identity via political struggle. Alternatively, we can wait until what are now problems of aggregate demand morph into supply problems (after people become unemployable and capital decays), or into threats of political and social unrest. The median influencer may change her views if tight supply makes goods costly despite fiscomonetary conservatism. Or if her neighborhood is on fire. But I’d prefer we avoid all that, and take a more proactive route.

In the meantime, we have to recognize that what we are experiencing is not a technical failure. It is not “magneto trouble”. We, collectively, are making a choice. The task before us is to change our mind.

Steve Randy Waldman (links omitted)

[Adder]

Originally Posted by Tyrone Slothrop

I don't think that's the problem. This is the single best thing I've read about the economy in the last few years:



Steve Randy Waldman (links omitted)

That is excellent.

But someone still needs to read Keynes.

[Tyrone Slothrop]

Originally Posted by Adder

That is excellent.

The only tweak I would make is to stress that the preferences are revealed on the margin, not as absolutes. No matter how low inflation drops, our institutions are unwilling to risk any real increase.

[Adder]

Originally Posted by Tyrone Slothrop

The only tweak I would make is to stress that the preferences are revealed on the margin, not as absolutes. No matter how low inflation drops, our institutions are unwilling to risk any real increase.

So we need to adopt the Less/Sebby approach of rubbing out grandmas?

[Tyrone Slothrop]

Originally Posted by Adder

So we need to adopt the Less/Sebby approach of rubbing out grandmas?

I guess it depends on why you think creditors have such sway.

[LessinSF]

Originally Posted by Adder

So we need to adopt the Less/Sebby approach of rubbing out grandmas?

No, rub out the real big creditor - China.

"The solution to too much debt is more debt." Tyrone Adder Slothop.

LessinAswan, Egypt

[Adder]

Originally Posted by LessinSF

No, rub out the real big creditor - China.

"The solution to too much debt is more debt." Tyrone Adder Slothop.

China is nowhere near as big a creditor as grandma (collectively).

As to your second paragraph, I don't know how it is you conflate "more inflation" with "more debt."

Granted, I also reject your contention that the "problem" is debt and that all debt is created equal.

[Tyrone Slothrop]

Originally Posted by LessinSF

No, rub out the real big creditor - China.

"The solution to too much debt is more debt." Tyrone Adder Slothop.

LessinAswan, Egypt

The problem is not too much debt, and I think it's lunacy to suggest that China is the reason that we, Europe and Japan keep protecting creditors.

[Greedy,Greedy,Greedy]

Originally Posted by LessinSF

No, rub out the real big creditor - China.

"The solution to too much debt is more debt." Tyrone Adder Slothop.

LessinAswan, Egypt

"The solution to not enough growth is less growth." -- Lessinlala

[LessinSF]

Originally Posted by Tyrone Slothrop

The problem is not too much debt, and I think it's lunacy to suggest that China is the reason that we, Europe and Japan keep protecting creditors.

Agreed that we should, and should have, let more shitty lenders fail. Rubbing out China was a joke, but I should have known you wouldn't see that.

I thought one of the points being made was attacking Britain's austerity program, which is not about inflation, it is about reducing their debt. And I was paraphrasing PM Cameron from yesterday on just that subject - "The one thing we mustn’t do is abandon spending and deficit reduction plans, because the solution to a debt crisis cannot be more debt.” http://www.telegraph.co.uk/finance/f...lls-0.2pc.html .

It may have been too subtle, though, since only I am being forced to watch the BBC to get my news.

LessinAswan

[Greedy,Greedy,Greedy]

Originally Posted by LessinSF

Agreed that we should, and should have, let more shitty lenders fail. Rubbing out China was a joke, but I should have known you wouldn't see that.

I thought one of the points being made was attacking Britain's austerity program, which is not about inflation, it is about reducing their debt. And I was paraphrasing PM Cameron from yesterday on just that subject - "The one thing we mustn’t do is abandon spending and deficit reduction plans, because the solution to a debt crisis cannot be more debt.” http://www.telegraph.co.uk/finance/f...lls-0.2pc.html .

It may have been too subtle, though, since only I am being forced to watch the BBC to get my news.

LessinAswan

Ah, yes, wisdom from the man who is turning the recession into a depression in his country. Isn't it completely clear at this point that Britain has royally screwed up this recession?

Someone still needs to read Keynes. Big lesson of the Great Recession: Keynes ain't done yet.

[Tyrone Slothrop]

Originally Posted by LessinSF

Agreed that we should, and should have, let more shitty lenders fail. Rubbing out China was a joke, but I should have known you wouldn't see that.

I thought one of the points being made was attacking Britain's austerity program, which is not about inflation, it is about reducing their debt. And I was paraphrasing PM Cameron from yesterday on just that subject - "The one thing we mustn’t do is abandon spending and deficit reduction plans, because the solution to a debt crisis cannot be more debt.” http://www.telegraph.co.uk/finance/f...lls-0.2pc.html .

It may have been too subtle, though, since only I am being forced to watch the BBC to get my news.

LessinAswan

I was relying on the BBC and ESPN Asia last week for my news, and I felt very subtle.

The problem with letting banks fail is that in comparison to other business failures, the effects are much broader. The banks are holding the money of a lot of other companies, and if the bank goes down with their money, it screws them up as well. This is why government officials are so much more apt to throw money at banks to keep them going, and why they ought to be regulated more in good times.

Originally Posted by LessinSF

Agreed that we should, and should have, let more shitty lenders fail. Rubbing out China was a joke, but I should have known you wouldn't see that.

I thought one of the points being made was attacking Britain's austerity program, which is not about inflation, it is about reducing their debt. And I was paraphrasing PM Cameron from yesterday on just that subject - "The one thing we mustn’t do is abandon spending and deficit reduction plans, because the solution to a debt crisis cannot be more debt.” http://www.telegraph.co.uk/finance/f...lls-0.2pc.html .

It may have been too subtle, though, since only I am being forced to watch the BBC to get my news.

LessinAswan

Yeah, Cameron and the Tories are really doing a hell of a job over there. I'm sure the UK is going to turn the corner any minute now and those austerity programs just need more time to work. Just like interest rates in the US are about to skyrocket because of QEs 1 through whatever -- any minute now.

"The solution to a debt crisis cannot be more debt" makes a nice bumper sticker, and it's about as valuable an observation in this context as "visualize whirled peas" is in a discussion of nuclear proliferation.

[Tyrone Slothrop]

Definitive proof that Al Qaeda has actually won.