The Return of Depression Economics and the Crisis of 2008
Reading The Return of Depression Economics, I have to admit I was surprised. Paul Krugman, 2008 Nobel Prize winner in economics and New York Times columnist, isn’t as feisty and partisan in the book as he is in his column. Moreover, he presents some useful information about the many economic collapses that have occurred in the past 20 years.
But, alas, in the end Krugman resorts to the arguments of the great economic cranks of history, from Silvio Gesell to John Maynard Keynes. He’s like the mechanic who expertly describes a problem with your fuel pump—then insists your car needs more gas. If the tank is full, he tells you to attach an auxiliary tank.
In other words, Krugman is still the one-trick pony featured in the Times. Whatever the problem, his solution is always the same: inflation. It shows up in the example he uses throughout the book, a 1970s babysitting co-op on Capitol Hill.
The baby-sitting “economy” is a co-op in which the couples agree to babysit one another’s children for coupons (babysitting credits) instead of dollars. But Krugman says this scheme ran into problems during the winter. The couples hoarded their coupons (that is, they refused to hire babysitters) while trying to get more coupons (sell babysitting services) so they would be able to go out more often in the summer.
Unfortunately, with everyone pursuing the same strategy at once—trying to sell without buying—Krugman writes, the co-op went “into a recession.” But never fear: This babysitting “liquidity trap” ended when the directors of the co-op printed and distributed more coupons and everyone lived happily ever after.
The problem with drawing general lessons from this situation should be obvious. A babysitting co-op in which a few people with similar preferences produce one good cannot be a model for a complex economy. But since Krugman—like other Keynesians—believes an economy is a crude, simple mechanism controlled by “aggregate demand,” this is the best he can do.
Writing about this “fix” for the co-op, Krugman says, “Recessions, in other words, can be fought simply by printing money—and can sometimes (usually) be cured with surprising ease.”
Even though I have read many of Krugman’s columns and was not surprised by this answer, it is nonetheless shocking to read that a Nobel laureate actually believes that we can “cure” almost any economic downturn by cranking up the printing presses.
That’s bad enough, but Krugman also likes to rewrite economic history.
He says our present economic and financial troubles are due to free markets and financial deregulation. He argues that the cartelized financial system created during the New Deal should have remained unchanged, even though it was actually in crisis back in 1980. The alleged “deregulation,” however, did not create free markets but expanded moral hazard by increasing deposit insurance and empowering the Fed to “backstop” financial market losses, which invited reckless behavior on Wall Street. All this federal interference with both free markets and an authentic profit-and-loss system resulted, predictably if sadly, in the current financial meltdown.
From blaming the Great Depression in part on the gold standard to caricaturing free markets, Krugman places himself squarely in the socialist-interventionist camp. He writes: “Some people say that our economic problems are structural, with no quick cure available; but I believe that the only important structural obstacles to world prosperity are the obsolete doctrines that clutter the minds of men.” Unfortunately Krugman counts freedom among them.
Comment by pjarhead on 5 December 2009:
So why not just give every citizen a treasury printing press. The we can print all the money we need, no more defaulted mortgages, because we won’t ever have to borrow money to buy anything. Hey, we won’t even have to work to earn money, and EVERYONE can be as rich as they want. UTOPIA!!!!!
Comment by jamesvkruse on 16 December 2009:
What’s his explanation for the collapse of the Weimar Republic? According to people like him, shouldn’t Germany have had a great economy as a result of all that money printing?
Pingback by Krugman Without a Clue on 17 January 2010:
[...] Unfortunately, Krugman gave us his tired analysis, and in doing so, he also demonstrated that he was clueless himself about the stagflation of the 1970s. (After all, Krugman being a True Believing Keynesian believes that we should not have both rising unemployment and rising unemployment, since he already has written elsewhere that almost any economic problem can be solved by…printing more money.) [...]
Pingback by Keynesian Krugman Without a Clue on 5 February 2010:
[...] Unfortunately, Krugman gave us his tired analysis, and in doing so, he also demonstrated that he was clueless himself about the stagflation of the 1970s. (After all, Krugman being a True Believing Keynesian believes that we should not have both inflation and rising unemployment, since he already has written elsewhere that almost any economic problem can be solved by…printing more money.) [...]
Comment by Don Mitchel on 30 August 2010:
I believe Mr. Krugman suggested the Federal Reserve should follow a policy of slight increase in inflation. Would it not be better for national debt, if the Federal Reserve did nothing and this inflation could be created by legislation to protect our waters? The following excerpt is from a Dec 2009 report for Congress about national legislation and ballast water.
“Although estimates of the costs of ballast treatment may be imprecise and vary from vessel to
vessel, there is some general agreement on average costs.14 For example, it may cost an estimated $400,000 per vessel for modification of container/bulk vessels to use onshore ballast water treatment facilities at California ports. More generally, the cost of retrofitting vessels to treat
ballast water has been estimated at between $200,000 and $310,000 per vessel for mechanical
treatment and around $300,000 for chemical treatment.15 Most of this expense will be borne by
foreign shipping companies, as the U.S. flag fleet is a small percentage of the global fleet,16 and
likely passed along to consumers of products imported on these ships.”
Although this type of legislation may hurt our current largest employers, in the long run it may even help produce jobs that will stay in America, if implemented fast enough. The longer we delay, we are allowing the foreign shipping industry to prepare for “change” while Americans are out of work. Currently the only work being done is another delay for a twenty year Coast Guard phase in and some ships are going towards that direction now, because the life of their investment will be assured despite better technology?
If this continues on for another six years, there will not be much hope for America ever again to become a cost competitive manufacting nation again.
The creation of enforceable legislation should be our main concern, as the main expense will be borne by foreign ships. We should not have a military plan offering bribes to foreign economic interest to act installing what is needed to protect our water.
Comment by Don Mitchel on 25 September 2010:
Our country is an experiment in cultural globalization that is not capable of providing jobs for its own people. The past 20 year period is not about some grand plan to pull the world up, by the economic help of a global economy interacting for the common good. It is about looking the other way compromising our values to finance agendas, create personal prestige, and direct revenue to political origins. Economic globalization by a free market society that all people can benefit from can not be achieved by interlacing our countries economy with a communist country that controls the size of their middle class workers to benefit their currency valuation, while controlling the distribution of wealth to the privileged few. Our country has become so dependent now, we can not act with legislation to keep our water clean from foreign ships bringing in foreign manufactured goods, at the expense of American jobs. Ballast water laws affecting mostly foreign ships and the price of foreign manufactured goods according to a 2009 report for congress, would hurt the plan for economic globalization which will carry our country on the coat tails of a communist country. So what dose this administration do? It offers incentives to foreign ships bringing foreign goods into our country, if they decide to volunteer to install technology to protect our water. Sadly the time has come for our country to face the piper, we need national ballast water legislation as one step to protecting our country from economic domination by a country who dose not care about our environment or believe in our core values.
Comment by Anonymous on 10 November 2010:
Despite mid-term elections our President left immediately on a tour of cheap manufacturing countries offering them reassurance and creating new trade agreements while dancing in celebration, rather than work with fellow Americans (regardless of party) on domestic issues. With ballast water legislation, it is known that this type of legislation would raise the cost of foreign imports making America more cost competitive. However while addressing foreign people who help supply our largest employers cheap foreign made goods, he did mention that he may now have to work with “Republicans” on domestic issues as a results of mid-terms. Americans can only wonder, after waiting two years if he was even referring to American jobs.
New York Ballast water laws set for implementation in the presidential election year 2012 affecting all Great Lakes States and Canada, and the way these laws are handled could prove to affect our future national ballast water policy and our freedom from economic domination by a communist country while protecting our environment for future generations. Unfortunately our countries politicians have a long history of ignoring human health and the dangers ballast water presents. Back in the 1990′s President Clinton pushed for trade treaties to help import cheap foreign made products under the guise that economic globalization would be good for America, despite inadequate ballast water protection. This policy was pushed when thousands were dying in South America from cholera virus correlated to ballast water. Now two decades later we are dependent on foreign imports to support are largest employers, and our largest employment opportunity, to achieve the American dream is a store clerk.
Haiti, cholera?? American politicians who support economic globalization with a communist country and the national media, will never allow the cause of cholera in Haiti to become main stream news, if it is found to originate from ships.
This cost of human life will only be considered collateral damage because to admit tar balls in lake Pontchartrain or death from pathogens in ballast water could prove to be embarrassing and create pressure on this administration to act sooner with stronger regulations. This would delay the economic recovery plan, to print money for stimulus while waiting for global economic expansion to carry our economy once again dependent on China till the next global economic crisis.
They say Americans care about their freedom more than anything, but unfortunately most do not realize how our freedom has already been compromised by two political dynasty,s creating dependence on a communist country for our countries prosperity. America’s policy of economic globalization now allows for China to determine the amount of have and have not’s in both of our countries evident by this administration trying to convince them to manipulate their currency value, in order to create jobs in our country. To achieve national ballast water legislation it will take direction from a president interested more in America, than being popular on the world stage.
Comment by don on 15 December 2010:
If we do not act to implement ballast water laws we could be waiting for an international solution forever, and lose forever a chance to create jobs, which increases government revenue and can eventually help the economic mess, that is making us dependent on China.
The best time to have enacted ballast water legislation was in 2008 when h.r.2830 passed the House 395-7 at the beginning of the global economic crisis when ship traffic, that is needed in economic globalization was curtailed. Unfortunately this administration chose to delay meaningful legislation with another study for a still purposed military plan of 20 plus years.
Knowing a report prepared for Congress in 2009 stated that legislation calling for mandatory technology installation would increase the cost of foreign manufactured products, this administration made a conscious choice to not address the issue passing up the opportunity to again place America on a level playing field in manufacturing cost. Although some forms of economic globalization are inevitable and beneficial, globalization for economic reasons, at the expense of human health and the environment of future generations is nothing more than economic greed.
In the millennium report prepared for the army in 2005-2006 detailing the military role with the environment it is made clear that international treaties are often thwarted by foreign countries and economic interest. Environmental issues are also cited as the cause of military conflicts. Sadly they also detail the governments policy will be to continue to follow the international communities lead, because of interdependency with foreign economies.
This Administration Ocean initiatives policy states that all international treaties that have been ratified and those presently being adhered to will be honored. This means in its present form the ballast water provision in the International Law of the Sea treaty will apply for the waters of the United States at the Federal level. The millennium report also states that many problems exist with coastal countries and the provisions in international treaties.
Fortunate for the environment, is pressure being applied by the individual states of our country enacting their own laws as a results of this administrations failure and the pressure of environmentalist, technology is now available to address ballast water.
Unfortunately the continued failure of this administration to act with meaningful ballast water regulation has the shipping industry procrastinating on the economic investment to retrofit with technology quickly. As more shipping companies began to retrofit slowly the effect that logistics and cost would have to again create a cost competitive America will be forever lost, as human health and our environment continue suffering while waiting for an international solution or a purposed 20 year Coast Guard plan.
Our Great Lakes are also in danger from terrorist attacks using ballast systems according to Homeland Security as stated on their own web site.
Ships used exclusively on the Great Lakes should also be required for technology as it is now know from government studies that influenza, h1n1, bird flue, and mutations occur in FRESH water lakes and glacier and moved by birds. Ballast water should not facilitate this movement
Comment by Don Mitchel on 21 December 2010:
Even though NY ballast water laws do not go into effect until 2012 (probably with a pass to delay installation if they can show they were not able) and our presidents national military delay plan not suppose to address the issue until sometime in the middle of 2011, shipping interest are already starting to put pressure on NY’s future governor to not implement the only meaningful regulations ever created that protect all the Great Lakes States equally. These regulations would prevent further destruction while also adequately protecting against human bacteria and virus. Those who hailed NY’S laws and believed, the huge expense endured by NY state as a results of this administrations failure to address ballast water with adequate regulation during these times of economic crisis may find once again just wasted tax dollars. We can only hope and pray Governor is not weak and caves in to the enormous political pressure that the lobby from the shipping industry is going to apply, as it has just started. The shipping industry has been out to kill state regulation from the beginning as was evident during their formulations when industry web articles referred to them as a “pipe dream”. They know as the military millennium report for the states international regulations will be slow coming and easily disregarded.
Unfortunately those who care about our countries environment, human health and the economic domination that foreign shipping has over our country because of globalization, will not be able to lobby with the economic clout that the foreign shipping industry has, and with our president and secretary of state being globalist, the pressure on governor Coumo will be enormous. NY laws are not just about NY or the Great Lakes, but they effect the economy of our whole country and are probably the last meaningful impediment to our presidents military plan coinciding with the global plan for ballast water. Without NY ‘S geographic position providing equal regulation, individual state laws of other Great Lakes States will not provide equal economic status between ports when dealing with foreign economic interest.
When I started mailing letters to politicians several years ago the best advice I received was from a lady at the post office, who did not know the issue I was trying to address, but realized I was trying to work for “change”, she said “remember a politician will never do anything unless it benefits themselves” It will be interesting to see if Governor Coumo cares more about his career or real long term “change” for America. Regardless of what happens, being the President ask Governor Patterson to step aside environmentalist should remember Governor Paterson despite the cost, monetarily and politically, did the right thing for all Americans on the issue of ballast water.
With 911 and The Department of Homeland Security acknowledging by their web site, their need to be involved with ballast water, Americans should have realized we need to “change” the way we do business in the world.
Comment by Don Mitchel on 22 December 2010:
At the end of 2008 when the demise of h.r.2830 was assured for the start of this administration, all of the states rattle their swords with a predictable response to create meaningful legislation for ballast water, but the foreign shipping industry knew, and said, it was just a “pipe dream” as they knew they had won and a policy following an international approach,in favor of their economic business interest would prevail, instead of any enforceable, meaningful American law to protect all American waters equally. Now Wisconsin one of the last of the Great Lakes States with a loud bark is considering a policy to be the first to cater to foreign shipping. NY ballast water laws will be the last wasted money this administration will need to create with pressure to cave in favor of a weak military plan. Then this administration can proceed with a slow military delay program helping ease the economic pain to foreign shipping, forever giving up the opportunity to put America on a level playing field in manufacturing cost.
California laws, although tough have historically already, been shown ineffective, because of the cost to make them meaningful through enforcement. This is obvious as the environmentalist, still are fighting for protection, from the ballast water problems that lurk beneath the sea. Unfortunately invasive s, human bacteria and virus, introduction will also be delayed for the whole world with a slow Federal policy or an international plan. As we continue to wait until sometime in the middle of 2011 for the military delay plan, watch NY and their laws, as it will be the tell, to the future, of any “change” in the way America dose business in the world.
Unless comprehensive Federal policy (preferably law) is created directing the Coast Guard to enforce strong regulation, (law) the historic attitude of disinterest the Coast Guard has displayed will continue considering this an International Maritime Organization problem, allowing international shipping to circumvent compliance with environmental agreements, as is noted in the military millennium report discussing environmental international agreements and the compliance. The idea the EPA will enforce anything without an infrastructure, is a joke as was illustrated by their lack of enforcement for tar balls in Lake Pontchartrain and at Texas beach’s has already shown.
Comment by Don Mitchel on 30 December 2010:
It has been stated by those who favor ballast laws, that do not impose cost on shipping, using the ocean flush, that compliance with the ocean flush has prevented new introductions of invasive s. They talk of requirements equal to drinking water, good idea since our children swim getting water in their mouth, up their nose, etc. Perhaps if compliance is being adhered by the shipping industry, notorious for US tax evasion by registering ships in different countries, they would be willing to drink some of it to save on testing and insure confidence they are continuing to enforce regulations.
The salt water Flush is known to be affective only for some fresh water problems and it is known that sludge, bio films, cysts, etc, still contain and carry virus and pathogens even if the costly, dangerous, ineffective ocean flush is done without short cuts by foreign sea captains while in US waters. How is compliance in third world countries where there is no infrastructure to test foreign flag ships going to be insured so they do not continue to introduce deadly human disease such as cholera, which is not stopped by an ocean flush?
Since 2006 there has been quite a bit of scrutiny given to ships ballast water. Foreign sea captains have been more compliant, but without mandatory technology installation, when the hoopla is over the often dangerous, ineffective, costly ocean flush will again be regarded by industry as a cost, and it will again be business as usual.
Concerns already created in the great lakes should not be mixed through out the lakes. These existing algae problems etc., should and could be contained with mandatory technology installation. The procrastination to equip with technology is about money, not human health and the environment.
If ballast water technology creates an economic hardship for shipping, perhaps stimulus to the part of the shipping industry that will fly the US flag, not trying to avoid paying US tax, would be in order.
Lake Pontchartrain should be the wake up call that these systems are capable of delivering other problems for human health and the environment besides living organisms. Chemicals, drugs, nuclear waste water are all reasons the states need comprehensive Federal protection, as the states obviously have been unable to protect themselves.
The Arctic is historically known as a clandestine dumping ground for governments and industry we have no idea, if as the ice melts, these non living pollutants will be induced into new shipping lanes now opening.
We need comprehensive Federal law but,
unfortunately China and South Korea are the largest ship builders in the world competing with each other and environmentalist efforts may be futile, as this administration may not act significantly on a Federal level, because they need China to keep its legacy of involvement in the Korean war caged, it appears South Korea leads in ballast water involvement, which may have created a scenario where this administration is scared and afraid to act, because of upsetting China.
NY laws are significantly important as they currently are the only way, to force these tax dodgers in the shipping industry, to spend the money required to protect all America’s water forever, equally from invasive s, human bacterial pathogens and virus.
Comment by don on 21 August 2011:
China’s manufacturing need is to import oil from South America with a dirty water trail and carbon footprint, then using it in manufacturing while hiding emissions, before shipping foreign goods into America with another trail of pollution. Mandating instalation of technology to protect our air and water would help slow global warming and eliminate pathogenic material released.
Whether you believe in global warming or not, the moral issue is pollution with pathogenic material. Pathogenic materials cause disease and KILLS PEOPLE, both in water and air. Allowing foreign ships bringing foreign made goods into America, to discharge pathogenic material in both ballast water and air emissions is putting American health at risk and steals American jobs, so foreign shipping can save money. The Federal government has not been capable of addressing the problem because our leaders have created an America dependent on a communist country and their control of the global economy for both consumer goods and to finance of entitlements. This provides service jobs in the big box stores of foreign made goods, that have become our largest employers.
We need a president who cares more about the future of our children’s health and providing quality jobs for the American dream, rather than the building of a village style globalist world order run by international buisness being in charge of increaseing job numbers for America, with low paying service jobs. Strong environmental protection requiring mandatory environmental technology installation for foreign ships in American waters would keep Americans safe and help create cost competitive manufacturing jobs.
In a day when many Americans believe all regulations hurt the American economy, this is one way going green can be economically viable. If not for our globalist politicians going green could help secure Americas freedom.
Pingback by Krugman: Mises was insane (and so is Ron Paul) « LewRockwell.com Blog on 15 November 2011:
[...] Because a baby-sitting co-op in Washington, D.C., allegedly printed more baby-sitting coupons which "solved" its problem of "lack of aggregate demand" during the winter months. I'm not kidding. This is what masquerades as "elite" academic economics [...]
Pingback by Krugman smears Ron Paul and Austrian economics « The LP 72980/The LP 999 Blog on 16 November 2011:
[...] Because a baby-sitting co-op in Washington, D.C., allegedly printed more baby-sitting coupons which “solved” its problem of “lack of aggregate demand” during the winter months. I’m not kidding. This is what masquerades as “elite” [...]